FRITZ COMPANIES, INC. FORM 10-Q
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 February 29, 2000
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20548
FRITZ COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3083515
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
706 Mission Street, Suite 900, San Francisco, California 94103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 904-8360
Not applicable
(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.[X] Yes [ ] No
As of March 27, 2000 there were 36,625,000 shares of common stock outstanding.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Independent Auditors' Review Report 3
Condensed Consolidated Balance Sheets as of February 29,
2000 and May 31, 1999 4
Condensed Consolidated Statements of Operations for the three
and nine months ended February 29, 2000 and February 28, 1999 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended February 29, 2000 and February 28, 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Market Risk Disclosure 17
PART II. OTHER INFORMATION 19
SIGNATURES 20
EXHIBIT INDEX 21
<PAGE>
Independent Auditors' Review Report
Board of Directors and Stockholders
Fritz Companies, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Fritz
Companies, Inc. and subsidiaries (the Company) as of February 29, 2000, and the
related condensed consolidated statements of operations for the three and nine
month periods ended February 29, 2000 and February 28, 1999 and the condensed
consolidated statement of cash flows for the nine month periods ended February
29, 2000 and February 28, 1999 included in the Company's Form 10-Q. These
condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Fritz Companies, Inc. and
subsidiaries as of May 31 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated June 28, 1999, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of May 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
San Francisco, California
March 29, 2000
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
February 29, May 31,
2000 1999
---------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 75,274 $ 50,599
Accounts receivable, net of allowance for doubtful
Accounts of $20,764 in February 2000 and $20,466 in May 1999 444,542 396,640
Deferred income taxes 16,447 16,461
Prepaids and other current assets 13,429 17,860
------------- ------------
Total current assets 549,692 481,560
------------- ------------
PROPERTY AND EQUIPMENT - NET 104,533 103,535
------------- ------------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $24,346 in February
2000 and $21,362 in May 1999 109,076 112,666
Deferred income taxes 21,438 13,395
Other assets 15,292 15,752
------------- ------------
Total other assets 145,806 141,813
------------- ------------
TOTAL ASSETS $ 800,031 $ 726,908
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term borrowings $ 2,783 $ 4,333
Accounts payable 254,646 255,706
Accrued liabilities 112,071 87,562
Income tax payable 14,664 15,348
------------- ------------
Total current liabilities 384,164 362,949
------------- ------------
LONG-TERM OBLIGATIONS 129,312 89,606
OTHER LIABILITIES 10,711 10,271
------------- ------------
TOTAL LIABILITIES 524,187 462,826
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share; 60,000 shares
Authorized, 36,604 shares issued and outstanding,
(36,420 shares issued and outstanding as of May 31,1999) 366 364
Additional paid-in capital 141,146 138,369
Treasury stock - at cost (174)
(174)
Retained earnings 158,106 144,437
Accumulated other comprehensive loss (23,600) (18,914)
------------- ------------
Total stockholders' equity 275,844 264,082
============ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 800,031 $ 726,908
============= ============
See accompanying notes to condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended,
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE $ 382,042 $ 317,553 $ 1,200,196 $ 1,041,828
FREIGHT CONSOLIDATION COSTS 233,557 182,639 740,337 608,052
-------------- ------------ ------------- --------------
NET REVENUE 148,485 134,914 459,859 433,776
-------------- ------------ ------------- --------------
OPERATING EXPENSES
Salaries and related costs 88,434 85,474 266,406 255,392
General and administrative 56,866 52,433 164,189 156,543
CHB Consolidation Costs 3,480 0 3,480 0
-------------- ------------ ------------- --------------
Total operating expenses 148,780 137,907 434,075 411,935
-------------- ------------ ------------- --------------
INCOME (LOSS) FROM OPERATIONS (295) (2,993) 25,784 21,841
OTHER EXPENSE (1,514) (1,357) (5,383) (3,797)
-------------- ------------ -------------- --------------
INCOME (LOSS) BEFORE TAX EXPENSE (1,809) (4,350) 20,401 18,044
INCOME TAX EXPENSE (BENEFIT) (375) (1,392) 6,732 5,774
-------------- ------------ ------------- --------------
NET INCOME (LOSS) $ (1,434) $ (2,958) $ 13,669 $ 12,270
============== ============ ============= ==============
Weighted average shares outstanding - Basic 36,614 36,277 36,577 36,144
============== ============ ============= ==============
Earnings (loss) per share - Basic $ (.04) $ (.08) $ .37 $ .34
============== ============ ============= ==============
Weighted average shares outstanding - Diluted 36,748 36,396 36,762 36,293
============== ============ ============= ==============
Earnings (loss) per share - Diluted $ (.04) $ (.08) $ .37 $ .34
============== ============ ============= ==============
See accompanying notes to condensed consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
February 29, February 28,
2000 1999
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,669 $ 12,270
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 22,179 20,072
Deferred income taxes (8,029) (3,031)
Stock compensation 1,432
-
Other 1,255 851
Effect of changes in:
Receivables (47,902) 23,087
Prepaid expenses and other assets 4,431 4,087
Payables and accrued liabilities 24,530 (5,769)
----------------- -----------------
Net cash provided by operating activities 52,999
10,133
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (20,522) (25,281)
Acquisitions, net of cash acquired (272) (1,426)
Payment of acquisition related debt (1,477) (1,538)
Proceeds from sale of fixed assets 295 2,278
Purchase of treasury stock (174)
Other (597) (7,659)
----------------- -----------------
Net cash used in investing activities (22,573) (33,800)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 81,444 8,390
Payment of debt (41,388) (20,231)
Other 906 1,148
----------------- -----------------
Net cash provided (used) by financing activities 40,962 (10,693)
----------------- -----------------
Foreign currency translation effect on cash (3,847) (2,766)
----------------- -----------------
INCREASE IN CASH AND EQUIVALENTS 24,675 5,740
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 50,599 53,935
----------------- -----------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 75,274 $ 59,675
================= =================
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 17,682 $ 10,863
================= =================
Interest paid $ 5,928 $ 4,281
================= =================
</TABLE>
See accompanying notes to condensed consolidated
financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
1. GENERAL
The accompanying condensed consolidated financial statements of Fritz
Companies, Inc. and subsidiaries (the Company) for the three and nine
months ended February 29, 2000 and February 28, 1999 are unaudited and, in
the opinion of management, contain all adjustments, consisting only of
normal and recurring adjustments necessary for a fair presentation of the
results of such periods.
The significant accounting policies followed by the Company are
described in Note 1 to the audited consolidated financial statements for
the year ended May 31, 1999. In accordance with SEC regulations, certain
information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted for the purposes of
the condensed consolidated interim financial statements. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements, including the notes thereto, for the
year ended May 31, 1999 included in the Company's Form 10-K filed on July
26, 1999. The results of operations for the nine months ended February 29,
2000 may not necessarily be indicative of the results to be expected for
the full year.
Effective June 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
which establishes standards for the reporting of comprehensive income and
its components in financial statements. Comprehensive income consists of
net income and other gains and losses affecting shareholders' equity that,
under generally accepted accounting principles, are excluded from net
income. For the Company, the components of comprehensive income consist of
net income and foreign currency translation gains and losses.
The components of total comprehensive income for interim periods are
presented in the following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Feb 29, Feb 28, Feb 29, Feb 28,
2000 1999 2000 1999
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) $ (1,434) $ (2,958) $ 13,669 $ 12,270
Other comprehensive income (loss):
Foreign currency translation adjustment (1,910) (2,468) (4,686) (2,803)
--------- ----------- ----------- -----------
Total comprehensive income (loss) $ (3,344) $ (5,426) $ 8,983 $ 9,467
========= =========== =========== ===========
</TABLE>
During the three and nine month periods ended February 29, 2000 and
February 28, 1999, the Company maintained its policy to reinvest the
earnings of the non-United States subsidiaries as a long-term commitment.
Accordingly, the "foreign currency translation adjustments" have not been
adjusted for United States taxes.
During fiscal year 2000, the Company's subsidiary in the UK completed a
conversion of its general ledger and revenue and cost accounting systems to
its new global business system. A number of cost accrual errors were
generated as a result of system interface issues, affecting transportation
costs. Management of the UK subsidiary undertook various corrective
actions, and the systems are now believed to be operating properly. For the
third quarter ended February 29, 2000, the Company has completed its
analysis of the effects of the original errors and recorded the adjustment.
The actual adjustment recorded amounted to $290,000 equivalent to half a
penny which was lower than previously estimated of $.02 per share.
2. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
is currently evaluating the impact, if any. SFAS No. 133, as amended by
SFAS No. 137, is effective for all quarters of fiscal years beginning after
June 15, 2000.
3. COMMON STOCK
During the period presented, shares were issued upon exercise of
options, restricted stock grants and issuance of shares under the employee
stock purchase plan, resulting also in an increase to paid-in-capital.
4. INCOME TAXES
Income tax expense for the nine months ended February 29, 2000
consisted of approximately $14.7 million of current tax provision and $8.0
million of deferred tax benefit. The Company's global effective tax rate
increased from 32.0% to 33.0%
5. ACQUISITIONS
The Company recorded additional intangible assets of approximately $.3
million and $1.5 million for the nine months ended February 29, 2000 and
February 28, 1999, respectively, representing additional contingent
purchase price relating to achievement of specified net revenue or pre-tax
income levels of certain prior acquisitions or to purchase the remaining
minority interest of a company. At February 29, 2000, the remaining maximum
payments in connection with acquisitions providing a contingent purchase
price are approximately $ .5 million. There is no certainty these
businesses will achieve the revenue or profit levels to require these
contingent payments.
6. CONTINGENCIES
The Company is party to routine litigation incident to its business,
primarily claims for goods lost or damaged in transit or improperly
shipped. Most of the litigations in which the Company is the defendant are
covered by insurance and are being defended by the Company's insurance
carriers.
In 1996, a total of six complaints were filed (three in federal court
and three in state court of California) against the Company and certain of
its then officers and directors, purporting to be brought on behalf of a
class of purchasers or holders of the Company's stock between August 28,
1995 and July 23, 1996. The complaints allege various violations of Federal
Securities law and California Corporate Securities law in connection with
prior disclosures made by the Company and seek unspecified damages.
The three class action suits filed against the Company in state court
were dismissed with prejudice by the Superior Court of California for the
County of San Francisco on grounds the claims asserted under the California
Corporate Securities law and common law fraud were not legally tenable. One
of the dismissals was reversed on appeal, permitting the plaintiff to file
an amended complaint. That amended complaint was dismissed with leave to
amend. A further amended complaint was filed and was dismissed without
leave to amend. That dismissal is on appeal.
The three class action suits filed against the Company in federal court
were consolidated into one suit which was dismissed with prejudice, finding
that plaintiffs had not alleged any statement that was false and misleading
in violation of the federal securities laws. Plaintiffs filed an appeal
with the Ninth Circuit Court of Appeals. On November 2, 1999, the Ninth
Circuit Court of Appeals vacated the district court dismissal and remanded
the case to the trial court for reconsideration in light of the Ninth
Circuit U.S. Court of Appeals ruling in The Silicon Graphics Case.
The Company is unable to predict the ultimate outcome of these
litigations and it is possible the outcome could have a significant adverse
impact on the Company's future consolidated results of operations, although
the amount is not currently estimable. However, the Company believes the
ultimate outcome of these matters will not have a significant adverse
impact on the Company's consolidated financial position.
7. SEGMENT DISCLOSURE AND GEOGRAPHIC AREA INFORMATION
The Company operates in the international freight forwarding industry,
which encompasses customs brokerage, airfreight and ocean freight
forwarding, and material management and distribution. No single customer
accounted for ten percent or more of consolidated revenue for the periods
presented.
The Company manages its operations in two operating segments
("segments"), United States and Foreign. The Company's Chief Operating
Officer reviews operating results and creates operating plans based on these
two segments. The Company's two key operations executives represent these
segments. Bonuses and other incentives are distributed based on the segment
results. There has been no change in the basis of measurement of segment
profit and loss since May 31, 1999.
Certain information regarding the Company's principal logistics
services and operations by geographic areas is summarized below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 29, February 28, February 29, February 28,
2000 % 1999 % 2000 % 1999 %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUE:
Customs brokerage $46,189 31.1 $37,635 27.9 $141,091 30.7 $120,251 27.7
Ocean freight forwarding 29,327 19.8 28,769 21.3 93,160 20.3 95,354 22.0
Airfreight forwarding 40,679 27.4 39,782 29.5 126,810 27.6 125,998 29.0
Material Management & Distribution 32,290 21.7 28,728 21.3 98,798 21.4 92,173 21.3
------ ---- ------ ---- ------ ---- ------ ----
Total revenue $148,485 100.0 $134,914 100.0 $459,859 100.0 $433,776 100.0
======== ===== ======== ===== ======== ===== ======== =====
Net Revenue
United States $77,634 52.3 $69,261 51.3 $241,582 52.5 $224,483 51.8
------- ---- ------- ---- -------- ---- -------- ----
Canada 12,996 8.8 10,608 7.9 38,707 8.4 32,718 7.5
Europe 25,229 17.0 24,397 18.1 75,055 16.3 76,216 17.6
China 11,953 8.0 11,420 8.5 32,057 7.0 29,208 6.7
Singapore 2,569 1.7 2,490 1.8 8,206 1.8 7,934 1.8
Other Asia 8,633 5.8 6,848 5.1 35,275 7.7 30,005 6.9
Latin America 9,471 6.4 9,890 7.3 28,977 6.3 33,212 7.7
----- --- ----- --- ------ --- ------ ---
Total Foreign 70,851 47.7 65,653 48.7 218,277 47.5 209,293 48.2
------ ---- ------ ---- ------- ---- ------- ----
Total net revenue $148,485 100.0 $134,914 100.0 $459,859 100.0 $433,776 100.0
======== ===== ======== ===== ======== ===== ======== =====
Segment Profit or Loss
Income From Operations
United States $(4,757) 1612.5 $(4,243) 141.7 $ 4,997 19.4 $ 2,561 11.7
-------- ------ -------- ----- ------- ---- ------- ----
Canada 713 (241.7) (7) 0.2 2,053 8.0 604 2.8
Europe 1,684 (570.8) 0 0.0 5,021 19.4 6,254 28.6
China 1,512 (512.5) 1,235 (41.3) 9,404 36.5 7,736 35.4
Singapore (118) 40.0 (250) 8.4 1,135 4.4 956 4.4
Other Asia 1,990 (674.6) 1,049 (35.0) 5,760 22.3 3,515 16.1
Latin America (1,319) 447.1 (777) 26.0 (2,586) (10.0) 215 1.0
----------- ---------- ----------- -------- ----------- -------- ----------- --------
Total Foreign (1512.5) 1,250 (41.7) 20,787 80.6 19,280 88.3
4,462
----------- ---------- ----------- -------- ----------- -------- ----------- --------
Total Income from Operations $ 100.0 $(2,993) 100.0 $ 25,784 100.0 $ 21,841 100.0
(295)
----------- ---------- ----------- -------- ----------- -------- ----------- --------
Other Income / (Expense) (1,514) (1,357) (5,383) (3,797)
----------- ---------- ----------- -------- ----------- -------- ----------- --------
Total Income Before Taxes $(1,809) $(4,350) $ 20,401 $ 18,044
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following discussion is applicable to the Company's financial
condition and results of operations for the three months and nine months
ended February 29, 2000 and February 28, 1999. See Note 1 of Notes to
Condensed Consolidated Financial Statements.
The Company operates its integrated logistics business as two segments
comprised of four principal services. The segments are comprised of United
States Operations and Foreign Operations. The Company's principal services
are customs brokerage, ocean airfreight and freight forwarding and material
management and distribution.
Revenue for ocean and airfreight forwarding and surface transportation
consolidation as an indirect carrier includes the consolidation and
transportation costs (e.g., ocean freight costs). Revenue for customs
brokerage, ocean and airfreight forwarding and surface transportation as an
agent includes only the fees and commissions related to such shipments.
Margin represents the ratio of net revenue to revenue.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
General:
For the three months ended February 29, 2000 compared with the three
months ended February 28, 1999, revenue increased 20.3% to $382.0 million
and net revenue increased by 10.1% to $148.5 million. Operating expenses
increased 7.9%. There were minor currency losses in the third quarter of
fiscal year 2000. Interest expense increased by $.8 million to $2.8 million
for the quarter.
For the nine months ended February 29, 2000 compared with the nine
months ended February 28, 1999, revenue increased 15.2% to $1,200.2 million
and net revenue increased 6.0% to $459.9 million. Operating expenses
increased 5.4%, slightly lower than the net revenue increase. There were
minimal currency gains in the nine months of fiscal year 2000 while the
same period last year produced $1.7 million of currency gains. Interest
expense increased to $7.6 million from $5.8 million for the nine months due
to increased borrowings supporting higher receivables levels.
The January 1, 2000 opening of a new US Customs Brokerage Processing
Center in Dallas, Texas is projected to have an earnings per share cost of
between 14 and 16 cents during the second half of the current fiscal year.
For the third quarter ended February 29, 2000, the Company incurred
consolidation costs lower-than-expected reflecting timing differences. The
costs this quarter relate primarily to job relocation and general
implementation expenses. The total impact of the consolidated effort is
expected to be in line with original estimates. As the result of these
investments, the Company is expected to experience favorable impact on
future earnings beginning fiscal year 2001.
The Company periodically reviews the realizability of its deferred tax
assets based on a number of factors, including projected taxable income. As
a result of the costs described in the preceding paragraph the risk profile
of the recorded deferred tax assets has increased slightly; however,
management still believes that it is more likely than not that these
deferred tax assets will be realized.
During fiscal year 2000, the Company's subsidiary in the UK completed a
conversion of its general ledger and revenue and cost accounting systems to
its new global business system. A number of cost accrual errors were
generated as a result of system interface issues, affecting transportation
costs. Management of the UK subsidiary undertook various corrective
actions, and the systems are now believed to be operating properly. For the
third quarter ended February 29, 2000, the Company has completed its
analysis of the effects of the original errors and recorded the adjustment.
The actual adjustment recorded amounted to $290,000 equivalent to half a
penny which was lower than previously estimated of $.02 per share.
Results of Operations
The following table provides, by business segment, the revenue, and net
revenue, in thousands of dollars and percentages attributable to the
Company's principal logistics services during the periods indicated:
<TABLE>
<CAPTION>
UNITED STATES OPERATIONS
Three Months Ended
February 29, February 28,
2000 % 1999 %
---- - ---- -
<S> <C> <C> <C> <C>
REVENUE:
Customs brokerage $ 31,208 25.3 $ 24,766 23.6
Ocean freight forwarding 24,310 19.7 19,173 18.2
Airfreight forwarding 46,087 37.4 40,179 38.2
Material management &
Distribution 21,698 17.6 21,011 20.0
------ ---- ------ ----
Total revenue 123,303 100.0 105,129 100.0
======= ===== ======= =====
NET REVENUE:
Customs brokerage $ 31,208 40.2 $ 24,766 35.8
Ocean freight forwarding 11,712 15.1 12,812 18.5
Airfreight forwarding 16,654 21.4 15,152 21.9
Material management &
Distribution 18,060 23.3 16,531 23.8
------ ---- ------ ----
Total net revenue $ 77,634 100.0 $ 69,261 100.0
======== ===== ======== =====
FOREIGN OPERATIONS
Three Months Ended
February 29, February 28,
2000 % 1999 %
---- - ---- -
REVENUE:
Customs brokerage $ 14,981 5.8 $ 12,869 6.1
Ocean freight forwarding 92,363 35.7 78,992 37.2
Airfreight forwarding 119,307 46.1 94,484 44.5
Material management &
Distribution 32,088 12.4 26,079 12.2
------ ---- ------ ----
Total revenue 258,739 100.0 212,424 100.0
======= ===== ======= =====
NET REVENUE:
Customs brokerage $ 14,981 21.1 $ 12,869 19.6
Ocean freight forwarding 17,615 24.9 15,957 24.3
Airfreight forwarding 24,025 33.9 24,630 37.5
Material management &
Distribution 14,230 20.1 12,197 18.6
------ ---- ------ ----
Total net revenue $ 70,851 100.0 $ 65,653 100.0
======== ===== ======== =====
</TABLE>
<PAGE>
Three Months Ended February 29, 2000 Compared with Three Months
Ended February 28, 1999
United States Operations:
Revenue and Net Revenue: Revenue increased 17.3% compared to last year
while net revenue increased by 12.1%. Operating expenses increased 12.1%
compared to last year.
Customs brokerage revenue increased 26.0%. The increase was largely due to
strong file count growth generated from several of our largest and existing
customers. The number of United States Customs entries filed by the Company
increased approximately 17.8% to .6 million. Rescoping major accounts
contributed to the improvement of revenue. Focus areas for fiscal year 2000
include rescoping our top 30 clients for maximum utilization of automation
and productivity tools, emphasizing customer satisfaction and using
customer hubbing to achieve consistency in billing backup and to accelerate
issue resolution. Major focus this quarter was exclusively in the
development and implementation of the centralization project.
Ocean freight forwarding revenue increased 26.8% while net revenue declined
8.6%. Ocean Inbound services demand continued to remain strong in the third
quarter. Ocean outbound services reflected an increase in gross revenue due
to rising ocean freight rates and bunker surcharges in all outbound trades.
The decline in net revenue was partially due to competitive pricing
pressures in the trade lane.
Airfreight forwarding revenue increased 14.7%. Revenue increased even
though many shippers are continuing to shift to ocean transportation in an
attempt to reduce costs. However, net revenue increased by 9.9% partially
due to the increased use of charters and lower export carrier rates.
Material management and distribution revenue increased by 3.3%. Net revenue
increased by 9.2%. Results reflect continued strong inbound traffic to the
US and warehousing at higher utilization rates.
Operating Expenses: Operating expenses increased by 12.1%. Salaries and
related costs increased due to higher labor costs associated with the
Company's rollout of new global transportation and financial systems. As a
percentage of net revenue, salaries and related costs decreased to 65.7%
Operating expenses as a percentage of net revenue remained at 106.1% in
comparable with the third quarter of the prior year. The Company is
committed to the reduction of operating expenses through the continuing
implementation of its strategic plan by focusing resources, training
personnel, and emphasizing customer satisfaction.
Foreign Operations:
Revenue and Net Revenue: Revenue increased by 21.8% and net revenue by 7.9%
due to stronger volume from Asian operation which contain lower margin than
the other regions, and a soft European market. The effect of translation
rate changes during the period resulted in a decrease in net revenue during
the quarter of approximately $ 3.0 million. The resultant growth rate was
adversely affected by approximately 1.5%.
Customs brokerage revenue and net revenue increased 16.4%, reflecting an
increase in files processed from existing major clients. Results reflect
significant improvement in Canada, Asia, Europe and Latin America including
Philippines, Australia, Thailand, Northern Brazil and Ireland.
Ocean freight forwarding revenue increased by 16.9% while net revenue
increased by 10.4%. Revenue increase reflected in Canada, Asia and Europe
including Singapore, Taiwan, Thailand, Hong Kong, and United Kingdom. Both
Ocean outbound services and Ocean inbound services showed a significant
increase in volume in shipments generated from existing and new customers
particularly in North Asia including Thailand, Taiwan and Singapore. The
minimal growth in net revenue is due to ocean export revenue, which
consists of fees and commissions, was negatively impacted because lower
shipping costs produce lower commissions.
Airfreight forwarding revenue increased by 26.3% while net revenue
decreased by 2.5%. Significant increase in revenue reflected mainly in
Central Asia and North Asia including Taiwan, Hong Kong, Malaysia and
Thailand. Focusing on aggressive sales in the local market contributed to
the revenue growth in Asia. However, the net revenue decrease is due to the
lower margin generated from Asia influenced by competitive pricing and soft
markets in Europe and Latin America.
Material management and distribution revenue increased 23.0%, while net
revenue increased by 16.7%. Strong results in revenue and net revenue is
due to an improved market share in Central and South Asia including
Malaysia, Singapore and Australia. In addition, increase in warehousing
activities at higher utilization rates created a positive impact in
revenue.
Operating Expenses: Operating expenses increased 3.1%. Salaries and related
costs increased due to higher labor costs associated with the
implementation of the Company's new global transportation and financial
systems. As a percentage of net revenue, salaries and related costs
decreased 3.8% to 52.8%. Operating expenses as a percentage of net revenue
decreased to 93.7% from 98.1% in the comparable quarter of the prior year.
The Company is committed to the reduction of operating expenses through the
continuing implementation of its strategic plan by focusing resources,
training personnel, and emphasizing customer satisfaction.
<TABLE>
<CAPTION>
UNITED STATES OPERATIONS
Nine Months Ended
February 29, February 28,
2000 % 1999 %
---- - ---- -
<S> <C> <C> <C> <C>
REVENUE:
Customs brokerage $95,326 24.4 $79,296 22.1
Ocean freight forwarding 77,149 19.7 65,327 18.2
Airfreight forwarding 147,646 37.7 143,292 40.0
Material management & 71,313 18.2 70,564 19.7
------ ---- ------ ----
Distribution
Total revenue $ 391,434 100.0 $ 358,479 100.0
========= ===== ========= =====
NET REVENUE:
Customs brokerage $95,326 39.5 $79,296 35.3
Ocean freight forwarding 37,604 15.6 41,857 18.6
Airfreight forwarding 49,934 20.6 48,015 21.4
Material management & 58,718 24.3 55,315 24.7
------ ---- ------ ----
Distribution
Total net revenue $ 241,582 100.0 $ 224,483 100.0
========= ===== ========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOREIGN OPERATIONS
Nine Months Ended
February 29, February 28,
2000 % 1999 %
---- - ---- -
<S> <C> <C> <C> <C>
REVENUE:
Customs brokerage $45,765 5.7 $40,955 6.0
Ocean freight forwarding 287,014 35.5 253,561 37.1
Airfreight forwarding 384,570 47.5 307,146 44.9
Material management & 91,413 11.3 81,687 12.0
------ ---- ------ ----
Distribution
Total revenue $ 808,762 100.0 $ 683,349 100.0
========= ===== ========= =====
NET REVENUE:
Customs brokerage $45,765 21.0 $40,955 19.6
Ocean freight forwarding 55,556 25.4 53,497 25.6
Airfreight forwarding 76,876 35.2 77,983 37.2
Material management & 40,080 18.4 36,858 17.6
------ ---- ------ ----
Distribution
Total net revenue $ 218,277 100.0 $ 209,293 100.0
========= ===== ========= =====
</TABLE>
Nine Months Ended February 29, 2000 Compared with Nine Months Ended
February 28, 1999
United States Operations:
Revenue and Net Revenue: Revenue increased 9.2%
compared to last year while net revenue increased by 7.6%.
Operating expenses increased by 6.6%.
Customs brokerage revenue and net revenue increased 20.2%. The increase was
largely due to strong file count growth generated from several of our
largest and existing customers. The number of United States Customs entries
filed by the Company increased approximately 13.1% to 1.8 million.
Rescoping major accounts contributed to the improvement of revenue. Focus
areas for fiscal year 2000 include rescoping our top 30 clients for maximum
utilization of automation and productivity tools, emphasizing customer
satisfaction and using customer hubbing to achieve consistency in billing
backup and as a means of faster issue resolution.
Ocean freight forwarding revenue increased 18.1% while net revenue declined
10.2%. Ocean Inbound services demand continued to remain strong in the
third quarter. Container volumes grew by 4.6% compared to last year. Ocean
outbound services reflected an increase in gross revenue due to rising in
ocean freight rates and bunker surcharges in all outbound trades. The
decline in net revenue was partially due to competitive pricing pressures
in the trade lane.
Airfreight forwarding revenue increased 3.0%. Revenue increased even though
many shippers are continuing to shift to ocean transportation in an attempt
to reduce costs. Net revenue increased by 4.0% partially due to the
increased use of charters and lower export carrier rates.
Material management and distribution revenue remained flat while net
revenue increased by 6.2%. Results reflect continued strong inbound traffic
to the US and warehousing at higher utilization rates.
Operating Expenses: Operating expenses increased by 6.6%. Salaries and
related costs in relation to net revenue decreased slightly despite labor
costs associated with the Company's rollout of new global transportation
and financial systems. As a percentage of net revenue, salaries and related
costs decreased 1.5% to 63.3%. Operating expenses as a percentage of net
revenue fell to 97.9% from 98.9 % in the comparable quarter of the prior
year. The Company is committed to the reduction of operating expenses
through the continuing implementation of its strategic plan by focusing
resources, training personnel, and emphasizing customer satisfaction.
Foreign Operations:
Revenue and Net Revenue: Revenue increased by 18.4% while net revenue
increased by 4.3% reflecting the higher costs associated with the imbalance
of trade with the U.S. The effect of translation rate changes during the
period resulted in a decrease in net revenue during the nine months of
approximately $8.5 million. The resultant growth rate was adversely
affected by approximately 1.3%.
Customs brokerage revenue and net revenue increased 11.7%. Revenue and Net
Revenue increase effected by increase in files processed from existing
major clients. Results reflect significant improvement in Australia, Canada
and Asia.
Ocean freight forwarding revenue increased by 13.2% while net revenue
increased by 3.8%. Revenue increase reflected in Canada and Asia, including
Hong Kong, Taiwan, Indonesia, Singapore, Thailand and Australia. The margin
decrease reflected the soft European and Latin America markets and the
resultant pressure on competitive rates in Asia. Ocean Export revenue,
which consists of documentation fees and commissions, was negatively
impacted because lower shipping costs produce lower commissions
Airfreight forwarding revenue increased by 25.2% and net revenue decreased
by 1.4%. Canada and Asia including Hong Kong, Taiwan, Korea, Malaysia,
Singapore, Thailand and Australia showed higher volume in overall export
tonnage. However, net revenue decrease is due to the lower margin generated
from Asia influenced by competitive pricing and soft markets in Europe and
Latin America.
Material management and distribution revenue increased by 11.9%, while net
revenue increased by 8.7%. The lower increase in margin is due to
competitive pricing in warehouse and trucking activities. The opening of
our 400,000 plus square foot warehouse in Southern China in the prior
quarter intends to position the Company for further growth in revenue and
net revenue for these services. In addition, Central and South Asia
including Malaysia, Singapore and Australia showed an increase in market
share.
Operating Expenses: Operating expenses increased 3.9%. Salaries and related
costs increased due to higher labor costs associated with the
implementation of the Company's new global transportation and financial
systems. As a percentage of net revenue, salaries and related costs
decreased .6% to 52.0%. Operating expenses as a percentage of net revenue
fell to 90.5% from 90.8% in the comparable quarter of the prior year. The
Company is committed to the reduction of operating expenses through the
continuing implementation of its strategic plan by focusing resources,
training personnel, and emphasizing customer satisfaction.
Liquidity and Capital Resources
The Company's cash and equivalents increased $24.7 million to $75.3
million at February 29, 2000 from $50.6 million at May 31, 1999. Operating
activities through the third quarter produced a positive cash flow of $10.1
million. Capital expenditures in the amount of $20.5 million were incurred
for computer hardware and software, leasehold improvements and warehouse
equipment. The Company borrowed $40.5 million for the period from its
credit facility. As a result long-term debt increased by $38.2 million
since May 31, 1999.
The Company paid $0.8 million in cash in connection with earn out
provisions for acquisitions made in prior periods.
As of February 29, 2000, the balance outstanding under the $100.0
million syndicated multi-currency credit facility (the Credit Facility) was
$57.5 million, consisting of borrowings of $45.0 million and outstanding
letters of credit totaling $12.5 million. Therefore, the Company's total
available borrowing capacity under the Credit Facility as of February 29,
2000, was approximately $42.5 million.
Year 2000
Many computer systems, including some utilized by the Company, use only
two digits to represent the year in date fields. These systems may be
unable to accurately process certain data before, during, or after the year
2000. Business and governmental entities are at risk for possible
miscalculations or systems failures, possibly causing disruptions in their
business operations. This is commonly known as the Year 2000 (Y2K) problem.
Fritz Companies successfully entered Year 2000 without disruption to
its services from the Y2K problem. The Company monitored each significant
office located globally on January 1, 2000 to ensure offices had power,
telecommunications, and access to systems. Various operational, financial,
administrative, and telecommunication systems; PCs; and facilities are
reported to be functioning correctly with regard to dates. While the
Company is reasonably certain that all systems are functioning and
calculating correctly, the Company will continue to monitor its systems, as
date-related problems may possibly appear in the future. While the Company
has tested all critical systems, they can not guarantee that all
date-related processing or calculation errors have been located and
corrected.
The Company's business may be materially affected if its systems or the
systems of critical third parties have date-related problems in the future.
The possible consequences of noncompliance include, among other things, the
inability to provide services to certain areas of the world, delays in
product delivery, invoicing errors, and possible collection difficulties.
The Company may be required to shift portions of its daily operations to
manual processes and thus face time delays in its operations as well as
increased processing costs. In addition, the Company may not be able to
provide customers with timely and pertinent information regarding their
orders or shipments. This may negatively affect customer relations and
potentially lead to the loss of customers. The Company is unable to
estimate the potential financial impact of these scenarios. However, the
Company believes that its Y2K contingency plans should help to reduce
material adverse effects that such disruptions may create.
The total cost-to-date to replace or modify the Company's business
systems for Year 2000 compliance was $6.1 million. However, if future
date-related problems occur, the total cost may increase. The funding for
Y2K compliance has been paid through internally generated cash flows from
operations or borrowed funds.
Risk Factors
The Company's worldwide operations are transacted in many currencies
other than the U.S. dollar. Accordingly, the Company is exposed to inherent
risks of international currency markets and governmental regulations. The
Company manages these currency exposures through a variety of means such as
hedging, conversion of other national currencies into U.S. dollars,
accelerating and decelerating international payments among the Company's
offices and agents. The Company's translation adjustment and foreign
exchange gains through the third quarter of fiscal year 2000 increased due
to the strengthening of the U.S. dollar relative to certain currencies of
Asia, Europe and Latin America. The charge to equity in the currency
translation adjustment through the third quarter of fiscal year 2000 was
$4.7 million while net foreign currency transaction gain realized through
the third quarter of fiscal year 2000 was $0.1 million. Devaluation of
foreign currencies could adversely impact the financial results of the
operations in future periods.
The Company's ability to provide service to its customers is highly
dependent on good working relationships with a variety of entities such as
airlines, steamship carriers and governmental agencies. Changes in space
allotments available from carriers, governmental deregulation efforts,
regulations governing the Company's products and/or the international trade
and tariff environment could affect the Company's business in unpredictable
ways.
Management believes the Company's business has not been adversely
affected by inflation in the past. Historically, the Company has generally
been successful in passing cost increases to its customers by means of
price increases. However, competitive marketplace conditions could impede
the ability to pass future cost increases to customers and could erode the
Company's operating margin.
Additional risks and uncertainties include:
(i) The Company's ability to continue its improvement in
operating results,
(ii) Dependence of the Company on
international trade and worldwide economic conditions,
(iii) Dependence of the Company on the continued service
of key executives and managers,
(iv) The possible inability of the Company's information
systems to keep pace with the increasing complexity an
growth of the Company's business,
(v) The increasing level of investment required by the
transition of the Company from prior predominance of
customs brokerage revenue to its increasing emphasis on
integrated logistics and providing a full range of
international transportation and supply chain
management services,
(vi) Other risks disclosed elsewhere in this Form 10-Q or in
the Company's other filings with the Securities and
Exchange Commission.
"Safe Harbor" Statement Under the Private Securities Litigation
Reform Act of 1995:
In this document, the Company makes forward-looking statements that are
subject to risks and uncertainties. These forward-looking statements
include information about possible or assumed future results of our
operations. Also, when we use any of the words "believes", "expects",
"anticipates" or similar expressions, we are making forward-looking
statements. Many possible events or factors could affect the future
financial results and performance of the Company. This could cause
results or performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include
those set forth in the "Risk Factors" and "Year 2000" sections of this
document.
ITEM 3.QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURE
The Company is exposed to market risks in the ordinary course of
business. These risks relate primarily to fluctuations in foreign
currency exchange rates and short term interest rates. Financial
derivatives are employed to manage these risks in certain countries
under certain circumstances. Under no circumstances are financial
derivatives utilized for trading or speculative purposes.
Foreign Exchange Sensitivity
The Company maintains worldwide operations and transacts business in
many currencies other than the U.S. dollar. Because the Company's
foreign subsidiaries are typically local-currency functional entities,
the Company is exposed to transactional and translational gains and
losses as relative currency values fluctuate. As a result, the
Company's consolidated cash flow and net income are subject to
variations due to changes in exchange rates.
The Company manages its currency risks through a variety of means, such
as employing financial derivatives, converting local cash to U.S.
dollars, and accelerating and decelerating payments among the Company's
offices and agents. Financial derivatives typically take the form of
forward foreign exchange contracts, though options are occasionally
purchased to hedge certain transactions. As of February 29, 2000 the
Company had forward contracts outstanding of $0.2 million equivalent
value and had no option contracts. A 10.0% change in value of the U.S.
dollar relative to the underlying currency of these forward contracts
would have an immaterial effect on the Company's earnings.
The Company's earnings are sensitive to changes in foreign exchange
rates due to the revaluation of monetary assets and liabilities. These
balance sheet items, denominated in non-functional currency include
cash, accounts receivable, accounts payable and debt.
The table below provides the U.S. dollar equivalent of these balances
summarized as assets and liabilities and shows the sensitivity of the
net exposure to a 10% change in value of the functional currency
relative to the non-functional currency.
<TABLE>
<CAPTION>
(dollar amounts in millions)
Gain/(Loss) if
Functional Currency
Non-Functional Cash & A/P & Net Appreciates Depreciates
Currency A/R Debt Exposure 10% 10%
<S> <C> <C> <C> <C> <C>
U.S. Dollar 113.2 (42.1) 71.1 (7.1) 7.1
All Other Currencies 21.1 (29.7) (8.6) 0.9 (0.9)
</TABLE>
Interest Rate Sensitivity
The Company's exposure to interest rate risk relates primarily to its
cash and short-term investments and its debt obligations. The Company
currently does not employ any financial derivatives to manage the risk
associated with its cash investments. It does however, currently employ
a swap to convert a portion of its variable rate debt to a fixed rate.
At February 29, 2000 the Company had $75.3 million of cash and cash
equivalents, subject to variable, short-term interest rates. On the
same date, the Company had debt obligations of $132.1 million, of which
$49.0 million was subject to variable, short-term interest rate risk.
In addition, the Company had $13.7 million of off-balance sheet
transactions which were subject to variable interest rate risk. The net
exposure of the Company to variable, short-term interest rate risk is
therefore $12.6 million. A hypothetical increase or decrease in
variable, short-term interest rates of 1.0% would have an immaterial
effect on the Company's earnings.
Recent Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
15 Letter regarding unaudited interim financial information (Edgar
Filing Only).
27 Financial Data Schedule (Edgar Filing Only).
(b) The Company filed the following reports on Form 8-K during the
quarter ended February 29, 2000 and through the
date hereof:
NONE
<PAGE>
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.
FRITZ COMPANIES, INC.
Registrant
Dated: March 31, 2000
/s/ Lynn C. Fritz
Chairman and Chief Executive Officer
/s/ Raymond L. Smith
Chief Operating Officer
/s/ Ronald Dutt
Executive Vice President and
Chief Financial Officer
/s/ Janice Washburn
Vice President and
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
27 Financial Data Schedule 21
The Board of Directors and Stockholders
Fritz Companies, Inc.
Dear Members:
Registration Statement Nos. 33-78472,33-57238,33-93070,333-15921, and 333-07639
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated March 29, 2000, related
to the review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is
not considered part of a registration statement prepared of certified by
an accountant or a report prepared or certified by an accountant within
the meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG LLP
San Francisco, California
March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000890662
<NAME> FRITZ COMPANIES, INC
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-1-1999
<PERIOD-END> FEB-29-2000
<CASH> 75,274
<SECURITIES> 0
<RECEIVABLES> 465,306
<ALLOWANCES> 20,764
<INVENTORY> 0
<CURRENT-ASSETS> 549,692
<PP&E> 213,014
<DEPRECIATION> 108,481
<TOTAL-ASSETS> 800,031
<CURRENT-LIABILITIES> 384,164
<BONDS> 0
0
0
<COMMON> 366
<OTHER-SE> 275,478
<TOTAL-LIABILITY-AND-EQUITY> 800,031
<SALES> 0
<TOTAL-REVENUES> 1,200,196
<CGS> 0
<TOTAL-COSTS> 1,174,412
<OTHER-EXPENSES> (1,216)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,599
<INCOME-PRETAX> 20,401
<INCOME-CONTINUING> 0
<INCOME-TAX> 6,732
<EXTRAORDINARY> 0
<CHANGES> 0
<DISCONTINUED> 0
<NET-INCOME> 13,669
<EPS-BASIC> .37
<EPS-DILUTED> .37
</TABLE>
