UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended May 31, 2000
Commission File Number 0-20548
FRITZ COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation or organization)
94-3083515
(IRS Employer Identification Number)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name on each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At June 28, 2000, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $245
million.
At June 28, 2000, the number of shares outstanding of registrant's
Common Stock was 36,642,323
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 2000
annual meeting of shareholders have been
incorporated by reference -- Part III of the
Form 10K ( Items 10, 11, 12 and 13 )
PART I
Item 1- Business
General
Fritz Companies, Inc. (the Company) is a specialist in providing global
logistics services and related information services for importers and
shippers worldwide. The Company is primarily engaged in providing
logistics management, international air and ocean freight forwarding,
customs brokerage, and material management and distribution services.
Fritz delivers comprehensive supply chain solutions to its customers
worldwide by providing flexible door-to-door transportation and
materials management using sophisticated information systems. The
Company also provides value-added services through logistics
information as well as international and domestic movement of goods
customarily provided by traditional freight forwarders. These services
are designed to provide integrated global logistics solutions for
customers to streamline their operations, improve their inventory
management information and enhance their profitability and to provide
customers with more efficient and effective international
transportation strategies. The Fritz network is composed of highly
trained professionals working in more than 400 locations in 120
countries.
The Company was incorporated in Delaware in August 1988, and is a
successor to a Company incorporated in California in 1933.
Internationally, the Company operates a number of subsidiaries under
the names "Fritz Transportation International," "Fritz Air Freight,"
"Fritz Starber," "Fritz Fliway," "Fritz Logistics," and "Fritz
Companies," among others. Unless the context otherwise requires,
references in this Form 10-K to the Company include Fritz Companies,
Inc., its subsidiaries and its predecessor companies. Although the
Company's executive office is located in the United States at 706
Mission Street, Suite 900, San Francisco, California 94103, its network
is global. The Company has offices throughout North America, Australia,
New Zealand, South Africa, Asia, Europe, Latin America, and the Middle
East.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Company's Consolidated Financial
Statements, including the Notes thereto, for data related to the
Company's revenues, operating profit and long-lived assets by
geographic regions. Unless otherwise stated, all amounts in this Form
10-K are in thousands, except per share amounts.
The following table presents revenue and net revenue in thousands of
dollars and as a percentage of total revenue or net revenue, as the
case may be, attributable to the Company's principal logistics
services:
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended May 31,
---------------------------------------------------------------------------------
2000 1999 1998
---------------------- ------------------------------ ---------------------------
Amount % Amount % Amount %
------------ --------- ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Customs Brokerage $ 188,757 11.7 $ 163,701 11.8 $ 165,055 12.7
Ocean Freight Forwarding 482,304 29.9 416,108 30.0 375,933 28.9
Airfreight Forwarding 720,439 44.7 606,526 43.7 576,643 44.4
Material Management &
Distribution 221,191 13.7 201,392 14.5 182,452 14.0
------------ --------- ------------- -------- ---------- -------
Total Revenue $ 1,612,691 100.0 $ 1,387,727 100.0 $ 1,300,083 100.0
============ ========= ============= ======== ========== =======
Net Revenue
Customs Brokerage $ 188,757 30.5 $ 163,701 28.3 $ 165,055 29.6
Ocean Freight Forwarding 127,224 20.5 126,060 21.8 120,497 21.6
Airfreight Forwarding 171,928 27.8 166,832 28.9 158,514 28.4
Material Management &
Distribution 131,431 21.2 121,384 21.0 114,199 20.4
------------ --------- ------------ --------- ----------- -------
Total Net Revenue $ 619,340 100.0 $ 577,977 100.0 $ 558,265 100.0
============ ========= ============ ========= =========== =======
</TABLE>
Narrative Description of Business
International Airfreight and Ocean Freight Forwarding
The Company is among the largest forwarders of international air and
ocean freight in the United States. The Company's revenue from
international ocean freight forwarding is derived from logistics
services both as an indirect ocean carrier (a "Non-Vessel Operating
Common Carrier" or NVOCC) and as an authorized agent for shippers and
importers. The Company may also function as an agent for steamship
companies. The Company's revenue from international airfreight
forwarding is derived from logistics services both as an indirect air
carrier (IAC) and as an authorized cargo sales agent of various
airlines.
The Company also provides logistics services including warehousing,
protective packing, cargo consolidation, document preparation and
electronic transmittal, electronic purchase order/shipment tracking,
inventory management, expedited document delivery for customs
clearance, priority notification to consignee of cargo arrival, and
inland transportation of freight from point of origin to a distribution
center or the carrier's cargo terminal.
The Company serves a broad range of freight forwarding customers. The
Company's ocean freight forwarding customers include retailers and
industrial companies shipping automotive parts, heavy equipment, steel,
chemicals, forest products, clothing, and produce. In general,
airfreight has a high value relative to its weight and the cost of
shipment is usually a small portion of its value. The Company's
principal airfreight customers are shippers of medical equipment and
parts, drugs and pharmaceuticals, computer and high technology
equipment and parts, aircraft and automotive parts, electrical
equipment, machinery and machine parts, measuring and testing
instruments, chemicals and fashion apparel.
As an NVOCC and an IAC, the Company procures customer shipments,
consolidates shipments bound for a particular destination, determines
the routing for consolidated shipments, selects the direct carrier or
charters an ocean vessel or aircraft and tenders each consolidated lot
as a single shipment to the direct carrier for transportation to a
distribution point.
The Company's rates are based on the shipment weight and/or volume.
Rates charged by the Company are ordinarily less than the rate the
shipper would be charged by a steamship line or an airline. The
consolidation of customers' shipments allows the Company to obtain
lower rates from steamship lines or airlines than the rates the Company
charges to its customers for individual shipments. In addition, in
certain tradelanes the Company controls a high volume of freight and,
accordingly, is able to obtain reduced rates from certain carriers or
charter operators. This rate differential is the primary source of the
Company's net ocean and airfreight revenue as an indirect carrier.
By accepting goods for ocean or air shipment as an NVOCC or IAC, the
Company assumes the role as a carrier and becomes responsible to the
shipper for the safe delivery of the shipments. However, this role is
subject to a legal limitation on liability as enumerated by The
Carriage of Goods by Sea Act for ocean freight. In addition, it is
subject to the limitations contained in the Warsaw Convention for air
freight. The steamship line or airline generally assumes the same
responsibility to the Company as the Company assumes to its clients due
to the Company's relationship with the steamship line or airline as a
shipper. As an authorized agent for shippers and importers, and as an
authorized cargo agent of various airlines and steamship companies, the
Company arranges transportation of individual shipments and receives a
commission from the direct carrier for arranging the shipments. When
acting as such an agent, the Company does not consolidate shipments and
does not have responsibility for shipments once they have been accepted
by the direct carrier.
As part of the Company's freight forwarding activities, the Company
provides project forwarding and logistics services involving
governmental and commercial projects, including foreign military sales,
power plant construction, shipbuilding, construction of manufacturing
assembly facilities, civil infrastructures and other large scale
installations. The Company's project forwarding services include
integrated logistics for conveying heavy materials and equipment from
multiple origins to project sites. Such services may include managing
the customer's transportation, customs clearance and material
management and distribution. Most of the shipments are transported by
ocean carrier. The government portion of the Company's project
forwarding business requires a United States Government Department of
Defense security clearance of the Company's management team and those
employees assigned to the project. The warehouses receiving and storing
the cargo must have a security clearance.
In addition to ocean and airfreight forwarding services, the Company
provides forwarding services and cross marketing in the United States
for a number of its agents. The Company is compensated by sharing in
the agents' profits on their consolidation shipments.
The Company is licensed by the Federal Maritime Commission of the
United States and is a member of the International Air Transport
Association.
Customs Brokerage
The Company is the largest customs broker in the United States
according to the United States Customs Service. The Company's customs
brokerage operations for air and ocean imports cover over 400 (not in
thousands) ports of entry in the United States. The Company's customs
brokerage operation is among the most sophisticated in the United
States as a result of its size, technology and integration with other
transportation logistics services provided to its customers. In
addition, the Company provides overseas customs brokerage services in
countries such as Australia, Canada, the United Kingdom, Mexico and
many Latin American countries.
As a customs broker in the United States, the Company is engaged by
importers to prepare the documentation required for entering
merchandise into the United States. In this capacity, the Company is
responsible for coordinating all events and communicating the status of
shipments from the time of shipment arrival through customs clearance.
The Company receives commercial and transportation documentation,
reviews it for completeness and accuracy, prepares and files documents
necessary to clear customs, obtains customs bonds, assists the importer
in obtaining the appropriate commodity classification and arranges for
payment of collect freight charges. In most cases, the Company also
deposits import duties with the United States Customs Service on behalf
of the importer. In addition, the Company provides ancillary customs
brokerage services to its customers, including placement of surety
bonds, duty reduction programs and duty-drawback (recovery of duties
paid when imported merchandise is re-exported). The Company also
provides bonded warehouse services which enable importers to defer
payment of customs duties until the cargo is released from bond in
conjunction with their production or distribution schedules. See
"Material Management and Distribution".
In providing customs brokerage services, the Company has access to
information concerning a shipment's origin and value, destination and
mode of transportation. As a result, the Company has been able to
obtain additional business by identifying opportunities to improve
customer service or reduce customers' expenses through expanded
utilization of the Company's other services, including container
unloading, inventory warehousing and arranging delivery of cleared
cargo to its final destination.
The Company is a leader in the use of computer technology for customs
brokerage activities on behalf of its clients. The Company was one of
the first customs brokerage operations to link with the United States
Customs Service through the Automated Broker Interface information
system and to develop a comprehensive, proprietary, on-line,
interactive customs brokerage system which permits customers to monitor
the status of a shipment as it passes through the government clearance
process. The Company's information systems enable the Company to
electronically prepare documents, transmit information necessary for
cargo pre-clearance through customs, expedite cargo release and provide
nationwide control of customs clearance at multiple ports of entry for
its customers. See "Information Systems."
The Company's customs brokerage services are provided by the Company's
licensed customs brokers and support staff who have substantial
knowledge regarding the complex tariff and government regulations
applicable to customs duty payments and other fees, commodity
classifications, valuation and import restrictions. In addition, the
Company has developed substantial customs brokerage expertise within
particular client industries. The Company believes its industry
specialization is unique among competitors and enables the Company to
provide high levels of service to customers in these industries. The
Company provides ongoing training programs, which include preparation
for the United States customs broker license examination to employees,
as well as to customers.
During the years ended May 31, 2000, 1999 and 1998 the number of United
States Customs entries filed by the Company were 3,116, 2,699 and
2,652, respectively.
As a customs broker operating in the United States, the Company is
licensed by the United States Department of the Treasury and regulated
by the United States Customs Service. The Company's fees for customs
brokerage services are not regulated and the Company does not have a
fixed fee schedule for such services. Instead, customs brokerage fees
are based on the complexity of the transaction and the type of services
required, but are generally not related to the value of the customers'
goods. In addition to its fees, the Company bills the importer for
amounts which the Company pays on the importer's behalf, including
duties, taxes, collect freight charges and similar payments.
The Company offers its customs brokerage services primarily to
purchasers of imported goods. The Company's largest customs brokerage
customer in 2000 accounted for 27.1% of customs brokerage revenue and
3.2% of the total consolidated revenue.
Material Management and Distribution
As part of its integrated global logistics services, the Company
provides an array of material management and distribution services to
its customers. The Company uses state of the art warehouse management
systems to deliver material management solutions to its global customer
base.
The Company manages a mixture of multi-client facilities as well as
stand-alone contract logistics operations. The Company supports clients
from a wide variety of industry segments with emphasis on high-tech,
retail, footwear, and manufacturing.
Warehousing services are available for the Company's customers in
certain of its facilities, as well as in space leased from others. The
Company maintains approximately 9.0 million square feet of owned and
leased warehouse space. The Company's warehousing services include
receiving, deconsolidation and decontainerization, cargo loading and
unloading, assembly of freight, customer inventory management and
protective packing and storage. For import shipments, the Company
provides bonded warehouse services at certain locations to importers so
they can defer payment of customs duties until cargo releases are
required to meet customers' production or distribution schedules. The
goods stored in bonded warehouses are held until the importer is ready
to withdraw or re-export them. The Company is paid storage charges for
use of its warehouses and fees for other services.
The Company provides surface transportation and domestic distribution
services involving the movement of shipments for local and long-haul
delivery to and from customers' doors. In this capacity, the Company
procures shipments from its customers, consolidates less than truckload
quantities, determines the routing, selects the carrier and tenders
each shipment to such carrier for transportation. The Company provides
this service as an indirect carrier and as an agent. The Company also
provides logistics services by coordinating the most efficient and
cost-effective mode of long-haul surface transportation to its
customers.
No single customer accounted for ten percent or more of total
consolidated revenue in fiscal 2000.
Insurance
The Company provides international marine insurance to its customers in
connection with its air freight and ocean freight forwarding
operations. In addition, the Company arranges surety bonds for
importers as part of its customs brokerage activities. Insurance
coverage is adapted according to each client's shipping requirements
and arranged as an integral part of the Company's global logistics
services.
Information Systems
The Company invests substantial resources in its information systems to
accomplish the global objective of developing and maintaining an
integrated logistics system. The information system strategy is to
provide accurate, reliable, and timely access to information regarding
logistics and internal operations through responsive and cost-effective
information systems technologies.
The Company intends to replace several domestic and international
systems with one global, integrated system referred to as Fritz Global
Business System (GBS). GBS is an integrated suite of global
business applications that includes Transportation Management (Air,
Ocean, and Road), Cargo Management, PO Management, Accounting systems
and Customs Clearance. GBS modules have been implemented in major
locations such as Hong Kong, Singapore, France and the United Kingdom.
Implementation continues to progress in other locations.
The Company developed the Fritz Logistics Expediting System (Flex)
several years ago to enable customers to track the flow of goods
throughout the transportation process via the Internet. Flex is
Fritz's customer interface, facilitating a view into the GBS data
warehouse. Customers can complete queries using Flex to receive the
current status of shipments and generate reports.
In 1999, the Company introduced an independent module of Flex called
Trade Cost Modeling (TCM). TCM is a web-based system that
utilizes a time / cost model to allow customers to identify which
country of origin will be the most cost effective location for sourcing
their products and determine the fastest or the most cost effective
shipment routing. TCM takes into consideration world wide tariffs
(duty), taxes, and other charges and analyzes the various methods of
transportation to quickly and accurately calculate the lowest cost of
shipment (freight cost) from point A to point B. The Company believes
that customers have found TCM to be an easy solution for
forecasting their total landed cost.
An important component of the Company's business strategy is to
continue to expand and develop the concept of the GBS system and
the Flex Internet customer interface. For information regarding the
Company's Year 2000 compliance program, see Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operation
- Year 2000.
Sales
An important part of the Company's business strategy is its
client-oriented marketing approach. The Company's marketing efforts
focus on senior transportation and logistics executives, financial
officers and purchasing directors of large and medium sized users of
international transportation logistics services. In connection with the
Company's emphasis on developing and maintaining long-term
relationships with such clients, the Company has developed several
strategic sales programs, including a National Accounts Program.
Competition and Business Conditions
The Company's principal businesses are directly affected by the volume
of international trade, particularly trade between the United States
and foreign nations, which is influenced by many factors. These
influences include economic and political conditions in the United
States and abroad, major work stoppages, exchange controls, currency
fluctuations, wars and other armed conflicts, and United States and
foreign laws relating to tariffs, trade restrictions, foreign
investments and taxation. The global logistics services industry is
intensely competitive and expected to remain so for the foreseeable
future. The Company encounters competition from a large number of
firms. Much of this competition is from local or regional firms which
have only one or a small number of offices and do not offer the breadth
of services and integrated approach offered by the Company. However,
some of the competition is from major United States and foreign-owned
firms which have networks of offices and offer a wide variety of
services. The Company believes quality of service, including
information systems capability, global network capacity, reliability,
responsiveness, expertise, convenience, scope of operations, customized
program designs and price are important competitive factors in its
industry.
The Company encounters strong competition in the markets for each of
its principal services, identified as: customs brokerage, air and ocean
freight forwarding and material management and distribution. The
Company has customs brokerage offices in most major ports in the United
States, Canada, United Kingdom and other selected foreign locations.
Although the Company competes with several large United States and
foreign firms in virtually all of its locations, the principal customs
brokerage competition comes from local and regional firms.
As an ocean freight forwarder, the Company's competition includes
steamship companies, large forwarders with multiple offices and local
and regional forwarders with one or a small number of offices. As an
airfreight forwarder, the Company's principal competition comes from
other airfreight forwarders in the United States and overseas. As a
material management and distribution service provider, the Company's
principal competition includes local, regional, national and
international providers of the same or similar services.
Regulation
As a customs broker operating in the United States, the Company is
licensed by the United States Department of the Treasury and regulated
by the United States Customs Service. The Company's fees as a customs
broker are not regulated. The Company's airfreight forwarding business
is subject to regulation, as an indirect air cargo carrier, under the
Federal Aviation Act by the Department of Transportation (DOT), the
successor to the Civil Aeronautics Board, although Part 296 of the
DOT's Economic Aviation Regulations exempts airfreight forwarders from
most of the act's requirements. In its ocean freight forwarding
business, the Company is licensed as an ocean transportation
intermediary by the Federal Maritime Commission (FMC). The FMC does not
regulate the Company's fees in any material respect. The Company's
NVOCC business is subject to regulation under the FMC tariff filing and
surety bond requirements, and under the Shipping Act of 1984 and the
Ocean Reform Shipping Act of 1998, particularly those terms proscribing
rebating practices. The Company is regulated as a direct and an
indirect truck cargo carrier by the DOT, previously the Interstate
Commerce Commission, by which the Company is licensed as both a common
carrier and a property broker. For dispatch purposes, the Company also
holds an FCC Radio License. The Company's marine cargo insurance
brokerage business is licensed by the California Department of
Insurance.
The Company's offshore operations are subject to similar regulation by
the regulatory authorities of the respective foreign jurisdictions.
Some of the Company's warehouse operations are approved by the United
States Customs Service as container freight stations, and/or cargo
examination stations and/or Class III bonded warehouses.
Trademarks
The Company holds registered trademarks and/or service marks in the
United States and numerous foreign countries for "Fritz Companies" and
certain related names and the Company's logo.
Employees
As of May 31, 2000, the Company had approximately 10,000 (not in
thousands) employees located throughout the world. The Company
considers its relationship with its employees to be satisfactory.
Management
The Company's executive officers are as follows:
Name Age
---------------------------------- --------
Lynn C. Fritz 58 Chairman of the Board
Raymond L. Smith 45 Chief Executive Officer
Graham R. F. Napier 36 Chief Operating Officer
Ronald F. Dutt 53 Executive Vice President
and Chief Financial Officer
Jan H. Raymond 51 Executive Vice President,
Secretary and General
Counsel
Eugene E. Wojciechowski 45 Executive Vice President
and Chief Information
Officer
Janice J. Washburn 51 Vice President and
Controller
John R. Skidmore 50 Vice President -
Human Resources
Lynn C. Fritz became Chief Executive Officer of the Company in
1986 after serving in numerous positions since
joining the Company on a full-time basis in 1965. Mr. Fritz received
his B.A. degree from Georgetown University and
his J.D. degree from Lincoln University School of Law.
Raymond L. Smith joined the Company in January 1999 as Chief Operating
Officer and was promoted to CEO on June 1, 2000. Prior to joining the
Company, he served six years as President of US Fleet Leasing.
Previously, Mr. Smith was with GE Capital for 15 years where he
graduated from GE's Financial Management Program and held numerous
positions with progressively higher responsibilities. Mr. Smith
received his BA degree, with distinction, from the University of
Nebraska and MBA from Emory University.
Graham R. F. Napier joined the Company in August 1999 as Executive Vice
President of Engineering and was promoted to COO on June 1, 2000. Prior
to joining the Company, he was vice president and general manager,
strategic business development and supply chain services at Allied
Signal Aerospace, Inc. Previous experience also included a number of
international assignments with Ryder Integrated Logistics and Lucas
Industries plc. Mr. Napier received his BSC, with honors in Engineering
Product Design, MSC in Engineering Production from University of
Birmingham and MBA with distinction, from Manchester Business School.
Ronald F. Dutt joined the Company in May 1999 as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, he
was Senior Vice President of Financial Planning and Analysis at Visa
International. Previously, Mr. Dutt served in senior financial
positions at USL Capital, and held positions of increasing
responsibilities in the Controller's Office and Corporate Treasurer's
Office at Ford Motor Company. He received his MBA from the University
of Washington and BA from the University of North Carolina.
Jan H. Raymond has been General Counsel of the Company since 1985,
Secretary since 1991, Senior Vice President
since 1993 and Executive Vice President since 1998. Prior to joining
the Company, Mr. Raymond was an associate with
the law firm of Brobeck, Phleger & Harrison. Mr. Raymond,
who is a licensed customs broker, holds a B.S. degree
from Cornell University with a J.D. degree from the University of
California at Berkeley's Boalt Hall School of Law.
Eugene E. Wojciechowski joined the Company in January 1997 as Senior
Vice President and Chief Information Officer and became an Executive
Vice President in April 1999. Prior to joining the Company, he was Vice
President of Information Systems at USL Capital Corporation, a division
of Ford Motor Company, and held positions of increasing responsibility
at GE Capital, PHH Group Inc., and ADP Network Services. Mr.
Wojciechowski holds a MBA in Information Systems from the University of
Maryland and a B.S. in Mathematics and Business Administration from
Towson State University.
Janice J. Washburn joined the Company in September 1998 as
Controller and Principal Accounting Officer and was
promoted to Vice President and Controller in November of 1999.
Previously, Ms. Washburn held financial positions of
increasing responsibility at CIS Consulting, Inc., APL Limited, Inc.,
Pacific Gas & Electric Co. and Arthur Andersen
& Co. Ms. Washburn holds a B.A. in accounting from the
University of Puget Sound and is a Certified Public
Accountant in the State of California.
John R. Skidmore joined the Company in February 2000 as Vice
President of Human Resources. Prior to joining the
Company, he was the Director of Human Resources at Catalytica,
Incorporated. Previously, Mr. Skidmore held Senior
Human Resources positions at subsidiaries of Ford Financial
Services. He received his Masters Degree in Human
Resources Management from Golden Gate University in San Francisco,
California, and his B.A. in Psychology from the
University of Texas at Austin, Texas.
Item 2 - Properties (Not in thousands)
As of May 31, 2000, the Company operated approximately 400 offices and
logistics centers worldwide, including its headquarters in San
Francisco. The Company also operated approximately 133 warehousing and
distribution centers, which range in size from approximately 1,000
square feet to approximately 595,000 square feet. The warehousing and
distribution centers totaled approximately 9.0 million square feet as
of May 31, 2000 of which the Company owns approximately 647,000 square
feet and leases the remaining space. The leases for the Company's
principal properties generally have terms of three years or more and
often include options to renew. While some of the Company's leases are
month-to-month and others expire in the near term, the Company does not
believe the expiration of any of its leases will have a material
adverse effect on its operations. See Note 6 of Notes to Consolidated
Financial Statements in Item 8.
Item 3 - Legal Proceedings
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.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 - Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's common stock is traded on the NASDAQ national market
system under the symbol "FRTZ".
The following table sets forth the high and low closing sales price in
the over-the-counter market for the Company's common stock as reported
by NASDAQ national market system under the symbol "FRTZ" for the period
from June 1, 1998 to May 31, 2000.
<TABLE>
<CAPTION>
Price Range
----------------------------------------
High Low
---------- -----------
<S> <C> <C>
Fiscal Period 2000
--------------------------
First Quarter $ 12.375 $ 9.375
Second Quarter 11.500 9.500
Third Quarter 11.000 8.375
Fourth Quarter 11.063 7.875
Fiscal Period 1999
--------------------------
First Quarter $ 13.563 $ 7.625
Second Quarter 10.000 6.063
Third Quarter 12.063 7.438
Fourth Quarter 11.813 6.875
</TABLE>
There were approximately 535 stockholders of record as of June 28,
2000. No cash dividends were paid to stockholders during the year ended
May 31, 2000.
The Company intends to retain its future earnings for use in its
business and, accordingly, anticipates no cash dividends will be paid
to holders of shares of common stock in the foreseeable future.
<TABLE>
<CAPTION>
Item 6 - Selected Financial Data
(In Thousands Except Per Share Data)
For the Year Ended May 31,
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------- --------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,612,691 1,387,727 1,300,083 1,156,770 $ 1,043,858
Net Revenue 619,340 577,977 558,265 509,371 457,568
Merger and related costs ---- ---- ---- ---- 14,555 (a)
Income from operations 32,527 25,051 25,813 2,858 (b) 38,659
Net income 17,425 13,452 18,090 308 25,001
Net income per share -
basic .48 .37 .51 .01 .73
Net income per share -
diluted .47 .37 .50 .01 .71
Total assets 825,232 726,908 720,813 723,516 733,462
Long-term obligations,
net of current portion 116,891 89,606 101,346 84,884 89,505
Stockholders' equity 274,355 264,082 250,328 234,695 230,747
</TABLE>
a) On May 30, 1995, the Company completed its merger with Intertrans
Corporation (Intertrans), which was accounted as a pooling of
interests. In 1996, the Company recorded additional merger and
related costs of $14.6 million which were incurred in association
with the Intertrans' merger.
b) The results in 1997 include a third quarter increase to the
Allowance for Doubtful Accounts of approximately $17.0 million due
to less than satisfactory collection performance.
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
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, international airfreight and
ocean 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.
Results of Operations:
For comparative purposes, the following tables are provided for the
results of operations, for the business segments, for the years ended
May 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
UNITED STATES OPERATIONS
For the Year Ended May 31,
--------------------------------------------------------------------
2000 1999 1998
------ --------------- ---------------- -------------
<S> <C> <C> <C>
Revenue
Customs Brokerage $ 126,045 $ 107,100 $ 101,834
Ocean Freight Forwarding 104,626 107,166 112,176
Airfreight Forwarding 196,599 195,528 206,515
Material Management and Distribution 94,481 97,327 87,776
=============== ================ =============
Total Revenue $ 521,751 $ 507,121 $ 508,301
=============== ================ =============
Net Revenue
Customs Brokerage $ 126,045 $ 107,100 $ 101,834
Ocean Freight Forwarding 52,405 56,022 57,715
Airfreight Forwarding 66,999 66,930 63,253
Material Management and Distribution 77,809 76,973 69,565
=============== ================ ============
Total Net Revenue $ 323,258 $ 307,025 $ 292,367
=============== ================ ============
Operating Expenses $ 321,599 $ 294,830 $ 277,856
--------------- ---------------- ------------
Income From Operations $ 1,659 $ 12,195 $ 14,511
=============== ================ ============
FOREIGN OPERATIONS
For the Year Ended May 31,
--------------------------------------------------------------------
2000 1999 1998
------ --------------- ----------------- -------------
Revenue
Customs Brokerage $ 62,712 $ 56,601 $ 63,221
Ocean Freight Forwarding 377,678 308,942 263,757
Airfreight Forwarding 523,840 410,998 370,128
Material Management and Distribution 126,710 104,065 94,676
=============== ================= =============
Total Revenue $ 1,090,940 $ 880,606 $ 791,782
=============== ================= =============
Net Revenue
Customs Brokerage $ 62,712 $ 56,601 $ 63,221
Ocean Freight Forwarding 74,819 70,038 62,782
Airfreight Forwarding 104,929 99,902 95,261
Material Management and Distribution 53,622 44,411 44,634
=============== ================= =============
Total Net Revenue $ 296,082 $ 270,952 $ 265,898
=============== ================= =============
Operating Expenses $ 265,214 $ 258,096 $ 254,596
--------------- ----------------- -------------
Income From Operations $ 30,868 $ 12,856 $ 11,302
=============== ================= =============
</TABLE>
Fiscal Year Ended May 31, 2000 Compared to Fiscal Year
Ended May 31, 1999
General:
Revenue increased 16.2% to $1,612.7 million. Net revenue increased 7.2%
to $619.3 million. Operating expenses increased 6.1%, marginally lower
than the net revenue increase. The net gains on currency transactions
dropped slightly to $1.6 million from $1.9 million in the prior year.
Interest income increased $0.7 million and interest expense increased
$2.8 million.
United States Operations:
Revenue and Net Revenue:
Revenue increased 2.9% to $521.8 million. Net revenue increased by
5.3%. Operating expenses increased by 9.1%.
Customs brokerage revenue and net revenue increased 17.7%. The increase
was largely due to the Company's continuous effort to provide the most
efficient and sophisticated computerized logistic services. The Company
decided to consolidate the Customs Brokerage transaction activities in
Dallas, in the new center called the "Center of Excellence", or COE.
Highly skilled teams use the Company's new state of the art technology,
Response Tracking Technology (RT), which gives the capability to
provide the most effective way of tracking the status of every
customer's inquiry.
A significant portion of consistent customs brokerage growth every year
stems from our existing client base reflecting a strong client
retention rate. Fedex and Northern Border experienced revenue growth
with 54.1% and 25.0%. Border operations, which account for almost
one-fifth of the total entries for the period, continue to reflect
double-digit growth rates driven mostly by Canadian imports. Canada
Border shows a 29.5% growth in file count. The number of United States
Customs entries filed by the Company increased approximately 15.4% to
3.1 million from 2.70 million in the prior year.
Ocean freight forwarding revenue and net revenue decreased 2.4% and
6.5%, respectively. The decline in revenue and net revenue is primarily
due to a decrease in combined file transaction count of 20.0%, and
as a direct reflection of the erosion of ocean container rates in all
of the major tradelanes and regulatory constraints which restricted the
ability of the Company to promptly pass carrier rate increases to
customers. A General rate increase (GRI) was applied this year in ocean
outbound services during regular and peak seasons. In addition, ocean
export activity was down significantly due to the economic situation in
Asia and Latin America. U. S. export orders and volume were down in
both regions. Inbound ocean freight demand remained strong during the
year. Ocean inbound shows a 15.3% increase and inbound NVOCC shows a
39.7% increase in revenue and net revenue.
Airfreight forwarding revenue increased 0.5%, and net revenue increased
by 0.1%. Airfreight forwarding combined transactions files increased
6.6%. The use of centralized gateways to improve consolidation, cost
control, and increased volume purchasing contributed to the slight
increase in net revenue. However, during the year the Company
experienced upward pressure on pricing and competition holding net
revenue flat from the prior year.
Material management and distribution revenue decreased 2.9% but net
revenue increased by 1.1%. Decrease in revenue is a direct result of a
decline in volumes. However, net revenue reflects a slight increase
primarily due to a 18.1% direct costs decrease in warehousing and
distribution. Operating Expenses:
Operating expenses increased 9.1% mostly due to costs incurred for the
consolidation of US Customs Brokerage Processing Center in Dallas,
higher bonuses, and hiring highly skilled employees to handle growing
change in the industry and annual increases in compensation levels.
Operating expenses as a percentage of net revenue rose to 99.5% from
96.0% in 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.
In January 2000, a new US Customs Brokerage Processing Center was
opened in Dallas, Texas. For the year ended May 31, 2000, the Company
incurred consolidation costs of $6.3 million. These costs relate
primarily to job relocation and general implementation expenses.
Without these non-recurring costs, diluted earnings per share for the
year would have been 59 cents. The Company is expected to experience
favorable impacts on future earnings beginning with fiscal year 2001 as
a result of these investments.
Foreign Operations:
Revenue and Net Revenue:
Revenue increased by 23.9% and net revenue increased 9.3% reflecting
the Company's continuous effort to provide high quality service that
primarily focuses on customer satisfaction resulting in maintaining
existing clients.
The effect of translation rate changes during the period resulted in a
decrease in net revenue during 2000 of approximately $11.9 million. The
resultant growth rate was adversely affected by approximately 4.4
percentage points.
Customs brokerage revenue and net revenue increased 10.8% primarily due
to increases in files processed from existing major clients.
Results reflect significant improvement in Canada and Latin America.
Ocean freight forwarding revenue increased by 22.2% while net revenue
increased by 6.8%. Ocean freight demand remained strong throughout the
year. During the year the Company continued to expand market share by
offering competitive market rates to customers. Both ocean outbound
services and ocean inbound services showed significant increase in
volume in shipments generated from existing and new customers
particularly in Canada, United Kingdom and Europe. The United Kingdom
accounted for 39.8% increase in revenue. The minimal growth in net
revenue is due to ocean export revenue, which consists of fees and
commissions, and was negatively impacted because lower shipping costs
produce lower commissions.
Air freight forwarding revenue increased by 27.5% and net revenue
increased 5% primarily due to a volume increase in shipments from the
Asia to North America and Europe. The United Kingdom and Hong Kong
accounted for 65.0% of the favorable increase in gross revenue.
Focusing on aggressive sales with existing clients in the local market
to the revenue growth particularly in Asia.
Material management and distribution revenue increased by 21.8% and net
revenue increased 20.7%. The opening of the Company's 400,000 plus
square foot warehouse in South China in the first quarter of fiscal
2000 has provided the Company significant growth in revenue and net
revenue for these services. In addition, Europe's continuous growth
in this area contributed significantly to the increase in revenue
and net revenue. The United Kingdom reported a 47.2% increase
in revenue and 38.7% increase in net revenue. Other locations that
had significant favorable increases in revenue were Austria,
Switzerland and the Netherlands.
Operating Expenses:
Operating expenses increased 2.8% as a result of hiring new employees
from top management to operational level to improve customer
satisfaction and handle growing change in the industry and annual
increases in different compensation levels. Operating expenses as a
percentage of net revenue decreased to 89.6% in 2000 from 95.3% in
1999.
Fiscal Year Ended May 31, 1999 Compared to Fiscal Year Ended May 31,
1998
General:
Revenue increased 6.7% to $1,387.7 million. Net revenue increased 3.5%
to $578.0 million. Operating expenses increased 3.8%, marginally higher
than the net revenue increase. The net gains on currency transactions
dropped significantly to $1.9 million from $7.3 million in the prior
year. This drop was partially offset by a $0.6 million increase in
interest income and a $0.8 million decrease in interest expense.
United States Operations:
Revenue and Net Revenue: Revenue was flat for the current year
but net revenue increased by 5.0%. Operating
expenses increased by 6.1%.
Customs brokerage revenue and net revenue increased 5.2%. The increase
was largely due to growth in the retail and electronics industries from
both new and existing customers. Most of this growth involved goods
being shipped from Asia, fueled by the robust American economy. A
significant portion of this growth stemmed from our existing client
base reflecting a strong client retention rate. Pricing continued to be
relatively stable, though slight erosions occurred in our border
locations. The number of United States Customs entries filed by the
Company increased approximately 1.8% to 2.70 million from 2.65 million
in the prior year. Border operations, which account for almost
one-fifth of the total entries for the period, continue to reflect
double-digit growth rates driven mostly by Canadian imports. Rescoping
major accounts contributed to the improvement of margin. In addition,
approximately one-half of the customs brokerage processing
documentation has been centralized to improve the quality of the
product.
Ocean freight forwarding revenue and net revenue decreased 4.5% and
2.9%, respectively. Inbound ocean freight demand remained strong
throughout 1999. In addition the Company added a number of new
accounts. Ocean freight rates from the Far East, the Company's largest
trade lane, increased in the last half of the year. Conversely, ocean
export activity was down significantly due to the economic situation in
Asia, Latin America and Russia. U.S. export orders and volume were down
in all three regions. While ocean outbound NVOCC revenue from the U.S.
increased only slightly, net revenue increased by more than 10%. Lack
of growth in revenue was a direct reflection of the erosion of ocean
container rates in all of the major trade lanes. Growth in net revenue
was due to our ability to buy ocean container spaces, either through
service contracts, or on the spot market at favorable rate levels.
Airfreight forwarding revenue decreased 5.3%, due to decreased volume
to Asia, Europe and Latin America and the strength of the U.S. dollar.
However, net revenue increased by 5.8% due to the use of centralized
gateways to improve consolidation, cost control, and increased volume
purchasing.
Material management and distribution revenue and net revenue increased
10.9% and 10.6%, respectively. The greatest growth was in Seattle,
Dallas, Atlanta, Rochester and Los Angeles where new customers and
increased volumes drove the increase in revenue. In addition, the
growth in revenue and net revenue was due to increased demand from
existing integrated logistics customers, expansion of overseas
services, expansion of warehouse facilities and the strong United
States economy. Rescoping of certain customers led to an increase in
revenue and margin.
Operating Expenses: Operating expenses increased 6.1%. Salaries and
related costs increased due to higher labor costs associated with Year
2000 compliance and the Company's new global transportation and
financial systems, and higher medical insurance costs. Operating
expenses as a percentage of net revenue rose to 96.0% from 95.0% in the
prior year. The Company is committed to the reduction of operating
expenses through the continuing implementation of its strategic plan,
previously discussed, by focusing resources, training personnel, and
emphasizing customer satisfaction.
Foreign Operations:
Revenue and Net Revenue: Revenue increased by 11.2% but net revenue
increased only 1.9% 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 1999 of
approximately $12.4 million. The resultant growth rate was adversely
affected by approximately 4.6 percentage points.
Customs brokerage revenue and net revenue decreased 10.5% reflecting
the large reduction in traffic going into the foreign locations from
the U.S.
Ocean freight forwarding revenue increased by 17.1% while net revenue
increased by 11.6%. The margin decrease reflected the soft European
market and the resultant pressure on margins. The Company is focusing
on increasing NVOCC business in an attempt to improve margins. Ocean
Export revenue, which consists of documentation fees and commissions,
was negatively impacted because lower shipping costs produce lower
commissions.
Air freight forwarding revenue increased by 11.0% while net revenue
increased 4.9%, the pressure on margins again reflecting the soft
European markets. The perceived turnaround of the Asian economies in
the third quarter of fiscal 1999 began to improve air margins.
Material management and distribution revenue increased by 9.9%, however
net revenue remained at prior year levels. The scheduled opening of the
Company's 400,000 plus square foot warehouse in South China in the
first quarter of fiscal 2000 should position the Company for
further growth in revenue and net revenue for these services.
Operating Expenses:
Operating expenses increased 1.4%. Salaries and related costs increased
due to higher labor costs associated with Year 2000 compliance and the
implementation of the Company's new global transportation and financial
systems. Operating expenses as a percentage of net revenue were 95.3%
in 1999 and 95.7% in 1998.
Liquidity and Capital Resources
Cash and equivalents were $55.5 million at May 31, 2000, representing a
9.7% increase from $50.6 million at May 31,1999. Positive operational
cash flow of $15.0 million was used to partially fund capital
expenditures of $35.7 million resulting in negative free cash flow of
$20.7 million. Capital expenditures consisted mostly of expenditures
for computer hardware and software, leasehold improvements, and
warehouse equipment. The disappointing free cash flow performance can
be explained by an increase in working capital requirements during the
year, particularly in accounts receivable. The size and growth of the
company's pass-thru billings is one of the primary reasons for the
increase in accounts receivable, and a number of initiatives are
underway to address this issue.
The Company paid cash of $1.6 million relating to prior acquisitions.
These payments consisted of reductions to existing debt totaling $1.5
million and $0.1million for contingency payments to the sellers of
previously acquired businesses and to purchase all or part of the
remaining minority interest in previously acquired companies.
On March 27, 1998, the Company entered into a $100 million syndicated
multi-currency credit facility (Credit Facility), maturing March 2001.
In March 1999, this facility was extended to expire in March 2002. The
purpose of the Credit Facility is to provide letters of credit and
working capital not covered by internally generated funds. The Company
must maintain compliance with certain financial covenants such as: 1)
minimum working capital, 2) minimum net worth, 3) maximum leverage
ratio, 4) minimum fixed charge coverage ratio, and 5) maximum capital
expenditures. As of May 31, 2000, the balance outstanding under the
Credit Facility was $33.6 million and the weighted average floating
interest rate as of that date was 7.2%. At May 31, 2000, the Company
was contingently liable for letters of credit of $15.4 million which
reduces the Company's borrowing capacity under the current credit
facility. Therefore, the Company's total available capacity under the
credit facility as of May 31, 2000 was approximately $51.0 million. The
Company had $10.7 million in similar letters of credit outstanding at
May 31, 1999 under the Company's credit facility then in effect.
On May 26, 2000, the Company entered into a $25 million credit facility
with the Bank of America maturing on August 15, 2000. The facility
bears interest based on LIBOR and 1.375% and requires compliance with
the covenants contained in the existing $100 million syndicated bank
credit facility. This facility is intended to temporarily add borrowing
capacity during the early part of the Company's peak season while the
Company negotiates a new expanded syndicated bank credit facility. The
Company has engaged Bank of America to lead this syndication process.
The Company makes significant disbursements on behalf of its customers
for items such as customs duty and taxes and carrier payments. Billings
to customers for these disbursements, which can be several times the
amount of the revenue derived from these transactions, are not recorded
as revenue and expenses in the Company's income statement. These
obligations, which greatly exceed reported revenues, are recorded as
amounts due from customers and trade accounts payable.
"Safe Harbor" Statement Under the Private Securities Litigation Reform
Act of 1995:
In this filing, 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, plans, events, expectations or objectives. Also, when any
of the words "believes", "expects", "anticipates" or similar
expressions are used the Company is making forward-looking statements.
Many possible events or factors could affect the future financial
results and performance of the Company. Any of these events or factors
could cause results or performance to differ materially from those
expressed in our forward-looking statements. These possible events or
factors include the following:
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 cannot 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 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.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (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
recognize 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, of SFAS
no. 133, as amended by SFAS No. 137 and SFAS No. 138, which is
effective for all quarters of fiscal years beginning after June 15,
2000.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in
Financial Statements as amended by SAB 101A, which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB 101 outlines the basis criteria that
must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. In June 2000, the SEC issued
SAB 101B which deferred the effective date of SAB 101 until the last
quarter of fiscal years beginning after December 15, 1999. The Company
does not expect the adoption of SAB 101 to have a material effect on
its consolidated financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25. This Interpretation clarifies the application of
Opinion 25 for certain issues: (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed
stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. Generally, this
Interpretation is effective July 1, 2000. The Company does not expect
the adoption of Interpretation No. 44 to have a material effect on its
consolidated financial position or results of operations.
Currency and Other 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 local cash to U.S.
dollars, and accelerating and decelerating international payments among
the Company's offices and agents.
The Company's translation adjustment and foreign exchange losses for
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 during 2000 was
$7.7 million while net foreign currency gains realized during fiscal
year 2000 were approximately $1.6 million. Devaluation of foreign
currencies could adversely impact the financial results of 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 significantly
or 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 Company's ability to pass on future cost
increases to customers and could erode the Company's operating margins.
Additional risks and uncertainties include:
(i) The Company's ability to continue its program to improve
operating results and cash flows,
(ii) Dependence of the Company on international trade
resulting from favorable worldwide economic conditions,
(iii) Dependence of the Company on continued services of key
executives and managers,
(vi) The possible inability of the Company's information
systems to keep pace with the increasing complexity and
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 an 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-K or in
the Company's other filings with the Securities and
Exchange Commission.
Item 7a- 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 utilizes derivative financial instruments to reduce foreign
currency exchange and interest rate risks. The Company does not enter
into financial instruments for trading or speculative purposes. Gains
and losses on forward exchange contracts used to hedge the currency
fluctuations on transactions denominated in foreign currencies and the
offsetting losses and gains on hedged transactions are recorded in the
"Other income (expenses)" caption in the income statement.
The Company manages its currency risks through a variety of means, such
as employing financial derivatives, converting local cash to US
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 May 31, 2000, the Company had forward contracts outstanding
of $28.6 million equivalent value and had no option contracts
maturities ranging from June 1, 2000 to July 3, 2000, with weighted
average maturity of one day. The estimated fair value of foreign
currency contracts represent the amount required ot enter into
offsetting contracts with similar remaining maturities based on quoted
market prices. At May 31, 2000, the difference between the contract
amounts and the fair values was immaterial. A 10.0% change in value of
the functional currency relative to the underlying currency of
these forward contracts would negatively impact the Company's
earnings by $2.9 million. However, these forwards contracts hedge
underlying payables or receivables and therefore the net impact of
the change in currency values would be negligible.
The Company's earnings are sensitive to changes in foreign exchange
rates due to the revaluation of monetary assets and liabilities. These
balance sheet items, denominated in non-functional currency include
cash, accounts receivable, accounts payable and debt.
The table below provides the U.S. dollar equivalent of these balances
summarized as assets and liabilities and shows the sensitivity of the
net exposure to a 10.0% change in value of the functional currency
relative to the non-functional currency.
<PAGE>
<TABLE>
<CAPTION>
($ amounts in millions)
Gain/ (Loss) if
Functional Currency
Non-Functional Cash A/P & Appreciates Depreciates
Currency & A/R Debt Net Exposure 10% 10%
<S> <C> <C> <C> <C> <C>
U.S. Dollar 137.5 (42.5) 94.9 (9.5) 9.5
All Other 23.9 (42.6) (18.7) 1.9 (1.9)
</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.
The Company uses an interest rate swap to manage the interest cost and
the risk associated with changing interest rates. As interest rates
change, the differential paid or received is recognized in interest
expense of the period.
As of May 31, 2000, the Company had an interest rate swap outstanding
with notional value of SGD 7,000. This swap mitigates the interest
exposure of a subsidiary's long-term debt. The interest swap will
mature in the year 2002. It requires the Company to pay interest at a
fixed rate of 6.5%, and receive interest at the floating rate based on
the Singapore Interbank Offered Rate, which was 2.6% on May 31, 2000.
The fair value of this instrument represents the estimated receipts or
payments that would be made to terminate the agreement.
At May 31, 2000, the Company would have paid $348 to terminate the
agreement.
At May 31, 2000 the Company had $55.5 million of cash and cash
equivalents, subject to variable, short-term interest rates. On the
same date, the Company had debt obligations of $119.4 million, of which
$36.3 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 $5.5 million. A hypothetical increase or decrease in
variable, short-term interest rates of 1% would have an immaterial
effect on the Company's earnings.
Item 8 - Financial Statements and Supplementary Data
The information required by this item is set forth at the pages
indicated in Item 14(a) of this Annual Report.
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference from the sections entitled "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive proxy statement to be filed with the Securities
and Exchange Commission no later than 120 days after the Company's year
end and to be delivered by the Company to its shareholders in
conjunction with the 2000 Annual Meeting of Shareholders. See also Item
1 above.
Item 11 - Executive Compensation
The information required by this item is incorporated herein by
reference from the sections entitled "Compensation of Executive
Officers," "Options Granted to Executive Officers" and "Employment
Agreements" of the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission no later than 120 days
after the Company's year end and to be delivered by the Company to its
shareholders in conjunction with the 2000 Annual Meeting of
Shareholders.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated herein by
reference from the section entitled "Ownership of Management and
Principal Stockholders" of the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission no later than 120
days after the Company's year end and to be delivered by the Company to
its shareholders in conjunction with the 2000 Annual Meeting of
Shareholders.
Item 13 - Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference from the section entitled "Transactions with the Company" of
the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission no later than 120 days after the
Company's year end and to be delivered by the Company to its
shareholders in conjunction with the 2000 Annual Meeting of
Shareholders.
<PAGE>
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report on
Form 10-K: Page No.
(1) Consolidated Financial Statements of the Company:
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Stockholders' Equity
And Comprehensive Income F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5
Independent Auditors' Report F-22
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts F-23
All other schedules are omitted by absence of
conditions under which they would be required or
because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits:
See attached Exhibit Index F-24
(b) The Company filed the following reports on Form 8-K from
March 1, 2000 through the date hereof in 2000:
1. On August 20, 1999, the Company entered into an
agreement with Federal Express Corporation to amend the
existing U.S. Customs Brokerage Service Agreement dated
August 25, 1998.
<PAGE>
Signatures
Pursuant to requirements of Section 13 or 15(d) 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.
Date: August 8, 2000
FRITZ COMPANIES, INC.
By /s/ Lynn C. Fritz
Lynn C. Fritz
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on August 8, 2000 by the following
persons on behalf of the registrant and in the capacities indicated.
Signature Title Date
/s/ Lynn C. Fritz Chairman of the Board August 8, 2000
Lynn C. Fritz
/s/ Raymond L. Smith Chief Executive Officer August 8, 2000
Raymond L. Smith
/s/ Graham R. F. Napier Chief Operating Officer August 8, 2000
Graham F. R. Napier
/s/ Ronald F. Dutt Executive Vice President August 8, 2000
Ronald F. Dutt and Chief Financial Officer
and Principal Financial Officer
/s/ Janice J. Washburn Vice President and Controller August 8, 2000
Janice J. Washburn
/s/ James E. Gilleran Director August 8, 2000
James E. Gilleran
/s/ Preston Martin Director August 8, 2000
Preston Martin
/s/ Paul Otellini Director August 8, 2000
Paul Otellini
/s/ William J. Razzouk Director August 8, 2000
William J. Razzouk
<PAGE>
FRITZ COMPANIES, INC. FORM 10-K
F-45
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
May 31, May 31,
2000 1999
------------ ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 55,481 $ 50,599
Accounts receivable, net of allowance for
doubtful accounts of $19,381 in 2000 and $20,466 in 1999 485,679 396,640
Deferred income taxes 14,468 16,461
Prepaids and other current assets 13,132 17,860
------------ ----------
Total current assets 568,760 481,560
------------ ----------
PROPERTY AND EQUIPMENT - NET 110,208 103,535
------------ ----------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $25,348
in 2000 and $21,362 in 1999 107,148 112,666
Deferred income taxes 24,903 13,395
Other assets 14,213 15,752
------------ ----------
Total other assets 146,264 141,813
------------ ----------
TOTAL ASSETS $ 825,232 $ 726,908
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term
borrowings $ 2,479 $ 4,333
Accounts payable 291,576 255,706
Accrued liabilities 113,370 87,562
Income tax payable 18,089 15,348
------------ ----------
Total current liabilities 425,514 362,949
------------ ----------
LONG-TERM OBLIGATIONS 116,891 89,606
OTHER LIABILITIES 8,472 10,271
------------ ----------
TOTAL LIABILITIES 550,877 462,826
------------ ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share;
60,000 shares authorized, 36,702 shares
issued and outstanding, (36,420 shares
issued and outstanding in 1999) 366 364
Additional paid-in capital 139,474 138,369
Treasury stock - at cost (706) (174)
Retained earnings 161,862 144,437
Accumulated other comprehensive loss (26,641) (18,914)
------------ ----------
Total stockholders' equity 274,355 264,082
----------
============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 825,232 $ 726,908
============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended May 31,
----------------- --- ---------------- -- -----------------
2000 1999 1998
----------------- ---------------- -----------------
<S> <C> <C> <C>
REVENUE $ 1,612,691 $ 1,387,727 $ 1,300,083
FREIGHT CONSOLIDATION COSTS 993,351 809,750 741,818
----------------- ---------------- -----------------
NET REVENUE 619,340 577,977 558,265
----------------- ---------------- -----------------
OPERATING EXPENSES
Salaries and related costs 354,749 342,211 326,025
CHB consolidation costs 6,253 0 0
General and administrative 225,811 210,715 206,427
----------------- ---------------- -----------------
Total operating expenses 586,813 552,926 532,452
----------------- ---------------- -----------------
INCOME FROM OPERATIONS 32,527 25,051 25,813
OTHER INCOME (EXPENSE) (6,347) (5,268) 789
----------------- ---------------- -----------------
INCOME BEFORE INCOME TAX EXPENSE 26,180 19,783 26,602
INCOME TAX EXPENSE 8,755 6,331 8,512
----------------- ---------------- -----------------
NET INCOME $ 17,425 $ 13,452 $ 18,090
================= ================ =================
Weighted average shares outstanding - Basic 36,572 36,203 35,744
================= ================ =================
Net income per share - Basic $ .48 $ .37 $ .51
================= ================ =================
Weighted average shares outstanding - Diluted 36,729 36,290 36,128
================= ================ =================
Net income per share - Diluted $ .47 $ .37 $ .50
================= ================ =================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In Thousands)
<CAPTION>
Accumulated
Additional Other Total
Paid-In Retained Treasury Stock Comprehensive Stockholders'
-------------------
Shares Amount Capital Earnings Shares Amount Loss Equity
--------- ------- ----------- ----------- -------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1997 35,445 $ 354 $ 124,424 $ 112,895 0 $ 0 $ (2,978) $ 234,695
Net income 18,090 18,090
Foreign currency translation
adjustment (9,835) (9,835)
------------
Comprehensive loss 8,255
Common stock issued in acquisition
of companies 161 2 2,155 2,157
Stock grants and options exercised 251 3 4,796 4,799
Employee Stock Purchase Plan 39 422 422
--------- ----- -------- --------- -------- ---------- ----------- -------------
Balance, May 31, 1998 35,896 $ 359 $ 131,797 $ 130,985 0 $ 0 $ (12,813) $ 250,328
Net income 13,452 13,452
Foreign currency translation
adjustment (6,101) (6,101)
-------------
Comprehensive income 7,351
Common stock issued in acquisition
of companies 90 1 699 700
Stock grants and options exercised 388 4 5,484 5,488
Employee stock purchase plan 46 389 389
Treasury stock purchases (27) (174) (174)
--------- ----- -------- --------- --------- --------- ----------- -----------
Balance, May 31, 1999 36,420 $ 364 $ 138,369 $ 144,437 (27) $ (174) $ (18,914) $ 264,082
--------- ----- -------- --------- --------- --------- ----------- -----------
Net income 17,425 17,425
Foreign currency translation
adjustment (7,727) (7,727)
-----------
Comprehensive income 9,698
Stock grants and options exercised 254 2 749 751
Employee stock purchase plan 28 356 356
Treasury stock purchases (60) (532) (532)
========= ===== ======== ========= ========= ========== =========== ===========
Balance, May 31, 2000 36,702 $ 366 $ 139,474 $ 161,862 (87) $ (706) $ (26,641) $ 274,355
========= ===== ======== ========= ========= ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year Ended May 31,
-------------- --- ---------------- --- ----------------
2000 1999 1998
-------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,425 $ 13,452 $ 18,090
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 28,373 27,508 26,385
Deferred income taxes (9,515) (9,479) (6,358)
Stock compensation ---- 1,922 4,412
Other 1,591 485 (1,073)
Effect of changes in:
Receivables, net (89,039) 9,741 14,253
Prepaids and other current assets 4,728 5,282 4,954
Payables and accrued liabilities 61,406 8,441 (5,605)
-------------- ---------------- ----------------
Net cash provided by operating activities 14,969 57,352 55,058
-------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,679) (35,749) (21,797)
Acquisitions, net of cash acquired (71) (4,701) (6,621)
Payment of acquisition related debt (1,508) (4,313) (8,758)
Proceeds from sale of fixed assets 1,842 3,802 3,485
Investment in foreign affiliates 403 ---- ----
Acquisition of long term lease ---- (5,160) ----
Other 2,050 (717) (2,806)
-------------- ---------------- ----------------
Net cash used in investing activities (32,963) (46,838) (36,497)
-------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings ---- ---- (11,991)
Proceeds from issuance of long-term obligations 30,619 1,180 11,695
Re-payments of long-term obligations (3,259) (9,197) (4,378)
Proceeds from stock options exercised 1,417 925 389
Employee stock purchases 356 388 422
Purchase of treasury stock (532) (174) ----
Other ---- ---- (303)
-------------- ---------------- ----------------
Net cash provided by (used in) financing activities 28,601 (6,878) (4,166)
-------------- ---------------- ----------------
Foreign currency translation effect on cash (5,725) (6,972) (3,828)
-------------- ---------------- ----------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 4,882 (3,336) 10,567
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 50,599 53,935 43,368
-------------- ---------------- ----------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 55,481 $ 50,599 $ 53,935
============== ================ ================
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 20,593 $ 13,940 $ 9,640
============== ================ ================
Interest paid $ 10,019 $ 7,222 $ 8,471
============== ================ ================
Noncash investing and financing activities in connection with
acquisitions:
Receivables assumed $ ---- $ ---- $ (6,084)
============== ================ ================
Payables and accrued liabilities assumed $ ---- $ ---- $ 6,557
============== ================ ================
Capital stock issued $ ---- $ 700 $ 2,155
============== ================ ================
Other $ ---- $ ---- $ (2,628)
============== ================ ================
See accompanying notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
Note 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Fritz Companies, Inc. (the Company) is a specialist in providing global
logistics services and related information services for importers and
shippers worldwide. The Company is primarily engaged in providing
logistics management, international air and ocean freight forwarding,
customs brokerage, and material management and distribution services.
Fritz delivers comprehensive supply chain solutions to its customers
worldwide by providing flexible door-to-door transportation and
material management using sophisticated information systems. The
Company also provides value-added services through logistics
information as well as international and domestic movement of goods
customarily provided by traditional freight forwarders. These services
are designed to provide integrated global logistics solutions for
customers to streamline their operations, improve their inventory
management information and enhance their profitability and to provide
customers with more efficient and effective international
transportation strategies. The Fritz network is composed of highly
trained professionals working in more than 400 locations in 120
countries.
A. Basis of Presentation:
The consolidated financial statements include the accounts of
Fritz Companies, Inc. (the Company) and all significant domestic
and international companies wherein the Company has more than a
50% equity ownership or otherwise exercises control. The Company's
interest in 20% to 50% owned companies are recorded using the
equity method. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform with the current
year's financial statement presentation.
All significant intercompany accounts and transactions have been
eliminated in consolidation. All dollar amounts are presented in
thousands except for share data.
B. Cash and Equivalents:
Cash and equivalents include demand deposits and short-term
investments with original maturities of three months or less.
C. Property and Equipment:
Property and equipment are stated at cost. Depreciation and
amortization are determined using the straight-line method.
Estimated useful lives of major categories of property and
equipment are as follows:
Buildings 40 years
Furniture and equipment 5 - 10 years
Computer hardware and software 3 - 5 years
Leasehold improvements are amortized over their estimated
useful lives or terms of the related lease, whichever is
shorter. Certain costs related to internally developed
software are capitalized and amortized on a straight-line
basis over their expected useful life (not to exceed five
years), commencing when the asset is placed in service.
Maintenance and repair expenditures and renewal of minor items
are charged to expense when incurred.
D. Intangibles:
Intangibles, including goodwill, customers' lists and
covenants-not-to-compete, result from business acquisitions.
Amortization is determined using the straight-line method over the
estimated useful lives of the intangible assets as follows:
Goodwill and customers' lists 40 Years
Covenants-not-to-compete 2 - 5 Years
Net intangibles as of May 31, 2000 include goodwill, customers'
lists of $ 107,045 and covenants-not-to-compete of $103.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-lived
Assets and for Assets to be Disposed of," long-lived assets,
including certain identifiable goodwill, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets is measured by a comparison of
the carrying amount of such assets against the undiscounted future
cash flows expected to be generated by the assets. If such assets
are determined to be impaired, the impairment to be recognized is
measured by the amount by which the assets' carrying amounts
exceed the assets' discounted future cash flows.
E. Foreign Currency Translation:
Foreign currency amounts attributable to foreign operations assets
and liabilities have been translated to U.S. Dollars using
year-end exchange rates, and related revenues and expenses have
been translated at average annual rates of exchange in effect
during the year. Unrealized gains or losses arising from
fluctuations in the year-end exchange rates are generally recorded
as "Accumulated Other Comprehensive Income" in stockholders'
equity. Transaction gains and losses from foreign exchange
transactions are included in results of operations.
F. Comprehensive Income:
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.
During the years ended May 31, 2000 and 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.
G. Off-Balance Sheet Risk and Concentration of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally represented by
temporary cash investments and accounts receivable. The Company
places its temporary cash investments with financial institutions
to limit its risk of loss.
The Company's customer base is representative of a wide range of
industries and includes customers located throughout the world.
The Company had no significant concentration of credit risk as of
May 31, 2000 or 1999.
H. Derivative Financial Instruments
The Company utilizes derivative financial instruments to reduce
foreign currency exchange and interest rate risks. The Company
does not enter into financial instruments for trading or
speculative purposes. Gains and losses on forward exhange
contracts used to hedge the currency fluctuations on transactions
denominated in foreign currencies and the offsetting losses and
gains on hedged transactions are recorded in the "Other income
(expenses)" caption in the income statement.
The Company uses an interest rate swap to manage the interest
cost and the risk associated with changing interest rates. As
interest rates change, the differential paid or received is
recognized in interest expense of the period.
I. Revenue Recognition:
Revenues and expenses related to the transportation of
freight are recognized at the time the freight departs the
terminal of origin. This method approximates recognizing
revenues and expenses when the shipment is completed.
Customs brokerage revenues are recognized upon completing
documents necessary for customs entry purposes. Material
management and distribution revenue is recognized upon execution
of the service provided.
Revenue realized by the Company as an indirect carrier includes
the direct carrier's charges to the Company for transporting the
shipment. Revenue realized in other capacities includes only the
commissions and fees charged for applicable services rendered.
Net Revenue for air and ocean freight forwarding and consolidation
of surface transportation as an indirect carrier is determined by
deducting freight consolidation and transportation costs from such
revenue.
J. Net Income Per Share:
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share,"
effective December 1, 1997. Basic and diluted earnings per share
are presented below:
<TABLE>
<CAPTION>
Year Ended May 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Basic:
Net income $ 17,425 $ 13,452 $ 18,090
Weighted-average number of common shares outstanding 36,572 36,203 35,744
Basic earnings per common share $ 0.48 0.37 $ 0.51
=========== =========== ===========
Diluted:
Net income $ 17,425 $ 13,452 $ 18,090
Shares:
Weighted-average number of common shares outstanding 36,572 36,203 35,744
Potentially dilutive common shares 157 87 384
----------- ----------- -----------
Total shares 36,729 36,290 36,128
Diluted earnings per common share $ 0.47 $ 0.37 $ 0.50
=========== =========== ===========
</TABLE>
Options totaling 1,306,806 shares with an exercise price ranging from
$10.875 to $28.625 (greater than the average market price of common
shares) were not included in the computation of diluted earnings per
share, as they were anti-dilutive.
K. Income Taxes:
The Company uses the asset and liability method of accounting for
income taxes as prescribed by SFAS No. 109, " Accounting for
Income Taxes". Under this method, the net deferred tax asset or
liability is determined based on the tax effects of differences
between book and tax bases of various balance sheet assets and
liabilities and gives current recognition to the effect of any
change in tax rates and laws.
L. Stock Options:
The Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation," established accounting and reporting standards for
stock-based compensation plans. The statement allows companies to
choose, for employee compensation plans, between the "fair value
based method of accounting" as defined in this statement and the
"intrinsic" method based on accounting as prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees". The Company has chosen to continue to apply
the provisions of APB No. 25 to its employee stock option plans.
Accordingly, compensation expense has only been recognized in the
Consolidated Statements of Operations when the quoted market price
of the Company's stock at the date of the grant exceeds the option
exercise price.
M. Use of Estimates:
In conformity with generally accepted accounting principles, the
Company uses assumptions and estimates that affect the reported
amounts of the assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
Note 2. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following:
<CAPTION>
May 31,
--------------------------------------------
2000 1999
--- ------------- --------------
<S> <C> <C>
Land $ 1,172 $ 950
Buildings and leasehold improvements 51,714 40,479
Furniture and equipment 64,624 72,836
Computer hardware and software 102,828 82,414
Software development in progress 680 3,482
------------- --------------
Total 221,018 200,161
Less accumulated depreciation and amortization (110,810) (96,626)
------------- --------------
Total $ 110,208 $ 103,535
============= ==============
</TABLE>
Depreciation and amortization of property and equipment amounted to
$23,998 in 2000, $22,611 in 1999, and $21,125 in 1998. Software
development in progress includes external costs incurred to develop
software which has not been completed as of balance sheet date. During
the years ended May 31, 2000 and 1999, $3,693 and $444, respectively,
represented software development costs completed and transferred to
"Computer hardware and software."
<PAGE>
<TABLE>
Note 3. OBLIGATIONS AND BORROWINGS
Short-term borrowings and long-term obligations consist of the
following:
<CAPTION>
May 31,
----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Long-term obligations:
6.43% Senior Notes due on April 15, 2003, interest payable
semi-annually $ 75,000 $ 75,000
Bank credit agreement providing a $100 million
credit facility maturing March 27, 2002 with interest at LIBOR
(6.7% as of May 31, 2000) plus 0.325% to 0.750% as determined by
fixed charge coverage ratio 33,600 4,500
Installment obligations related to acquisitions,
non-interest bearing, due 2001 - 2002 (less unamortized discount,
based on imputed interest rate of 7.0% - approximately $150 and
$117 in 2000 and 1999, respectively) 2,068 3,888
Term note payable to a bank dated June 18, 1997, bearing interest at
SIBOR (2.6% as of May 31, 2000) plus a margin ranging from 0.5% to
0.7% with seven quarterly payments of $250 beginning October 2000
remaining balance in June 2002 6,784 7,245
Other obligations 1,918 3,306
------------ ------------
Total long-term obligations 119,370 93,939
Less current portion (2,479) (4,333)
------------ ------------
Net long-term obligations $ 116,891 $ 89,606
============ ============
</TABLE>
At May 31, 2000, the Company's aggregate maturing long-term obligations
and short-term borrowings for the fiscal years 2001 through 2005 were
$2,479; $35,397; $81,385; $86 and $23, respectively and none
thereafter. The carrying value of the Company's long-term obligations
approximates their fair value.
On March 27, 1998, the Company entered into a $100 million syndicated
multi-currency credit facility (Credit Facility), maturing March 2002.
The purpose of the Credit Facility is to provide letters of credit and
working capital not covered by internally generated funds. The Company
must maintain compliance with certain financial covenants such as: 1)
minimum working capital, 2) minimum net worth, 3) maximum leverage
ratio, 4) minimum fixed charge coverage ratio, and 5) maximum capital
expenditures. As of May 31, 2000, the balance outstanding under the
Credit Facility was $33.6 million and the weighted average floating
interest rate as of that date was 7.2%. At May 31, 2000, the Company
was contingently liable for letters of credit of $15.4 million which
reduces the Company's borrowing capacity under the current credit
facility. The Company had $10.7 million in similar letters of credit
outstanding at May 31, 1999 under the Company's credit facility then in
effect.
As of May 31, 2000, the Company had forward contracts outstanding
of $28.6 million equivalent value and had no option contracts
maturities ranging from June 1, 2000 to July 3, 2000, with weighted
average maturity of one day. The estimated fair value of foreign
currency contracts represent the amount required to enter into
offsetting contracts with similar remaining maturities based on
quoted market prices. At May 31, 2000, the difference between the
contract amounts and the fair values was immaterial.
As of May 31, 2000, the Company had an interest rate swap outstanding
with a notional value of SGD 7,000. This swap mitigates the interest
exposure of a subsidiary's long-term debt. The interest swap will
mature in the year 2002. It requires the Company to pay interest at a
fixed rate of 6.5%, and receive interest at the floating rate based
on the Singapore Interbank Offered Rate, which was 2.6% on
May 31, 2000. The fair value of this instrument represents the
estimated receipts or payments that would be made to terminate the
agreement. At May 31, 2000, the Company would have paid $348
to terminate the agreement.
At May 31, 2000, the Company had $55.5 million of cash and cash
equivalents, subject to variable, short-term interest rates. On the
same date, the Company had debt obligations of $119.4 million, of
which $36.3 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 $5.5 million. A hypothetical increase or decrease in
variable, short-term interest rates of 1% would have an immaterial
effect on the Company's earnings.
The Company is in compliance with its various financial covenants such
as leverage, fixed charge coverage and current ratios within its other
credit agreements, many of which include cross default provisions tied
to the Credit Facility.
Information regarding the Company's activity in the Credit Facility is
as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
----------------------------------------------------
2000 1999 1998
-- ----------- ------------- -----------
<S> <C> <C> <C>
Maximum amount outstanding during period $ 87,100 $ 25,500 $ 41,000
Average amount outstanding during period $ 51,938 $ 7,316 $ 20,184
Weighted average interest rate during period 6.7% 6.0% 6.7%
</TABLE>
Note 4. - INCOME TAXES
The current and deferred components of income tax expense (benefit) are
as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------------------------------
2000 1999 1998
------------ ------------- ------------
<S> <C> <C> <C>
Current
Federal $ --- $ --- $ 2,022
State --- --- 2,334
Foreign 18,270 15,810 10,514
------------ ------------- ------------
Total current 18,270 15,810 14,870
------------ ------------- ------------
Deferred
Federal (8,229) (9,231) (4,237)
State (1,281) (1,438) (2,662)
Foreign (5) 1,190 541
------------ ------------- ------------
Total deferred (9,515) (9,479) (6,358)
============ ============= ============
Total $ 8,755 $ 6,331 $ 8,512
============ ============= ============
</TABLE>
Sources of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------------------------------------------
2000 1999 1998
------------- --------------- --------------
<S> <C> <C> <C>
United States $ (28,364) $ (28,839) $ (7,944)
Foreign 54,544 48,622 34,546
============= =============== ==============
Total $ 26,180 $ 19,783 $ 26,602
============= =============== ==============
</TABLE>
The following provides a reconciliation of the statutory federal income tax rate
and provision to the effective income tax rate and provision:
<TABLE>
<CAPTION>
For the Year Ended May 31,
---------------------------------------------------------------------------------
2000 % 1999 % 1998 %
-------- -------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax expense $ 9,163 35.0 $ 6,924 35.0 $ 9,311 35.0
Increases (decreases) resulted from:
Difference between foreign tax rate and
federal rate (1,247) (4.8) 60 0.3 (1,147) (4.3)
State taxes benefit, net of federal
income tax effect (1,281) (4.9) (1,516) (7.7) (328) (1.2)
Amortization of goodwill 313 1.2 309 1.6 280 1.1
Meals and entertainment 188 0.7 219 1.1 197 0.7
Compensation 779 3.0 0 0.0 0 0.0
Interest 231 0.9 148 0.7 171 0.6
Others 609 2.3 187 1.0 28 0.1
-------- -------- ---------- --------- ---------- ---------
Total $ 8,755 33.4 $ 6,331 32.0 $ 8,512 32.0
======== ======== ========= ========= ========== =========
</TABLE>
The significant components of net deferred income tax assets are as
follows:
<TABLE>
<CAPTION>
May 31,
-------------------------------------
2000 1999
-- ------------- --- -----------
<S> <C> <C>
Deferred income tax assets:
Current:
Compensated absences $ 2,478 $ 2,361
Foreign tax credits and other tax credits 2,349 2,201
Capital loss carryforward 850 595
Allowance for doubtful accounts 3,501 6,354
Write-off of duplicate information
systems and facilities 52 53
Other reserves and accruals 6,282 5,841
-- ------------- --- -----------
Subtotal 15,512 17,405
Less: valuation allowance (1,044) (944)
-- ------------- --- -----------
Total current deferred income tax assets 14,468 16,461
-- ------------- --- -----------
Noncurrent:
Net operating loss carryforward 21,900 9,735
Deferred compensation 2,325 2,866
Other reserves and accruals 3,759 3,143
-- ------------- --- -----------
Subtotal 27,984 15,744
-- ------------- --- -----------
Total deferred income tax assets 42,452 32,205
-- ------------- --- -----------
Deferred noncurrent income tax liabilities:
Depreciation and amortization (2,008) (1,234)
Other deferred tax liabilities (1,073) (1,115)
-- ------------- --- -----------
Subtotal (3,081) (2,349)
== ============= === ===========
Net deferred income tax assets $ 39,371 $ 29,856
== ============= === ===========
</TABLE>
The valuation allowance for current deferred income tax assets as of
May 31, 2000 and 1999 results from capital loss carryforwards and
foreign tax credits. The Company has evaluated the other long-term
deferred tax assets and determined no valuation allowance is required
as management believes it is more likely than not the other long-term
deferred income tax assets will be realized in the future.
During the years ended May 31, 2000, 1999 and 1998, the Company
maintained its policy to reinvest the earnings of the non-United States
subsidiaries as a long-term commitment. Accordingly, the "Accumulated
other comprehensive income" included in the equity section of the
balance sheets have not been adjusted for the effect of U.S. taxes.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $243 million at May 31, 2000. Additional United States
income taxes may be due upon remittance of those earnings (net of
foreign tax). If all earnings were distributed, approximately $34
million would be payable at May 31, 2000.
Note 5. - RELATED PARTY TRANSACTIONS
The Company paid premiums until 1992 on life insurance policies on the
Chairman though the Company is not the beneficiary. Such cumulative
premium payments, which approximate surrender value, of $548 in May 31,
2000 and $428 in 1999, are included in other assets. The premiums will
be refunded by the beneficiary upon death of the insured or
cancellation of the policies, whichever comes first. The Company has no
future obligation to pay premiums on these policies.
Note 6. - COMMITMENTS
The Company leases office and warehouse space and computer and other
office equipment from third parties, including certain non-cancelable
operating leases financed by special purpose entities, under operating
leases expiring through 2013. Minimum future rental payments by the
Company as of May 31, 2000 are as follows:
<TABLE>
<CAPTION>
Rental Sublease Net Rental
Payments Income Payments
--------------- -------------- ---------------
<S> <C> <C> <C>
Year ending May 31,
--------------------------------------------
2001 $ 33,304 $ 887 $ 32,417
2002 21,438 282 21,156
2003 16,651 222 16,429
2004 13,078 169 12,909
2005 10,777 63 10,714
2006 and thereafter 30,750 63 30,687
=============== ============== ===============
Total $ 125,998 $ 1,686 $ 124,312
</TABLE>
Net rental expense from these leases was as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31,
-----------------------------------------------------
2000 1999 1998
-- ---------- ----------- -----------
<S> <C> <C> <C>
Gross lease expense $ 60,424 $ 59,226 $ 54,453
Less sublease rental income (3,909) (4,083) (2,603)
========== =========== ===========
Net rental expense $ 56,515 $ 55,143 $ 51,850
========== =========== ===========
</TABLE>
Note 7. - ACQUISITIONS
Purchases:
In 2000, the Company acquired the remaining interest of a freight
forwarding company for $300 in cash. Intangible assets of $176 was
recorded in connection with the acquisition.
In 1999, the Company acquired the remaining interests in five freight
forwarding companies and one third of the remaining interest in another
for $2,593 in cash and $74 in debt. Intangible assets of $1,307 were
recorded in connection with the acquisitions.
In 1998, the Company acquired the equity interest of a freight
forwarding Company for an aggregate purchase price of approximately
$1,552 through the issuance of 120 shares of the Company's stock. The
acquired Company included current assets of approximately $6,413; fixed
assets of approximately $342; and assumed liabilities, which are
primarily current in nature, of approximately $6,659. An intangible
asset of approximately $526 was recorded in connection with the
acquisition.
The Company entered into certain acquisition agreements which have
provisions regarding contingent future payments. As of May 31, 2000,
approximately $452 of such future contingent payments exist which have
not been recorded by the Company and are dependent upon full
achievement of specified net revenue or pretax income levels.
Intangible assets, including goodwill and covenants not to compete,
totaling approximately $272 and $4,130 were recorded in 2000 and 1999,
respectively, in connection with current and previous acquisitions.
Cash payments made during 2000 of $1,508 represent payments to reduce
acquisition debt payable and payments related to contingent purchase
price. Amortization expense for intangible assets was approximately
$4,375, $4,331 and $4,474 in 2000, 1999, and 1998, respectively.
The purchase method of accounting was used for all acquisitions made in
fiscal years presented herein. The operations of acquired companies are
reflected in the Company's consolidated financial statements from their
respective dates of acquisition.
Note 8. - 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 if any, 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, results of operations and liquidity.
Note 9. - 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.
The Company manages its operations in two segments, United States and
Foreign. The Company's Chief Executive 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.
Certain information regarding the Company's principal logistics
services and operations by geographic areas is summarized below:
<PAGE>
<TABLE>
<CAPTION>
Year Ended May 31,
-------------- ---- --------------- --- ---------------
2000 1999 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Net revenue:
Customs Brokerage $ 188,757 $ 163,701 $ 165,055
Ocean Freight Forwarding 127,224 126,060 120,497
Airfreight Forwarding 171,928 166,832 158,514
Material Management & Distribution 131,431 121,384 114,199
============== =============== ===============
Total net revenue $ 619,340 $ 577,977 $ 558,265
============== =============== ===============
Net revenue
United States $ 323,258 $ 307,025 $ 292,367
-------------- --------------- ---------------
Canada 52,741 45,349 42,939
Europe 102,013 96,755 96,157
China 42,629 37,071 34,431
Singapore 10,965 10,199 10,888
Other Asia 47,814 38,579 39,282
Latin America 39,920 42,999 42,201
-------------- --------------- ---------------
Total foreign 296,082 270,952 265,898
-------------- --------------- ---------------
Total net revenue $ 619,340 $ 577,977 $ 558,265
============== =============== ===============
Income (loss) from operations
United States $ 1,659 $ 12,195 $ 14,511
-------------- --------------- ---------------
Canada 2,695 1,180 (489)
Europe 8,502 562 5,028
China 13,354 8,007 4,436
Singapore 1,596 1,349 617
Other Asia 8,190 2,582 2,835
Latin America (3,469) (824) (1,125)
-------------- --------------- ---------------
Total foreign 30,868 12,856 11,302
============== =============== ===============
Total income from operations $ 32,527 $ 25,051 $ 25,813
============== =============== ===============
Long-lived Assets
United States $ 102,946 $ 98,341 $ 90,895
Canada 19,899 20,514 21,492
Europe 26,750 31,459 30,770
China 48,764 46,877 37,514
Singapore 14,771 15,472 15,401
Other Asia 4,972 5,031 4,559
Latin America 13,331 14,259 16,346
-------------- --------------- ---------------
Total foreign 128,487 133,612 126,082
============== =============== ===============
Total long-lived assets $ 231,433 $ 231,953 $ 216,977
============== =============== ===============
Depreciation and amortization
United States $ 15,925 $ 15,040 $ 14,079
Canada 2,034 2,027 2,512
Europe 3,576 3,948 3,371
China 2,316 2,229 2,429
Singapore 1,443 1,208 1,171
Other Asia 1,169 1,285 1,359
Latin America 1,910 1,771 1,464
-------------- --------------- ---------------
Total foreign 12,448 12,468 12,306
============== =============== ===============
Total depreciation and amortization $ 28,373 $ 27,508 $ 26,385
============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assets
United States $ 397,954 $ 354,751 $ 379,605
Canada 113,585 96,015 84,168
Europe 121,382 114,990 113,454
China 74,266 69,239 64,798
Singapore 42,234 36,065 32,792
Other Asia 38,467 35,810 28,096
Latin America 37,344 20,038 17,900
Total foreign 427,278 372,157 341,208
-------------- --------------- ---------------
Total assets $ 825,232 $ 726,908 $ 720,813
============== =============== ===============
Capital expenditures
United States $ 21,908 $ 18,100 $ 9,717
Canada 1,392 979 2,018
Europe 4,160 7,016 4,725
China 3,569 5,055 896
Singapore 623 1,243 891
Other Asia 1,824 1,299 1,618
Latin America 2,203 2,057 1,932
Total foreign 13,771 17,649 12,080
-------------- --------------- ---------------
Total capital expenditures $ 35,679 $ 35,749 $ 21,797
============== =============== ===============
</TABLE>
Note 10. COMMON STOCK (In thousands, except share and per share
amounts)
In October 1992, the Company established the 1992 Omnibus Equity
Incentive Plan ("1992 Plan"), pursuant to which an aggregate of
1,520,000 shares of common stock was reserved for issuance to key
employees of the Company. The 1992 Plan was amended to increase the
number of shares of common stock available for award by an additional
1,520,000 shares in May 1994, 1,500,000 shares in October 1996 and
1,500,000 shares in September 1998. The 1992 Plan permits awards of
non-qualified stock options and incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, as well as stock
appreciation rights, restricted stock, and performance awards entitling
the recipient to receive cash or common stock in the future following
attainment of performance goals determined by the committee
administering the 1992 Plan.
The majority of options granted under the Company's 1992 Plan are
exercisable one-third each on the day after the first, second and third
anniversary of the original grant. The majority of restricted stock
vests 100% on the day after the fifth anniversary of the original
grant. Both options and stock were granted at a price equal to fair
market value on the respective dates of grant except for 240,000 shares
of options which were granted at 90% of fair market value at date of
grant. Total stock-based compensation expense of approximately $2,204,
$2,590 and $3,520 was recorded in 2000, 1999, and 1998, respectively.
Each employee stock option assumed by the Company under a previous
merger agreement will continue to have and be subject to, the same
terms and conditions set forth in the relevant stock option plans. The
plans required stock options granted to key employees be at a price not
less than the stock's fair market value on the respective dates of
grant. The majority of options granted are exercisable one-third after
the first anniversary date of the grant, two-thirds after two years and
are fully exercisable three years from date of grant. No options have
been granted under this plan since May 30, 1995.
Effective February 1993, the Company adopted the Non-Employee Director
Restricted Stock Plan (Director Plan) with an aggregate of 50,000
shares of common stock for issuance to outside directors as a portion
of their annual compensation, which vest six months from date of grant.
Shares issued to outside directors under the Director Plan were 5,384,
4,844 and 4,468 during 2000, 1999 and 1998, respectively. Separately,
1,200 restricted shares were granted in 1996 to non-employee directors
under the 1992 Plan and vest three years from the date of grant.
The Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation," and exercised the election to continue to apply the
provisions of APB No. 25, "Accounting for Stock Issued to Employees,"
to its stock option plans. Accordingly, compensation expense has only
been recognized in the Consolidated Statements of Operations in
connection with the shares related to options granted at 90% of fair
market value on the respective dates of grant. Compensation expense was
zero, $134 and $161 in 2000, 1999, and 1998 respectively. Had
compensation expense of the Company's stock-based compensation plans
been determined using the fair value based method described in SFAS 123
in 2000, 1999 and 1998, the Company's pro forma net income and earnings
per share would have been:
<TABLE>
<CAPTION>
Year Ended May 31,
-------------- --- --------------- --- ---------------
2000 1999 1998
-------------- --------------- ---------------
<S> <C> <C> <C>
Net Income:
As reported $ 17,425 $ 13,452 $ 18,090
Pro forma $ 16,113 $ 12,231 $ 17,180
Earnings per share:
Basic-
As reported $ .48 $ .37 $ .51
Pro forma $ .44 $ .34 $ .48
Diluted-
As reported $ .47 $ .37 $ .50
Pro forma $ .44 $ .34 $ .48
</TABLE>
The fair value of each option grant is estimated based on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Expected volatility 56.56% 40.00% 40.00%
Risk-free interest rates for terms of:
2 years 6.67% 5.64% 5.71%
3 years 6.62% 5.72% 5.81%
4 years 6.57% 5.79% 5.86%
Expected dividend yield 0 % 0% 0%
Expected option life in years 4 4 4
</TABLE>
<PAGE>
Stock option activity was as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
-------------- --- -------------- ---- --------------
2000 1999 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Outstanding, beginning of period 2,409,000 1,960,000 1,509,000
Granted 491,000 496,000 660,000
Canceled (203,000) (31,000) (158,000)
Exercised (83,000) (16,000) (51,000)
=============== ============== ===============
Outstanding, end of period 2,614,000 2,409,000 1,960,000
=============== ============== ===============
Options exercisable 1,735,000 1,447,000 1,115,000
=============== ============== ===============
Restricted stock activity
Outstanding, beginning of period 768,000 539,000 372,000
Granted 184,000 263,000 187,000
Canceled (179,000) (34,000) (20,000)
-------------- -------------- --------------
Outstanding, end of period 773,000 768,000 539,000
============== ============== ==============
Restricted stock exercisable 271,000 222,000 184,000
============== ============== ==============
Weighted Average Exercise Price:
Outstanding, beginning of period $ 11.47 12.04 $ 13.25
Granted 11.46 9.62 10.39
Canceled 11.10 12.65 14.74
Exercised 9.01 7.80 7.90
Outstanding, end of period 11.58 11.47 12.04
Weighted average fair value of options granted $ 4.85 3.31 $ 3.60
============== ============== ==============
</TABLE>
The relevant information regarding stock options outstanding at May 31,
2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- ------------------------------------------------------ -----------------------------------
Number Weighted Average Weighted Number Weighted Average
Range of Outstanding Remaining Average Exercisable Exercise Price
Exercise Price May 31, 2000 Contractual Life Exercise May 31, 2000
Price
---------------------------- ---------------- ------------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$ 6.0625 - 9.3125 813,862 6.35 years 8.5547 559,421 8.2358
9.5625 - 10.9380 525,579 7.22 years 10.1686 335,522 10.1256
11.0000 - 12.0375 876,433 6.18 years 11.7428 469,701 11.9569
12.3750 - 23.4375 289,540 4.35 years 15.7582 261,865 15.8830
28.6250 - 28.6250 108,333 4.75 years 28.6250 108,333 28.6250
$ 6.0625 - 28.6250 2,613,747 6.18 years 11.5781 1,734,842 12.0363
======================= ============== ================= ============= ============= ================
</TABLE>
The number of shares available for grant under the 1992 Plan as of May
31, 2000 was 1,379,539 shares.
On April 25, 1997, the Company conducted a discretionary repricing
exchange program for all options issued under the 1992 Omnibus Equity
Incentive Plan, other than those issued to certain senior officers.
Under the terms of the program, option holders could elect to exchange
outstanding options for half of that number of options at an option
price equal to fair market value on April 25, 1997. Fair market value
as of that date was $8.125 per share. A total of 482,000 previously
issued options were exchanged for 241,000 new options issued in
connection with the program.
The Company initiated a three-year employee retention program whereby
selected managers and administrative personnel were awarded a total of
33,192 shares effective September 1, 1996, 27,036 shares effective July
31, 1997, and 24,226 shares effective July 31, 1998, at no cost to the
employee.
Effective July 1, 1996, the Company adopted an Employee Stock Purchase
Plan (ESPP). A maximum of 200,000 shares of common stock is available
for issuance pursuant to the ESPP. To be eligible to participate in the
Plan an employee must have completed one year of service and have been
scheduled to work more than twenty hours per week. Certain highly
compensated employees may be excluded from participation at the
discretion of the Compensation Committee of the Board of Directors.
The ESPP purchases stock based on the lower of 100% of market value on
the business day preceding the first day of the quarter in which the
stock is purchased or 90% of the average closing price on the pre-set,
quarterly purchase date. Approximately 6.3% of eligible employees have
participated in the Plan in the past year. During 2000, the Company
sold shares at a weighted average issue price of $9.52.
Under SFAS 123, compensation expense is recognized for the fair value
of the employees' purchase rights if the discount from market price is
greater than 5%. This was estimated using the Black-Scholes
option-pricing model with the following assumptions for 2000: expected
volatility - 56.56%; weighted average risk-free interest rate - 6.62%;
dividend yield -- zero; and purchase term -- 3 months. The weighted
average fair value of those purchase rights granted in 2000 was $48.
This compensation cost has been included in calculating the pro forma
net income and earnings per share.
On September 16, 1998, the Company announced that its Board of
Directors authorized the purchase of up to $5,000 of the Company's
common stock.
On March 1, 2000, the Company announced that its Board of Directors
authorized the purchase of up to $20,000 of the Company's common stock,
at the prevailing market price, but in no event to exceed $12.00 per
share.
As of May 31, 2000, the Company has made purchases totaling $706, at an
average price of $8.11 per share.
NOTE 11. RETIREMENT PLAN
The Company has a 401(k) retirement plan covering substantially all
U.S. employees. The Company has recorded matching contributions in the
amount of $1,485, $577 and $689 in 2000, 1999, and 1998 respectively.
In June 1, 2000, the Company filed Form S-8 (the "Registration
Statement") relating to the shares of Common Stock, $.01 par value, of
Fritz Companies, Inc. to be issued under the Fritz Companies, Inc.
Salary Investment & Retirement Plan "the "Plan"). The amended Plan
enhanced the benefits that affect all employees.
NOTE 12. QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth selected quarterly financial data for
the fiscal years ended May 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
August 31, November 30, February 29, May 31,
1999 1999 2000 2000
-------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 391,651 $ 426,503 $ 382,042 $ 412,495
Net revenue 150,650 160,724 148,485 159,481
Income (loss) from operations 10,694 15,385 (295) 6,743
Net income (loss) 5,979 9,124 (1,434) 3,756
Net income (loss) per share - Basic .16 .25 (.04) 0.10
Net income (loss) per share - Diluted .16 .25 (.04) 0.10
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
August 31, November 30, February 28, May 31,
1998 1998 1999 1999
-------------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 342,329 $ 381,946 $ 317,553 $ 345,899
Net Revenue 145,146 153,716 134,914 144,201
Income from operations 9,831 15,003 (2,993) 3,210
Net income (loss) 6,676 8,552 (2,958) 1,182
Net income (loss) per share - Basic .19 .24 (.08) .03
Net income (loss) per share - Diluted .19 .24 (.08) .03
</TABLE>
Note 13. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (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 recognize 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, of SFAS No. 133, as amended by SFAS
No. 137 and SFAS No. 138, which is effective for all quarters of
fiscal years beginning after June 15, 2000.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue
Recognition in Financial Statements as amended by SAB 101A, which
provides guidance on the recognition, presentation, and disclosure
of revenue in financial statements filed with the SEC. SAB 101
outlines the basis criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B which
deferred the effective date of SAB 101 until the last quarter of
fiscal years beginning after December 15, 1999. The Company does
not expect the adoption of SAB 101 to have a material effect on
its consolidated financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25. This Interpretation
clarifies the application of Opinion 25 for certain issues: (a)
the definition of employee for purposes of applying Opinion 25,
(b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. Generally, this
Interpretation is effective July 1, 2000. The Company does not
expect the adoption of Interpretation No. 44 to have a material
effect on its consolidated financial position or results of
operations.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Fritz Companies, Inc.:
We have audited the accompanying consolidated balance sheets of
Fritz Companies, Inc. and subsidiaries as of May 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity
and comprehensive income and cash flows for each of the years in the
three-year period ended May 31, 2000. In connection with our audits of
the consolidated financial statements, we also audited the related
consolidated financial statement schedule as of and for the years ended
May 31, 2000, 1999 and 1998. These consolidated financial statements
and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Fritz Companies, Inc. and subsidiaries as of May 31, 2000 and 1999
and the results of their operations and their cash flows for each of
the years in the three-year period ended May 31, 2000, in conformity
with accounting principles generally accepted in the United States of
America Also in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects,
the information set forth therein.
/s/ KPMG LLP
San Francisco, California
June 28, 2000
<PAGE>
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
For the Years Ended May 31, 2000, 1999 and 1998
(In thousands)
Net
Write-Offs
Charged
Balance to Reserves Balance At
Beginning Charges and Other End of Period
Of Period To Income
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
For the Year Ended May 31, 2000
Allowance for doubtful accounts $ 20,466 $ 8,122 $ (9,207) $ 19,381
============== ============== =============== ===============
For the Year Ended May 31, 1999
Allowance for doubtful accounts $ 23,232 $ 4,005 $ (6,771) $ 20,466
============== ============== =============== ===============
For the Year Ended May 31, 1998
Allowance for doubtful accounts $ 22,292 $ 8,740 $ (7,800) $ 23,232
============== ============== =============== ===============
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
2.1 Agreement and Plan of Reorganization entered by and
among the Registrant, Fritz Air
Freight and Intertrans Corporation and Amendment No. 1
thereto dated as of April 12, 1995. (Incorporated by
reference to Exhibit 2.1 to Form 8-K dated February
14, 1995 filed on or about February 21, 1995 and to
Appendix A to the Joint Proxy Statement/Prospectus
filed on or about April 13, 1995, respectively.).
3.1 Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to
Exhibit 3.1 to Registration Statement No. 33-50808,
filed on August 17, 1992.)
3.2 Registrant's Restated Bylaws.
4.1 Specimen certificate of Registrant's Common Stock.
(Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-50808, filed on August
17, 1992.)
10.1 Fritz Companies, Inc. Salary Investment and Retirement
Plan, and amendments thereto. (Incorporated by
reference to Exhibit 10.8 to Registration Statement
No.
33-50808, filed on August 17, 1992.)*
10.2 1992 Omnibus Equity Incentive Plan, as amended.
(Incorporated by reference to
Exhibit 10.9 to Registration Statement No. 33-50808,
filed on August 17, 1992.)*
10.3 Nonemployee Director Restricted Stock Plan.
(Incorporated by reference to Exhibit A
to the definitive proxy materials of Registrant,
filed on or about April 10, 1993.)*
10.4 Employment Agreement between Registrant and Dennis
Pelino dated June 1, 1995.
(Incorporated by reference to Exhibit 10.21 to
Form 10-Q for the quarter ended
August 31, 1995.)
10.5 Purchase Agreement between Registrant and Gestion
J.L.G., Inc. dated as of April 29, 1994. (Incorporated
by reference to Exhibit 1.2 to Form 8-K dated May 2,
1994 filed on or about May 16, 1994.)
10.6 Addendum to the purchase agreements between the
Registrant and Gestion J.L.G., Inc.
dated as of April 26, 1994. (Incorporated by
reference to Exhibit 10.23 to Form
10-Q for the quarter ended September 30, 1994.)
10.7 Note Purchase Agreement between the Registrant and
various other parties dated
April 15, 1996 for $75,000,000 of 6.43% notes due
April 15, 2003. (Incorporated by
reference to Exhibit 10.24 to Form 10-K for the year
ended May 31, 1996.)
10.8 Fritz Companies, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to
Exhibit 10.26 to the Registration Statement on
Form S-8 No. 33-07639 filed on July
3, 1996.)
10.9 Employment and Performance Based Retention Plan
between the Registrant and Dennis L. Pelino dated as
of October 31, 1996. (Incorporated by reference to
Exhibit 10.28 to Form 10-Q for the quarter ended
November 30, 1996.)**
10.10 Term Loan Facility agreement dated June 18, 1997
between Standard Chartered Bank and the Registrant
totaling $13.9 million (denominated in Singapore
dollars), maturity is five years from date of
agreement, payments are scheduled quarterly beginning
thirty-nine months from the date of the agreement,
interest rate equivalent to the Singapore Interbank
Offer Rate (SIBOR) plus 50 to 70 basis points
depending on the amount borrowed, and is
collateralized by certain property owned by the
Company
10.11 Syndicated multi-currency credit facility agreement
dated March 27, 1998 for $100
million maturing on March 27, 2001
10.12 Extension of syndicated multi-currency credit
facility agreement dated March
27,1998 for $100 million changing the maturing date
to March 27, 2002, Dated March
30, 1999
<PAGE>
EXHIBIT PAGE
10.13 First Amendment Agreement dated March 1, 1998 to the
Note Purchase Agreement dated
April 15, 1996 for $75 million of 6.43% senior notes
due April 15, 2003
10.14 U.S. Customs Brokerage service agreement between the
Registrant and Federal Express
Corporation dated August 25, 1998
10.15 Employment and Non-Compete Agreement between
Registrant and Brad Lee Skinner dated
December 1, 1998. *
10.16 Employment Offer Letter from the Registrant to
Raymond L. Smith dated December 7,
1998. *
10.17 Guarantee Agreement between the Registrant and
Joseph L. Carnes dated December 16, 1998.
10.18 Employment and Non-Compete Agreement between
Registrant and Jan H. Raymond dated
January 1, 1999. *
10.19 Employment and Non-Compete Agreement between
Registrant and Ronald F. Dutt dated
April 30, 1999. *
10.20 Amendment # 3 to Registrants Salary Investment and
Retirement Plan dated May 12, 1998
10.21 Restated Certificate of Incorporation of Fritz
Companies, Inc F-26
10.22 Employment and Non-Compete Agreement between
Registrant and Graham Napier dated July 17, 1999.F-29
10.23 Employment and Non-Compete Agreement between
Registrant and Eugene Wojciechowski
dated May 1, 2000 F-34
21.1 Subsidiaries of the Registrant F-38
23.1 Consent of KPMG LLP F-44
27 Financial Data Schedule F-45
* Indicates, as required by Item 14(a)(3), a management contract of
compensatory plan required to be filed as an exhibit to this Form
10-K.
** Confidential Treatment has been requested for portions of this
Exhibit.
<PAGE>
