1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-20548
FRITZ COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3083515
(State or other jurisdiction (IRS Employer
of incorporation or organization) 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
Not applicable
(Former name, former address and former fiscal year if changed from last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
As of November 30, 1996 there were 35,106,000 shares of common stock
outstanding.
================================================================================
2
FRITZ COMPANIES, INC. FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of November 30,
1996 and May 31, 1996 3
Condensed Consolidated Statements of Income for the three
months and six months ended November 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
six months ended November 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
SIGNATURES 12
EXHIBIT INDEX 13
2
3
FRITZ COMPANIES, INC. FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOVEMBER 30, MAY 31,
1996 1996
----------- --------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 84,688 $ 86,461
Accounts receivable, net of allowance for
doubtful accounts of $7,404 in November (May, $6,401) 419,532 397,747
Deferred income taxes 7,190 7,368
Prepaid expenses and other assets 24,344 28,368
-------- --------
Total current assets 535,754 519,944
-------- --------
PROPERTY AND EQUIPMENT - NET 122,296 111,399
-------- --------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $14,299
in November (May, $11,963) 108,677 88,790
Deferred income taxes 2,365 1,727
Other assets 11,110 11,602
-------- --------
Total other assets 122,152 102,119
-------- --------
TOTAL ASSETS $780,202 $733,462
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term
borrowings $ 45,749 $ 14,514
Accounts payable 310,344 322,018
Accrued liabilities 67,814 65,149
Income tax payable 9,832 6,496
-------- --------
Total current liabilities 433,739 408,177
LONG-TERM OBLIGATIONS 90,216 89,505
DEFERRED INCOME TAXES 1,005 995
OTHER LIABILITIES 4,244 4,038
-------- --------
TOTAL LIABILITIES 529,204 502,715
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: par value $.01 per share;
60,000 shares authorized, 35,106 shares
issued and outstanding, (34,898 shares
issued and outstanding, May, 31, 1996) 351 349
Additional paid-in capital 122,240 118,485
Retained earnings 129,633 112,587
Cumulative foreign currency translation adjustments (1,226) (674)
-------- --------
Total stockholders' equity 250,998 230,747
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $780,202 $733,462
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
4
FRITZ COMPANIES, INC. FORM 10-Q
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
------------ ------------ ------------ ------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
REVENUE $306,464 $276,102 $576,954 $542,469
FREIGHT CONSOLIDATION COSTS 175,687 157,107 316,460 307,770
-------- -------- -------- --------
NET REVENUE 130,777 118,995 260,494 234,699
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries and related costs 73,872 62,420 145,506 124,052
General and administrative 42,206 37,153 87,926 72,328
-------- -------- -------- --------
Total expenses 116,078 99,573 233,432 196,380
-------- -------- -------- --------
INCOME FROM OPERATIONS 14,699 19,422 27,062 38,319
OTHER INCOME (EXPENSE) - NET (460) 73 (837) 553
-------- -------- -------- --------
INCOME BEFORE TAXES ON INCOME 14,239 19,495 26,225 38,872
TAXES ON INCOME 4,984 6,823 9,179 13,605
-------- -------- -------- --------
NET INCOME $ 9,255 $ 12,672 $ 17,046 $ 25,267
======== ======== ======== ========
Weighted average shares outstanding - primary 35,373 35,247 35,584 34,887
======== ======== ======== ========
Earnings per share - primary $ 0.26 $ 0.36 $ 0.48 $ 0.72
======== ======== ======== ========
Weighted average shares outstanding - fully diluted 35,510 35,394 35,694 35,144
======== ======== ======== ========
Earnings per share - fully diluted $ 0.26 $ 0.36 $ 0.48 $ 0.72
======== ======== ======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
5
FRITZ COMPANIES, INC. FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30,
-----------------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,046 $ 25,267
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,762 9,185
Deferred income taxes (451) 1,041
Tax benefit from exercise of stock options -- 9,705
Other 813 563
Effect of changes in:
Receivables (20,296) (68,509)
Prepaid expenses and other current assets 4,024 (8,180)
Payables and accrued liabilities (7,353) 19,651
-------- --------
Net cash provided by (used in) operating activities 5,545 (11,277)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,063) (17,569)
Acquisitions, net of cash acquired (7,899) (17,313)
Other (1,398) 1,829
-------- --------
Net cash used by investing activities (31,360) (33,053)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term obligations issued 4,127 --
Long-term obligations repaid (9,287) (4,310)
Net increase in short-term borrowings 26,010 32,250
Proceeds from stock options exercised 3,757 14,043
Other (13) 513
-------- --------
Net cash provided by financing activities 24,594 42,496
-------- --------
Foreign currency translation adjustments (552) (920)
-------- --------
DECREASE IN CASH AND EQUIVALENTS (1,773) (2,754)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 86,461 74,261
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 84,688 $ 71,507
======== ========
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 3,757 $ 12,982
======== ========
Interest paid $ 4,581 $ 2,389
======== ========
Noncash investing and financing activities in
connection with acquisitions:
Liabilities assumed $ 2,189 $ 9,744
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
6
FRITZ COMPANIES, INC. FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying condensed consolidated financial statements of Fritz
Companies, Inc. (the Company) for the three and six months ended November 30,
1996 and 1995 are unaudited and, in the opinion of management, contain all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair presentation of the results of such periods.
The significant accounting policies followed by the Company are described
in Note 1 to the audited consolidated financial statements for the year ended
May 31, 1996. In accordance with SEC regulations, certain information and
footnote disclosures normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted for the purposes of the condensed consolidated interim
financial statements. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements, including the
notes thereto, for the year ended May 31, 1996 included in the Company's Form
10-K filed on August 28, 1996. The results of operations for the three and six
months ended November 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
2. COMMON STOCK
The increase in common stock issued and paid in capital was primarily due
to 108,000 shares issued upon exercise of options and restricted stock grants.
3. INCOME TAXES
Income tax expense for the six months ended November 30, 1996 consisted of
approximately $9.6 million of current tax provision and $451,000 of deferred tax
benefit.
4. ACQUISITIONS
For the six months ended November 30, 1996, the Company acquired assets and
the remaining interests in five freight forwarding companies for an aggregate
purchase price of approximately $9.6 million consisting of cash of $8.3 million
and obligations payable of $1.3 million. In addition, the Company acquired
minority interests in a company which was recorded under the equity base method
of accounting. Of the total acquisition price, the Company acquired current
assets of $2.3 million, fixed assets of $1.0 million and current liabilities of
$2 million. Intangible assets of approximately $8.3 million were recorded in
connection with these acquisitions, which are being amortized on a straight line
basis over forty years. In addition, the Company recorded approximately $9.5
million of additional purchase price relating to achievement of specified net
revenue or pre tax income levels of certain prior acquisitions.
6
7
FRITZ COMPANIES, INC. FORM 10-Q
5. SUBSEQUENT EVENTS
Two of the class action suits, filed against the Company and disclosed in
Item 3, 7 and 14 of the Company's Form 10-K filed on August 28, 1996 (Levenson
v. Fritz and Hack v. Fritz) were dismissed with prejudice on December 27, 1996
by the Superior Court of California for the County of San Francisco on the
grounds that claims sought to be asserted under the California Corporate
Securities Law and for common law fraud were not legally tenable. The three
cases filed in federal court and one additional case filed in California state
court have not yet been addressed by the courts and remain pending.
The Company is unable to estimate the ultimate outcome of these matters,
and it is possible that such outcome could have a significant adverse impact on
the Company's consolidated results of operations. The Company believes that the
ultimate outcome of these matters will not have a significant adverse impact on
the Company's consolidated financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion is applicable to the Company's financial condition
and results of operations for the three and six months ended November 30, 1996
and 1995. See Note 1 to Notes to Condensed Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table provides the revenue, and net revenue, in thousands of
dollars and percentages attributable to the Company's principal logistics
services during the periods indicated:
THREE MONTHS ENDED NOVEMBER 30, SIX MONTHS ENDED NOVEMBER 30,
------------------------------------- ---------------------------------------------
1996 % 1995 % 1996 % 1995 %
-------- ---- -------- ---- --------- ---- -------- ----
REVENUE:
Customs brokerage $37,790 12.3 $ 36,482 13.2 $ 78,674 13.6 $ 73,037 13.5
Ocean freight forwarding 87,807 28.7 86,029 31.2 168,602 29.2 166,050 30.6
Airfreight forwarding 145,695 47.5 130,120 47.1 260,683 45.2 258,356 47.6
Warehousing and
distribution 35,172 11.5 23,471 8.5 68,995 12.0 45,026 8.3
-------- ---- -------- ---- -------- ---- -------- ----
Total revenue $306,464 100% $276,102 100% $576,954 100% $542,469 100%
======== ==== ======== ==== ======== ==== ======== ====
NET REVENUE:
Customs brokerage $ 37,790 28.9 $ 36,482 30.7 $ 78,674 30.2 $ 73,037 31.1
Ocean freight forwarding 25,600 19.6 25,285 21.2 53,749 20.6 53,826 22.9
Airfreight forwarding 40,748 31.1 39,096 32.9 74,885 28.8 73,289 31.2
Warehousing and
distribution 26,639 20.4 18,132 15.2 53,186 20.4 34,547 14.8
-------- ---- -------- ---- --------- ---- -------- ----
Total net revenue $130,777 100% $118,995 100% $260,494 100% $234,699 100%
======== ==== ======== ==== ======== ==== ======== ====
7
8
FRITZ COMPANIES, INC. FORM 10-Q
THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED NOVEMBER
30, 1995
Revenue and Net Revenue: For the second quarter of fiscal year 1997,
revenue increased 11% to $306.5 million from $276.1 million for the comparable
period and net revenue increased 9.9% to $130.8 million from $119.0 million for
the comparable period. The increased revenue and net revenue was primarily due
to warehousing and distribution and airfreight. The increased warehousing and
distribution revenue and net revenue resulted primarily from the Company's
continued expansion of overseas and domestic services, increased demand from
existing integrated logistics customers, acquisitions and the Company's
continued expansion of its warehouse facilities. Airfreight revenue and net
revenue increased primarily due to increased business from existing integrated
logistics customers, acquisitions and the Company's continued expansion of its
operations in Asia, Latin America and Europe. However, the Company experienced
lower yields due primarily to higher costs which have not been passed on to
customers in all cases and it also reflects a slight decrease in weight per
shipment from the United States to overseas.
Operating Expenses: Operating expenses increased 16.6% for the second
quarter of fiscal year 1997 compared to the comparable period of fiscal year
1996. Salaries and related costs increased primarily due to an increase in the
number of employees resulting mostly from recent acquisitions and the Company's
continued expansion of its overseas and domestic services, and higher salary
levels. Some of the increase in number of employees was from Europe where
salary costs tend to be higher. General and administrative expenses such as
data processing, occupancy and equipment increased primarily due to expenditures
to support the Company's expansion including warehouse-related expenses.
SIX MONTHS ENDED NOVEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED NOVEMBER 30,
1995
Revenue and Net Revenue: Revenue for the six months ended November 30, 1996
increased 6.4% to $577.0 million from $542.5 million for the comparable period
and net revenue increased 11% to $260.5 million from $234.7 million for the
comparable period. The increased revenue and net revenue was primarily
attributable to warehousing and distribution and customs brokerage. The
increased warehousing and distribution revenue and net revenue resulted
primarily from the Company's continued expansion of overseas and domestic
services, increased demand from existing integrated logistics customers,
acquisitions and the Company's continued expansion of its warehouse facilities.
In addition, warehouse and distribution revenue and net revenue include the
recognition of approximately $3 million for logistics services provided to a
customer through an agent. The increased customs brokerage was primarily
attributable to the growth in the Company's existing customer base, new
customers and acquisitions.
Operating Expenses: Operating expenses for the six months ended November
30, 1996 increased 18.9% compared to the comparable period. Salaries and related
costs increased primarily due to an increase in the number of employees
resulting mostly from recent acquisitions and the Company's continued expansion
of its overseas and domestic services, and higher salary levels. Some of the
increase in number of employees was from Europe where salary costs tend to be
higher. General and administrative expenses such as data processing, occupancy
and equipment increased primarily due to expenditures to support the Company's
expansion, including warehouse-related expenses. In addition, there was an
increase in travel and professional services expenditures. The increased travel
cost was due primarily to the Company's biennial worldwide managers' meeting and
professional services cost increased primarily due to higher legal expenses and
consulting fees.
8
9
FRITZ COMPANIES, INC. FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents decreased $1.8 million to $84.7 million
at November 30, 1996 from $86.5 million at May 31, 1996. This decrease was
primarily due to cash used on investing activities in excess of the cash
provided by operating activities and financing activities. The Company's
investing activities for this period included capital expenditures of
approximately $22.1 million which primarily includes expenditures for computer
hardware, building and leasehold improvements and equipment. The Company also
made cash outlays totaling $9.6 million to acquire assets and the remaining
interest in five companies during the six months ended November 30, 1996. In
addition, the Company recorded approximately $9.5 million of additional purchase
price (consisting of cash of $2.3 million and obligations payable of $7.2
million) relating to achievement of specified net revenue or pre tax income
levels of certain prior acquisitions. The cash flow from operating activities
increased slightly primarily due to earnings and depreciation and amortization
which was offset by an increase in accounts receivables. The Company's total
available borrowing capacity under the syndicated multi-currency credit facility
as of November 30, 1996 was approximately $25.8 million.
SUBSEQUENT EVENTS
Two of the class action suits, filed against the Company and disclosed in
Item 3, 7 and 14 of the Company's Form 10-K filed on August 28, 1996 (Levenson
v. Fritz and Hack v. Fritz) were dismissed with prejudice on December 27, 1996
by the Superior Court of California for the County of San Francisco on the
grounds that claims sought to be asserted under the California Corporate
Securities Law and for common law fraud were not legally tenable. The three
cases filed in federal court and one additional case filed in California state
court have not yet been addressed by the courts and remain pending.
The Company is unable to estimate the ultimate outcome of these matters,
and it is possible that such outcome could have a significant adverse impact on
the Company's consolidated results of operations. The Company believes that the
ultimate outcome of these matters will not have a significant adverse impact on
the Company's consolidated financial position.
9
10
FRITZ COMPANIES, INC. FORM 10-Q
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The annual meeting of shareholders was held on October 29, 1996.
(b) The following directors were elected at the meeting:
Lynn C. Fritz
Dennis L. Pelino
Ronald A. Marcillac
James Gilleran
Preston Martin
The foregoing constitute all members of the Board of Directors of
the Company.
(c) At the annual meeting the shareholders voted to approve proposals
to amend the 1992 Omnibus Equity Incentive Plan and to adopt the
Employee Stock Purchase Plan.
Set forth below is a tabulation with respect to the matters voted
on at the meeting:
AGAINST OR BROKER
FOR WITHHELD ABSTENTIONS NON-VOTES
--- -------- ----------- ---------
Proposal to Amend 1992
Omnibus Equity Incentive Plan 28,464,645 2,615,572 183,910 0
Proposal to adopt Employee
Stock Purchase Plan 30,443,695 1,009,981 134,850 0
Election of Directors
Lynn C. Fritz 31,421,766 441,141 0 0
Dennis L. Pelino 31,405,547 457,360 0 0
Ronald A. Marcillac 31,365,143 497,764 0 0
James Gilleran 31,518,299 344,608 0 0
Preston Martin 31,517,374 345,533 0 0
(d) Inapplicable.
ITEM 5. OTHER INFORMATION
During the period covered by this report, the Company entered into
employment agreements with Dennis Pelino and Ronald Womack, both of whom
are considered to be executive officers.
10
11
FRITZ COMPANIES, INC. FORM 10-Q
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached Exhibit Index.
(b) The Company filed the following report on Form 8-K during the
quarter ended November 30, 1996 and through the date hereof:
(1) October 9, 1996
Item 5. Other Events
- On October 9, 1996, the Company issued a press release
relating to its earnings for the first quarter of fiscal
1997.
11
12
FRITZ COMPANIES, INC. FORM 10-Q
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FRITZ COMPANIES, INC.
Registrant
Dated: January 13, 1996
/s/ Lynn C. Fritz
--------------------------------------
Lynn C. Fritz
Chairman and Chief Executive Officer
/s/ Dennis L. Pelino
--------------------------------------
Dennis L. Pelino
President and Chief Operating Officer
/s/ Ronald W. Womack
--------------------------------------
Ronald W. Womack
Vice President of Finance and
Principal Accounting Officer
12
13
FRITZ COMPANIES, INC. FORM 10-Q
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
10.28 Employment and Performance Based Retention Plan
between the Registrant and Dennis L. Pelino dated
as of October 31, 1996. ** 13
10.29 Employment between the Registrant and Ronald W.
Womack dated as of October 2, 1996. 19
- ----------------------------------------------
** Confidential Treatment is being requested for portions of this Exhibit.
13