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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 AUGUST 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to______
Commission file number 0-20548
FRITZ COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-3083515
- -------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
706 Mission Street, Suite 900, San Francisco, California 94103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 904-8360
Not applicable
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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 August 31, 1997 there were 35,653,000 shares of common stock outstanding.
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2
FORM 10-Q
FRITZ COMPANIES, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Independent Accountants' Review Report 3
Condensed Consolidated Balance Sheets as of August 31,
1997 and May 31, 1997 4
Condensed Consolidated Statements of Operations for the three
months ended August 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the three
months ended August 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 12
SIGNATURES 13
EXHIBIT INDEX 14
3
FRITZ COMPANIES, INC. FORM 10-Q
Independent Accountants' Review Report
Board of Directors and Stockholders
Fritz Companies, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Fritz
Companies, Inc. and subsidiaries (the Company) as of August 31, 1997, and the
related condensed consolidated statements of operations and cash flows for the
three months then ended included in the Company's Form 10-Q. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Fritz Companies, Inc. and
subsidiaries as of May 31, 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated July 16, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of May 31, 1997, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
KPMG Peat Marwick LLP
San Francisco, California
September 29, 1997
4
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
August 31, May 31,
1997 1997
--------- ----------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 44,470 $ 43,368
Accounts receivable, net of allowance for doubtful
accounts of $23,679 in August and $22,292 in May 440,113 414,550
Deferred income taxes 13,298 10,519
Prepaid expenses and other assets 25,657 27,978
--------- ---------
Total current assets 523,538 496,415
--------- ---------
PROPERTY AND EQUIPMENT - NET 94,551 100,879
--------- ---------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $17,122
in August and $16,204 in May 112,351 110,691
Other assets 17,192 15,531
--------- ---------
Total other assets 129,543 126,222
--------- ---------
TOTAL ASSETS $ 747,632 $ 723,516
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term
borrowings $ 36,664 $ 37,200
Accounts payable 294,592 276,228
Accrued liabilities 67,559 73,094
Income tax payable 10,654 7,148
--------- ---------
Total current liabilities 409,469 393,670
LONG-TERM OBLIGATIONS 91,775 84,884
DEFERRED INCOME TAXES 1,087 1,243
OTHER LIABILITIES 9,240 9,024
--------- ---------
TOTAL LIABILITIES 511,571 488,821
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock: par value $.01 per share;
60,000 shares authorized, 35,653 shares
issued and outstanding, (35,445 shares
issued and outstanding in May) 356 354
Additional paid-in capital 126,812 124,424
Retained earnings 116,701 112,895
Cumulative foreign currency translation adjustments (7,808) (2,978)
--------- ---------
Total stockholders' equity 236,061 234,695
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 747,632 $ 723,516
========= =========
See accompanying independent accountants' review report and
notes to condensed consolidated financial statements.
5
FORM 10-Q
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
Three Months Ended
-----------------------
August 31, August 31,
1997 1996
---------- ----------
REVENUE $ 326,699 $ 270,490
FREIGHT CONSOLIDATION COSTS 187,460 140,773
--------- ---------
NET REVENUE 139,239 129,717
--------- ---------
OPERATING EXPENSES:
Salaries and related costs 80,059 71,634
General and administrative 52,457 45,720
--------- ---------
Total operating expenses 132,516 117,354
--------- ---------
INCOME FROM OPERATIONS 6,723 12,363
OTHER EXPENSE, NET (868) (377)
--------- ---------
INCOME BEFORE TAX EXPENSE 5,855 11,986
INCOME TAX EXPENSE 2,049 4,195
--------- ---------
NET INCOME $ 3,806 $ 7,791
========= =========
Weighted average shares outstanding - primary 35,670 35,734
========= =========
Earnings per share - primary $ 0.11 $ 0.22
========= =========
Weighted average shares outstanding - fully
diluted 35,924 35,805
========= =========
Earnings per share - fully diluted $ 0.11 $ 0.22
========= =========
See accompanying independent accountants' review report and
notes to condensed consolidated financial statements.
6
FORM 10-Q
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
Three Months Ended
----------------------
August 31, August 31,
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,806 $ 7,791
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,852 5,940
Deferred income taxes (3,107) (1,681)
Effect of changes in:
Receivables (25,563) (14,119)
Prepaid expenses and other current assets 2,321 4,723
Payables and accrued liabilities 18,808 (15,879)
Accrued merger costs - (344)
-------- --------
Net cash provided by (used in) operating activities 3,117 (13,569)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,387) (9,490)
Acquisitions, new and contingent (1,172) (9,823)
Acquisitions, debt (1,661) (2,292)
Other (437) 681
-------- --------
Net cash used in investing activities (7,657) (20,924)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 6,591 1,439
Current portion of long-term obligations repaid (2,140) (1,461)
Net increase in short-term borrowings 1,305 21,000
Proceeds from stock options exercised 20 2,795
Other 114 31
-------- --------
Net cash provided by financing activities 5,890 23,804
-------- --------
Foreign currency translation effect on cash (248) (183)
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 1,102 (10,872)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 43,368 86,461
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 44,470 $ 75,589
======== ========
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 1,561 $ 349
======== ========
Interest paid $ 786 $ 1,152
======== ========
See accompanying independent accountants' review report and
notes to condensed consolidated financial statements.
7
FORM 10-Q
FRITZ COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The accompanying condensed consolidated financial statements of Fritz
Companies, Inc. and subsidiaries (the Company) for the three months ended
August 31, 1997 and 1996 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. Certain prior year amounts have been reclassified to conform to
the current year's financial statement presentation.
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, 1997. 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 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, 1997 included in the Company's Form 10-K filed on July 31, 1997. The
results of operations for the three months ended August 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
(Statement 128). The statement establishes standards for the computation,
presentation, and disclosure of earnings per share (EPS). It requires dual
presentation of Basic EPS and Diluted EPS. Basic EPS excludes all dilution
while Diluted EPS reflects potential dilution. Statement 128 is effective
for financial statements for periods ending after December 15, 1997.
Earlier application is not permitted. The Company does not expect adoption
of this statement will have a material impact to previously reported EPS
amounts.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which requires enterprises to report, by major component and in
total, all changes in equity from nonowner sources; and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Both standards are effective for the Company's fiscal year 1999
with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Company's
disclosures and will not impact the Company's results of operations, cash
flow or financial position.
2. COMMON STOCK
The increase in common stock issued and paid in capital was primarily
due to shares issued upon exercise of options, restricted stock grants, and
issuance of shares under the employee stock purchase plan. The weighted
average price used to calculate the impact of common stock equivalents on
primary earnings per share for the three months ended August 1997 was lower
than the weighted average price for the same period in 1996. The lower
average price resulted in fewer common stock equivalents for the three
months ended August 31, 1997, as compared to the same period in 1996.
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FRITZ COMPANIES, INC. FORM 10-Q
3. INCOME TAXES
Income tax expense for the three months ended August 31, 1997 consisted
of approximately $5.1 million of current tax provision and $3.1 million of
deferred tax benefit.
4. ACQUISITIONS
The Company recorded approximately $3.4 million and $8.6 million for
the quarters ended August 31, 1997 and 1996, respectively, of additional
purchase price relating to achievement of specified net revenue or pre-tax
income levels of certain prior acquisitions. At August 31, 1997, the
remaining maximum payments in connection with acquisitions providing a
contingent purchase price is approximately $8.9 million. There is no
certainty these businesses will achieve the revenue or profit levels to
require these contingent payments.
Net obligations recorded in relation to acquisitions were $0.3 million
and $0.3 million of current and long-term obligations, respectively, for
1997 and $2.2 million and $2.7 million of current and long-term
obligations, respectively, for 1996.
5. 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 lawsuits 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 directors and officers, purporting to be brought on behalf of a class
of purchasers 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.
Three of the 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 cases dismissed is being appealed. The three cases
filed in federal court, now consolidated to a single case, remain pending.
On September 12, 1997, the Company's motion to dismiss that consolidated
case was argued before the federal court. No ruling has yet been handed
down.
The Company is unable to predict the ultimate outcome of these suits
and it is possible that the outcome could have a significant adverse impact
on the Company's future consolidated results of operations. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion is applicable to the Company's financial
condition and results of operations for the three months ended August 31,
1997 and 1996. See Note 1 of Notes to Condensed Consolidated Financial
Statements.
9
FRITZ COMPANIES, INC. FORM 10-Q
RESULTS OF OPERATIONS
The following table provides the revenue, net revenue and percentages
attributable to the Company's principle logistics services during the
periods indicated (in thousands, except percent):
THREE MONTHS ENDED AUGUST 31,
----------------------------------------
1997 % 1996 %
------------------ -------------------
REVENUE:
Customs brokerage $ 41,222 12.6 $ 40,884 15.1
Ocean freight forwarding 97,455 29.8 80,795 29.9
Airfreight forwarding 143,256 43.9 114,988 42.5
Warehousing and distribution 44,766 13.7 33,823 12.5
======== ===== ======== =====
Total revenue $326,699 100.0 $270,490 100.0
======== ===== ======== =====
NET REVENUE:
Customs brokerage $ 41,222 29.6 $ 40,884 31.5
Ocean freight forwarding 30,222 21.7 28,149 21.7
Airfreight forwarding 38,091 27.4 34,137 26.3
Warehousing and distribution 29,704 21.3 26,547 20.5
======== ===== ======== =====
Total net revenue $139,239 100.0 $129,717 100.0
======== ===== ======== =====
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED WITH THREE MONTHS ENDED
AUGUST 31, 1996
Revenue and Net Revenue: For the first quarter of fiscal year 1998,
revenue increased 20.8% to $326.7 million from $270.5 million for the
comparable period and net revenue increased 7.3% to $139.2 million from
$129.7 million for the comparable period. All of the Company's principal
service areas reported revenue increases. The increase in revenue and net
revenue was primarily due to ocean freight, airfreight and warehousing and
distribution services, which was the result of continued expansion of
overseas and domestic services, increased demand from existing integrated
logistics customers and continued expansion of warehouse facilities. All
products continued to experience some pressure on prices and margins due to
the competitive environment. The Company continues to focus on improving
productivity, efficiency and providing value added customer service at
competitive prices.
Operating Expenses: Operating expenses increased 12.9% from $117.4
million to $132.5 million for the first quarter of fiscal year 1998
compared to the comparable period of fiscal year 1997. The increase in
salaries and related costs was due to growth in the number of personnel to
support the Company's continued expansion of its overseas and domestic
services and to accommodate the increase in shipping volumes caused by the
UPS strike. The increase in general and administrative expenses was
primarily due to expenditures to support the Company's expansion, including
data processing costs, communications and occupancy related costs which
include warehouse related expenses.
10
FRITZ COMPANIES, INC. FORM 10-Q
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents increased $1.1 million to $44.5
million at August 31, 1997 from $43.4 million at May 31, 1997. The increase
in cash was primarily due to net increases in long-term debt financing
activities which was primarily used to fund capital expenditures and
acquisition payments. The Company's investing activities for this period
included capital expenditures of approximately $4.4 million which primarily
includes expenditures for computer hardware, building and leasehold
improvements and warehouse equipment. The Company's financing activities
for this period included long-term funding of $6.6 million for a warehouse
in Singapore.
The Company paid cash of $2.8 million relating to acquisitions. These
payments consisted of reductions to existing debt totaling $1.6 million,
and additional payments totaling $1.2 million from achievement of specified
net revenue or pre-tax income levels.
As of August 31, 1997, utilization of the syndicated multicurrency
credit facility (the Credit Facility) was $38.7 million, consisting of
$24.0 million of borrowings under the Credit Facility and $14.7 million for
outstanding letters of credit. Therefore, the Company's total available
borrowing capacity under the Credit Facility as of August 31, 1997 was
approximately $21.3 million.
CURRENCY AND OTHER RISK FACTORS
The nature of the Company's worldwide operations involves a multitude
of currencies other than the U.S. Dollar. Accordingly, the Company is
exposed to the inherent risks of international currency markets and
governmental interference. The Company seeks to compensate for currency
exposures by accelerating international payment among the Company's offices
and agents. The Company's translation adjustment for the three months ended
August 31, 1997 increased due to the strengthening of the U.S. dollar
relative to the currencies on Asia, Europe and Latin America.
In addition, 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.
However, changes in space allotments available from carriers, governmental
deregulation efforts, "modernization" of the regulations governing customs
clearance, and/or changes in the international trade and tariff environment
could affect the Company's business in unpredictable ways.
There are also risks and uncertainties associated with the Company's
acquisition strategy, such as the complexities of integrating systems and
operations of acquired companies.
11
FRITZ COMPANIES, INC. FORM 10-Q
Management believes the Company's business has not been adversely affected
by inflation in the past. Historically, the Company has generally been
successful in passing cost increases to its customers by means of price
increases. However, due to the competitive marketplace, continued future
cost increases could erode the Company's margin.
Additional risks and uncertainties include:
(i) The Company's ability to implement its program to
improve operating results and cash flow,
(ii) Dependence of the Company on international trade and
worldwide economic conditions,
(iii) Dependence of the Company on the continued services of
key executives and managers,
(iv) Risks associated with the Company's acquisition
strategy, including:
(a) Diversion of management's attention to the
assimilation of the operations and
personnel of acquired companies,
(b) Potential adverse short-term effects of
acquisitions on the Company's operating
results, and
(c) Integration of financial reporting systems
and acquired assets.
(v) The possible inability of the Company's information
systems to keep pace with the increasing complexity and
growth of the Company's business,
(vi) The increasing level of investment required by the
transition of the Company from prior predominance of
customs brokerage revenue to its increasing emphasis on
integrated logistics and providing a full range of
international transportation and supply chain
management services,
(vii) Diversion of management focus and resources as a result
of pending litigation,
(viii) Other risks disclosed elsewhere in this Form 10-Q or
in the Company's other filings with the Securities and
Exchange Commission.
SAFE HARBOR STATEMENT
Except for the historical information contained herein, the matters
discussed in this Form 10-Q contain forward looking statements that involve
risks and uncertainties. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed herein, as well as those
discussed elsewhere in the Company's Securities & Exchange Commission
filings.
12
FRITZ COMPANIES, INC. FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Credit Facility dated July 19, 1996 between National Bank
of Canada and the Registrant totaling $30.0 million
(Canadian dollars), principal repayable on demand,
interest repayable on the 26th day of each month based on
either the Canadian or American prime rate of the Bank.
The Registrant has the option to set interest based on
Libor, plus 75 basis points. Credit Facility borrowings
are collateralized based on the Registrants net accounts
receivable balance. Edgar Filing Only.
15 Letter regarding unaudited interim financial information.
Edgar Filing Only.
27 Financial Data Schedule. Edgar Filing Only.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed in the quarter ended August 31,
1997.
13
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: September 30, 1997
-------------------------------------
Lynn C. Fritz
Chairman and Chief Executive Officer
--------------------------------------
Dennis L. Pelino
President and Chief Operating Officer
--------------------------------------
Robert Arovas
Executive Vice President and
Chief Financial Officer
-------------------------------------
Ronald W. Womack
Vice President of Finance and
Principal Accounting Officer
14
FRITZ COMPANIES, INC. FORM 10-Q
EXHIBIT INDEX
EXHIBIT PAGE
10.31 Credit Facility dated July 19, 1996 between National Bank of Canada 15
and the Registrant totaling $30.0 million (Canadian dollars),
principal repayable on demand, interest repayable on the 26th day of
each month based on either the Canadian or American prime rate of the
Bank. The Registrant has the option to set interest based on Libor,
plus 75 basis points. Credit Facility borrowings are collateralized
based on the Registrants net accounts receivable balance.
15 Letter regarding unaudited interim financial information 38
27 Financial Data Schedule