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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1998
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.
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(Exact name of registrant as specified in its charter)
Delaware 94-3083515
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(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
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 February 28, 1998 there were 35,838,659 shares of common stock
outstanding.
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FRITZ COMPANIES, INC. FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Independent Accountants' Review Report 3
Condensed Consolidated Balance Sheets as of February 28,
1998 and May 31, 1997 4
Condensed Consolidated Statements of Operations for the three
months and nine months ended February 28, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended February 28, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
SIGNATURES 15
EXHIBIT INDEX 16
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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 February
28, 1998 and the related condensed consolidated statements of operations
and cash flows for the three and nine month periods ended February 28,
1998 and 1997 included in the Company's Form 10-Q. These condensed
consolidated financial statements are the responsibility of the
Company's management.
We conducted our reviews 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 reviews, 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.
/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG Peat Marwick LLP
San Francisco, California
March 24, 1998
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FRITZ COMPANIES, INC. FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
February 28, May 31,
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 43,336 $ 43,368
Accounts receivable, net of allowance for
doubtful accounts of $25,744 in 1998 and $22,292 in 1997 413,198 414,550
Deferred income taxes 16,384 10,519
Prepaid expenses and other assets 25,730 27,978
-------- --------
Total current assets 498,648 496,415
-------- --------
PROPERTY AND EQUIPMENT - NET 91,933 100,879
-------- --------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $19,411
in 1998 and $16,204 in 1997 111,730 110,691
Other assets 16,819 15,531
-------- --------
Total other assets 128,549 126,222
-------- --------
TOTAL ASSETS $719,130 $723,516
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term
borrowings $ 13,571 $ 37,200
Accounts payable 270,668 276,228
Accrued liabilities 74,017 73,094
Income tax payable 14,206 7,148
-------- --------
Total current liabilities 372,462 393,670
-------- --------
LONG-TERM OBLIGATIONS 93,013 84,884
DEFERRED INCOME TAXES 200 1,243
OTHER LIABILITIES 10,233 9,024
-------- --------
TOTAL LIABILITIES 475,908 488,821
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share;
60,000 shares authorized, 35,839 shares
issued and outstanding, (35,445 shares
issued and outstanding in 1997) 358 354
Additional paid-in capital 129,880 124,424
Retained earnings 126,222 112,895
Cumulative foreign currency translation adjustments (13,238) (2,978)
--------- ---------
Total stockholders' equity 243,222 234,695
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 719,130 $ 723,516
========= =========
SEE ACCOMPANYING INDEPENDENT ACCOUNTANTS' REVIEW REPORT AND
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FRITZ COMPANIES, INC. FORM 10-Q
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
FRITZ COMPANIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
REVENUE $307,210 $270,341 $977,520 $847,295
FREIGHT CONSOLIDATION COSTS 174,928 152,370 560,835 468,830
-------- -------- -------- --------
NET REVENUE 132,282 117,971 416,685 378,465
-------- -------- -------- --------
OPERATING EXPENSES
Salaries and related costs 81,336 80,048 244,805 225,554
General and administrative 49,274 62,651 152,939 150,577
-------- -------- -------- --------
Total operating expenses 130,610 142,699 397,744 376,131
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS 1,672 (24,728) 18,941 2,334
OTHER INCOME (EXPENSE) 1,478 (1,166) 657 (2,003)
-------- -------- -------- --------
INCOME (LOSS) BEFORE TAX EXPENSE 3,150 (25,894) 19,598 331
INCOME TAX EXPENSE (BENEFIT) 514 (9,063) 6,271 116
-------- -------- -------- --------
NET INCOME (LOSS) $ 2,636 $(16,831) $ 13,327 $ 215
======== ======== ======== ========
Weighted average shares outstanding -
Basic 35,818 35,148 35,733 35,078
======== ======== ======== ========
Earnings (Loss) per share - Basic $ 0.07 $ (0.48) $ 0.37 $ 0.01
======== ======== ======== ========
Weighted average shares outstanding -
Diluted 36,308 35,148 36,122 35,604
======== ======== ======== ========
Earnings (Loss) per share - Diluted $ 0.07 $ (0.48) $ 0.37 $ 0.01
======== ======== ======== ========
SEE ACCOMPANYING INDEPENDENT ACCOUNTANTS' REVIEW REPORT AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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FRITZ COMPANIES, INC. FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
----------------------------
February 28, February 28,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,327 $ 215
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 20,136 18,286
Deferred income taxes (6,629) (3,563)
Stock Compensation 3,398 2,363
Other 2,181 625
Effect of changes in:
Receivables 7,436 (6,952)
Prepaid expenses and other current assets 2,366 (1,009)
Payables and accrued liabilities (4,136) (61,934)
-------- --------
Net cash provided by (used in) operating activities 38,079 (51,969)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,275) (34,321)
Acquisitions, new and contingent (3,308) (12,509)
Acquisitions, debt (11,259) (8,736)
Other 3,203 2,168
-------- --------
Net cash used in investing activities (27,639) (53,398)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 10,254 5,160
Current portion of long-term obligations repaid (2,122) (9,886)
Net (decrease) increase in short-term borrowings (14,957) 63,297
Proceeds from stock options exercised 510 2,123
Other (830) 304
-------- --------
Net cash provided by (used in) financing activities (7,145) 60,998
-------- --------
Foreign currency translation effect on cash (3,327) (1,069)
-------- --------
DECREASE IN CASH AND EQUIVALENTS (32) (45,438)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 43,368 86,461
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 43,336 $ 41,023
======== ========
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 4,095 $ 5,919
======== ========
Interest paid $ 5,074 $ 5,396
======== ========
Noncash investing and financing activities in
connection with acquisitions:
Receivables assumed $ 6,084 $ 1,489
Payables and accrued liabilities assumed 6,557 2,189
Capital stock issued 1,552 --
SEE ACCOMPANYING INDEPENDENT ACCOUNTANTS' REVIEW REPORT AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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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. and subsidiaries (the Company) for the three and nine months
ended February 28, 1998 and 1997 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
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, 1997 included in the Company's Form 10-K filed on July 31,
1997. The results of operations for the nine months ended February 28, 1998
may not necessarily be indicative of the results to be expected for the full
year.
The Company has adopted the provisions to Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" effective December 1,
1997. The statement requires the calculation and disclosure of basic and
diluted earnings per share as opposed to primary and fully diluted
calculations required under Accounting Principles Board Opinion No. 15,
"Earnings Per Share" and related pronouncements. All prior period earnings
per share and average shares outstanding data have been restated to reflect
the adoption of this statement. Basic and diluted earnings per share are
presented below.
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
(in thousands of dollars, except per share data)
1998 1997 1998 1997
-------- -------- -------- --------
Basic:
Net income (Loss) $ 2,636 $(16,831) $13,327 $ 215
Weighted-average number of common shares
outstanding 35,818 35,148 35,733 35,078
Basic earnings per common share $ 0.07 $ (0.48) $ 0.37 $ 0.01
Diluted:
Net income (Loss) $ 2,636 $(16,831) $13,327 $ 215
Shares:
Weighted-average number of common shares 35,818 35,148 35,733 35,078
outstanding
Potentially dilutive common shares 490 -- 389 526
------- -------- ------- -------
Total shares 36,308 35,148 36,122 35,604
Diluted earnings per weighted-average
common share $ 0.07 $ (0.48) $ 0.37 $ 0.01
Options to purchase 0.4 million shares of common stock ranging from
$13.63 to $28.63 per share were outstanding as of February 28, 1998. Options
to purchase 0.6 million shares of common stock ranging from $17.75 to $41.50
per share were outstanding as of February 28, 1997. These options were not
included in the computation of diluted earning per share because the
options' exercise prices were greater than the average market price of the
common shares.
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FRITZ COMPANIES, INC. FORM 10-Q
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 non-owner 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 operating segments and related disclosures about products,
services, geographic areas and major customers.
Both standards are effective for the Company's fiscal year 1999. The
effect of these statements will be limited to the form and content of the
Company's disclosures and are not expected to 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,
issuance of shares under the employee stock purchase plan and shares issued
for acquisitions.
3. INCOME TAXES
Income tax expense for the nine months ended February 28, 1998 consisted
of approximately $12.9 million of current tax provision and $6.6 million of
deferred tax benefit. The Company's historical tax rate was based on a 35%
world wide rate. Beginning December 1, 1997, the Company's year to date tax
provision reflects the results of a recent global tax review.
4. ACQUISITIONS
The Company recorded approximately $5.5 million and $16.0 million for
the nine months ended February 28, 1998 and 1997, respectively, of
additional purchase price relating to achievement of specified net revenue
or pre-tax income levels of certain prior acquisitions. At February 28,
1998, the remaining maximum payments in connection with acquisitions
providing a contingent purchase price is approximately $4.3 million. There
is no certainty these businesses will achieve the revenue or profit levels
to require these contingent payments.
The company acquired a freight forwarder with seven offices located in
the United States. The Company issued 0.1 million shares of common stock
valued at $1.6 million for 100% of the outstanding common stock of the
acquired company. Net obligations in relation to acquisitions decreased $8.7
million.
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 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
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FRITZ COMPANIES, INC. FORM 10-Q
legally tenable. One of the dismissals has been reversed on appeal,
permitting the plaintiff to file an amended complaint. At this time no
amended complaint has yet been filed.
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.
The Company is unable to predict the ultimate outcome of these suits and
it is possible 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 or its
consolidated results of operations.
6. SUBSEQUENT EVENT
On March 27, 1998, the Company entered into a new $100 million syndicated
multi-currency credit facility, maturing March 27, 2001. This Credit
Facility replaces the Company's current $60 million facility which was to
mature December 15, 1998. The purpose of the facility is to provide letters
of credit and working capital not covered by internally generated funds.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion is applicable to the Company's financial
condition and results of operations for the three months and nine months
ended February 28, 1998 and 1997. See Note 1 of Notes to Condensed
Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table provides the revenue, net revenue and percentages
attributable to the Company's principal logistics services during the
periods indicated (in thousands, except percent):
THREE MONTHS ENDED FEBRUARY 28, NINE MONTHS ENDED FEBRUARY 28,
----------------------------------------- ----------------------------------------
1998 % 1997 % 1998 % 1997 %
---- - ---- - ---- - ---- -
REVENUE:
Customs brokerage $ 38,802 12.6 $ 36,760 13.6 $121,658 12.4 $115,434 13.6
Ocean freight forwarding 89,333 29.1 81,301 30.1 284,500 29.1 249,903 29.5
Airfreight forwarding 133,369 43.4 122,153 45.2 433,628 44.4 382,836 45.2
Warehousing and
distribution 45,706 14.9 30,127 11.1 137,734 14.1 99,122 11.7
-------- ----- -------- ----- -------- ----- -------- -----
Total revenue $307,210 100.0 $270,341 100.0 $977,520 100.0 $847,295 100.0
======== ===== ======== ===== ======== ===== ======== =====
NET REVENUE:
Customs brokerage $ 38,802 29.3 $ 36,760 31.2 $121,658 29.2 $115,434 30.5
Ocean freight forwarding 28,313 21.4 26,338 22.3 90,175 21.7 80,087 21.2
Airfreight forwarding 37,946 28.7 33,125 28.1 117,583 28.2 108,010 28.5
Warehousing and
distribution 27,221 20.6 21,748 18.4 87,269 20.9 74,934 19.8
-------- ----- -------- ----- -------- ----- -------- -----
Total net revenue $132,282 100.0 $117,971 100.0 $416,685 100.0 $378,465 100.0
======== ===== ======== ===== ======== ===== ======== =====
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH THREE MONTHS ENDED
FEBRUARY 28, 1997
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FRITZ COMPANIES, INC. FORM 10-Q
Revenue and Net Revenue: For the three months ended February 28, 1998,
revenue increased 13.6% to $307.2 million from $270.3 million reported in
the prior year and net revenue increased 12.1% to $132.3 million from $118.0
million reported in the prior year. All of the Company's principal service
areas reported revenue growth.
Customs brokerage revenue increased 5.6% to $38.8 million from $36.8
million reported in the prior year. The number of United States Customs
entries filed by the Company increased approximately 21% to 0.63 million
from 0.52 million for the same period in the prior year. Management believes
that Asian currency devaluation contributed to a growth in imports which in
turn contributed to the increase in United States customs entries. In
certain portions of the Customs brokerage business, price competition
remained strong resulting in downward pressure on prices.
Ocean freight forwarding revenue and net revenue increased 9.9% and
7.5%, respectively, due to increased shipping volumes from existing and new
customers. Gross margin (net revenue as a percentage of revenue) decreased
to 31.7% from 32.4% reported in the prior year. The Asian currency
devaluation improved shipping volume to the United States. Eastbound carrier
capacity and demand has remained strong, while westbound carrier capacity
and demand has weakened. The overall impact has resulted in a decrease in
gross margin. Non-vessel operating common carrier shipments as a percentage
of total shipments increased which contributed to the growth in revenue and
the decrease in overall gross margin.
Airfreight forwarding revenue and net revenue increased 9.2% and 14.6%,
respectively, due to increased shipments and total chargeable weight of
cargo shipped. The increase in the number of shipments was primarily due to
an increase in business by existing customers. Gross margin increased to
28.5% from 27.1% in the prior year. A significant portion of the increase in
revenue, net revenue and gross margin is due to increased United States
domestic airfreight services.
Warehousing and distribution revenue and net revenue increased 51.7% and
25.2%, respectively, due to further penetration of existing market niches. A
significant portion of the increased revenue was applicable to European
trucking operations. Management believes that the strength of Latin America
and United States economies has increased warehouse services related to
airfreight and ocean shipments. The Company's focus on pricing structure has
contributed to the net revenue growth.
Operating Expenses: Operating expenses decreased 8.5% to $130.6 million
from $142.7 million reported in the prior year. Salaries and related costs
increased primarily due to an increase in the number of employees resulting
from continued expansion in North America, Europe, Asia and Latin America to
support greater shipping volumes. The growth in the number of employees
supporting shipping volumes was partially offset by a decrease in the number
of employees required for administrative support. Salaries and related costs
as a percentage of net revenue were 61.5% compared to 67.9% reported in the
prior year.
General and administrative expenses decreased 21.4% to $49.3 million
from $62.7 million reported in the prior year. The decrease was mainly
attributable to a $17.0 million increase in the allowance for doubtful
accounts in the prior year. After deducting this adjustment, general and
administrative expenses increased 7.9%. Excluding the adjustment, the
increase is due to supporting greater shipping volumes, higher occupancy
capacity costs, additional provision for doubtful accounts and an increase
in information systems costs. General and administrative expenses as a
percentage of net revenue were 37.2% compared to 53.1% (38.7%, netting $17.0
million adjustment) reported in the prior year.
Other Income and Expense: Due to the strengthening of the U.S. Dollar,
currency gains were realized by certain international operations, where
certain trade receivables were denominated in U.S. Dollars.
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FRITZ COMPANIES, INC. FORM 10-Q
Substantially all of the Company's services experienced 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.
NINE MONTHS ENDED FEBRUARY 28, 1998 COMPARED WITH NINE MONTHS ENDED
FEBRUARY 28, 1997
Revenue and Net Revenue: For the nine months ended February 28, 1998,
revenue increased 15.4% to $977.5 million from $847.3 million reported in
the prior year and net revenue increased 10.1% to $416.7 million from $378.5
million reported in the prior year. All of the Company's principal service
areas reported revenue growth.
Customs brokerage revenue increased 5.4% to $121.7 million from $115.4
million reported in the prior year. The number of United States Customs
entries filed by the Company increased approximately 18.8% to 1.9 million
from 1.6 million for the same period in the prior year. The increase in
revenue and number of United States Customs entries filed was caused
principally by increased Canadian border activity, expansion of business
with existing customers, continued NAFTA incentives and the Asian currency
devaluation. During the first quarter, the UPS strike caused certain
shippers to use alternative courier services, which provided increased
Customs brokerage volume to the Company.
Ocean freight forwarding revenue and net revenue increased 13.8% and
12.6%, respectively, due to increased shipping volumes from existing and new
customers. The increase in ocean volumes was caused principally by the Asian
currency devaluation, increased non-vessel operating common carrier
shipments and limited airline capacity in certain tradelanes. Gross margin
decreased to 31.7% from 32.0% reported in the prior year. Carrier capacity
in certain tradelanes, in which the Company has committed capacity, has
increased at a faster rate than shipping volumes, which has resulted in
downward pressure on pricing levels.
Airfreight forwarding revenue and net revenue increased 13.3% and 8.9%,
respectively, due to increased shipments and total chargeable weight of
cargo shipped. The increase in the number of shipments was provided
primarily from existing customers. Gross margin decreased to 27.1% from
28.2% in the prior year. The decrease in gross margin was primarily due to
higher transportation costs which could not be passed to customers, and was
partially offset by increased United States domestic airfreight services.
Warehousing and distribution revenue and net revenue increased 39.0% and
16.5%, respectively, due principally to increased demand from existing
integrated logistic customers, continued expansion of overseas and domestic
services, expansion of warehouse facilities, and strong Latin American and
United States economies. A significant portion of the increased revenue was
applicable to European trucking operations.
Operating Expenses: Operating expenses increased 5.7% to $397.7 million
from $376.1 million reported in the prior year. Salaries and related costs
increased due to growth in the number of personnel to support the Company's
continued expansion of overseas and domestic services. Salaries and related
costs as a percentage of net revenue were 58.8% compared to 59.6% reported
in the prior year.
General and administrative expenses increased 1.5% to $152.9 million
from $150.6 million reported in the prior year. The small increase was
mainly caused by a $17.0 million increase to the allowance for doubtful
accounts in the prior year. After deducting this adjustment, general and
administrative expenses increased 14.4%. Excluding the adjustment, the
increase is due to supporting greater shipping volumes, higher occupancy
capacity costs, additional provision for doubtful accounts and an increase
in information systems costs. General and administrative expenses as a
percentage of net revenue were 36.7% compared to 39.8% (35.3%, netting $17.0
million adjustment) reported in the prior year.
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FRITZ COMPANIES, INC. FORM 10-Q
Other Income and Expense: Due to the strengthening of the U.S. Dollar,
currency gains were realized by certain international operations, where
certain trade receivables were denominated in U.S. Dollars.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents were approximately $43.3 million at
February 28, 1998 and at May 31, 1997. Positive operational cash flow of
$38.1 million was used to fund capital expenditures of $16.3 million
resulting in free cash flow of $21.8 million. Capital expenditures consisted
mostly of expenditures for computer hardware and software, building and
leasehold improvements, and warehouse equipment.
The Company paid cash of $14.6 million relating to acquisitions. These
payments consisted of reductions to existing debt totaling $11.3 million,
and additional payments totaling $3.3 million from achievement of specified
net revenue or pre-tax income levels.
As of February 28, 1998, utilization of the syndicated multicurrency
credit facility (the Credit Facility) was $25.5 million, consisting of $9.0
million of borrowings under the Credit Facility and $16.5 million for
outstanding letters of credit. Therefore, the Company's total available
borrowing capacity under the Credit Facility as of February 28, 1998 was
approximately $34.5 million.
On March 27, 1998, the Company entered into a $100 million syndicated
multi-currency credit facility, maturing March 27, 2001. This Credit
Facility replaces the Company's current $60 million facility which was to
mature December 15, 1998. The purpose of the facility is to provide letters
of credit and working capital not covered by internally generated funds. The
Company is required to comply 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.
Overall, the Company believes these covenants are less restrictive than
those of the previous facility.
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
regulations. 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 nine months ended February 28,
1998 increased due to the strengthening of the U.S. dollar relative to
certain currencies of Asia, Europe and Latin America. Continued devaluation
of certain 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, the
regulations governing the Company's products, and/or the international trade
and tariff environment could affect the Company's business in unpredictable
ways.
Management believes the Company's business has not been adversely
affected by inflation in the past. Historically, the Company has generally
been successful in passing cost increases to its customers by means of price
increases. However, due to competitive marketplace conditions, continued
future cost increases could erode the Company's margin.
The Company is conducting a comprehensive review of its computer systems
to identify the systems that could be affected by year 2000 (Y2K) issues and
is developing an implementation plan to resolve these issues. The Y2K issues
were the result of computer programs written using two digits rather than
four to define the applicable year. The Company believes that the
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FRITZ COMPANIES, INC. FORM 10-Q
modifications made to existing software and conversion to new software
significantly reduce the operational problems posed by Y2K. However, if such
modification and conversions fail or miscalculate, the Y2K problem may have
a material impact on the operations of the Company. The total Y2K costs have
not yet been determined.
We are in the process of contacting customers, vendors, carriers,
government agencies, and other trading partners to ensure that their systems
and services are Year 2000 compliant. We receive services from these trading
partners to deliver our products and information service offerings to our
customers. Although we are not directly responsible for these trading
partners' systems, their problems with the Year 2000 can materially effect
our business operations.
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.
NEW ACCOUNTING PRONOUNCEMENTS
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 non-owner 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 operating segments and related disclosures about products,
services, geographic areas and major customers.
Both standards are effective for the Company's fiscal year 1999. The
effect of these statements will be limited to the form and content of the
Company's disclosures and are not expected to impact the Company's results
of operations, cash flow or financial position.
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 and Exchange Commission
filings.
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FRITZ COMPANIES, INC. FORM 10-Q
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Syndicated multi-currency facility agreement dated
March 27, 1998 for $100 million maturing on March 27, 2001.
Edgar Filing Only.
10.32 First Amendment Agreement dated March 1, 1998 to the Note
Purchase Agreement dated April 15, 1996 for $75 million at
6.43% senior notes due April 15, 2003 (exhibits excluded).
Edgar Filing Only.
15 Letter regarding unaudited interim financial information.
Edgar Filing Only.
27 Financial Data Schedule. Edgar Filing Only.
(b) The company filed the following reports on Form 8-K during the
quarter ended February 28, 1998 and through the date hereof:
1. February 11, 1998
Item 5. Other Events
On February 11, 1998, the Company issued a press release announcing
the addition of two new members to its Board of Directors.
2. March 6, 1998
Item 5. Other Events
On February 9, 1998, the California Court of Appeal reversed an order
of the San Francisco Superior Court dismissing with prejudice a class
action lawsuit filed against the Company and certain of its officers
(Greenfield v. Fritz), finding that the plaintiff should have been
given an opportunity to amend his defective complaint.
On March 5, 1998, the United States District Court for the Northern
District of California entered an order dismissing with prejudice the
class action lawsuits filed against the Company and certain of its
officers in July and August 1996 (Polk v. Fritz, Weiss v. Fritz and
E.M. Lawrence etc. Trust v. Fritz), finding that plaintiffs had not
alleged any statement that was false and misleading in violation of
the federal securities laws.
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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: March 31, 1998
/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/ ROBERT AROVAS
----------------------------------------
Robert Arovas
Executive Vice President and
Chief Financial Officer
/s/ RONALD W. WOMACK
----------------------------------------
Ronald W. Womack
Vice President of Finance and
Principal Accounting Officer
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EXHIBIT INDEX
EXHIBIT PAGE
10.31 Syndicated multi-currency credit facility agreement dated March 27, 1998 for
$100 million maturing on March 27, 2001 17
10.32 First Amendment Agreement dated March 1, 1998 to the Note Purchase Agreement
dated April 15, 1996 for $75 million of 6.43% notes due April 15, 2003 (exhibits
excluded) 18
15 Letter regarding unaudited interim financial information 19
27 Financial Data Schedule 20
16