Attached files
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EX-32 - EXHIBIT 32 - UTi WORLDWIDE INC | c02051exv32.htm |
EX-31.1 - EXHIBIT 31.1 - UTi WORLDWIDE INC | c02051exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - UTi WORLDWIDE INC | c02051exv31w2.htm |
Table of Contents
United States
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended April 30, 2010
Or
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
000-31869
(Commission File Number)
(Commission File Number)
UTi Worldwide Inc.
(Exact name of Registrant as Specified in its Charter)
British Virgin Islands | N/A | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification Number) | |
9 Columbus Centre, Pelican Drive | c/o UTi, Services, Inc. | |
Road Town, Tortola | 100 Oceangate, Suite 1500 | |
British Virgin Islands | Long Beach, CA 90802 USA |
(Addresses of Principal Executive Offices)
562.552.9400
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(Former Name, Former Address and Former Fiscal Year, if Changed Since 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.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
At June 2, 2010, the number of shares outstanding of the issuers ordinary shares was
101,640,577.
UTi Worldwide Inc.
Report on Form 10-Q
For the Quarter Ended April 30, 2010
For the Quarter Ended April 30, 2010
Table of Contents
2 | ||||||||
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25 | ||||||||
43 | ||||||||
44 | ||||||||
45 | ||||||||
45 | ||||||||
47 | ||||||||
48 | ||||||||
49 | ||||||||
50 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32 |
- i -
Table of Contents
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
For the three months ended April 30, 2010 and 2009
(in thousands, except share and per share amounts)
For the three months ended April 30, 2010 and 2009
(in thousands, except share and per share amounts)
Three months ended April 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
Revenues |
$ | 1,055,156 | $ | 768,356 | ||||
Purchased transportation costs |
689,408 | 458,849 | ||||||
Staff costs |
207,001 | 175,803 | ||||||
Depreciation |
11,412 | 9,854 | ||||||
Amortization of intangible assets |
3,344 | 2,637 | ||||||
Restructuring charges |
| 1,231 | ||||||
Other operating expenses |
125,039 | 102,130 | ||||||
Operating income |
18,952 | 17,852 | ||||||
Interest income |
2,559 | 2,723 | ||||||
Interest expense |
(6,678 | ) | (6,176 | ) | ||||
Other income/(expense), net |
844 | (202 | ) | |||||
Pretax income |
15,677 | 14,197 | ||||||
Provision for income taxes |
4,936 | 4,317 | ||||||
Net income |
10,741 | 9,880 | ||||||
Net income attributable to noncontrolling interests |
667 | 35 | ||||||
Net income attributable to UTi Worldwide Inc. |
$ | 10,074 | $ | 9,845 | ||||
Basic earnings per common share attributable to
UTi Worldwide Inc. common shareholders |
$ | 0.10 | $ | 0.10 | ||||
Diluted earnings per common share attributable to
UTi Worldwide Inc. common shareholders |
$ | 0.10 | $ | 0.10 | ||||
Number of weighted average common shares
outstanding used for per share calculations |
||||||||
Basic shares |
100,071,923 | 99,659,276 | ||||||
Diluted shares |
101,528,328 | 100,845,303 |
See accompanying notes to the consolidated financial statements.
- 2 -
Table of Contents
Consolidated Balance Sheets
As of April 30, 2010 and January 31, 2010
(in thousands, except share amounts)
As of April 30, 2010 and January 31, 2010
(in thousands, except share amounts)
April 30, | January 31, | |||||||
2010 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 340,721 | $ | 350,784 | ||||
Trade receivables (net of allowance for doubtful accounts of $13,440
and $13,686 as of April 30, 2010 and January 31, 2010, respectively) |
808,719 | 727,413 | ||||||
Deferred income taxes |
17,495 | 16,917 | ||||||
Other current assets |
117,896 | 111,575 | ||||||
Total current assets |
1,284,831 | 1,206,689 | ||||||
Property, plant and equipment (net of accumulated depreciation of $181,297
and $171,972 as of April 30, 2010 and January 31, 2010, respectively) |
180,512 | 180,422 | ||||||
Goodwill |
418,158 | 414,791 | ||||||
Other intangible assets, net |
69,762 | 72,182 | ||||||
Investments |
1,025 | 1,717 | ||||||
Deferred income taxes |
31,577 | 31,815 | ||||||
Other non-current assets |
30,951 | 29,430 | ||||||
Total assets |
$ | 2,016,816 | $ | 1,937,046 | ||||
LIABILITIES & EQUITY |
||||||||
Bank lines of credit |
$ | 123,785 | $ | 100,653 | ||||
Short-term bank borrowings |
10,272 | 8,032 | ||||||
Current portion of long-term bank borrowings |
69,966 | 69,934 | ||||||
Current portion of capital lease obligations |
16,534 | 16,832 | ||||||
Trade payables and other accrued liabilities |
762,280 | 731,518 | ||||||
Income taxes payable |
4,527 | 1,929 | ||||||
Deferred income taxes |
3,324 | 3,503 | ||||||
Total current liabilities |
990,688 | 932,401 | ||||||
Long-term bank borrowings, excluding current portion |
98,954 | 99,097 | ||||||
Capital lease obligations, excluding current portion |
22,921 | 23,892 | ||||||
Deferred income taxes |
32,546 | 32,874 | ||||||
Retirement fund obligations |
6,629 | 8,123 | ||||||
Other non-current liabilities |
27,497 | 26,377 | ||||||
Commitments and contingencies |
||||||||
UTi Worldwide Inc. shareholders equity: |
||||||||
Common stock ordinary shares of no par value: 101,560,197 and
100,900,556 shares issued and outstanding as of April 30, 2010 and
January 31, 2010, respectively |
469,854 | 464,731 | ||||||
Retained earnings |
383,622 | 373,548 | ||||||
Accumulated other comprehensive loss |
(40,292 | ) | (46,904 | ) | ||||
Total UTi Worldwide Inc. shareholders equity |
813,184 | 791,375 | ||||||
Noncontrolling interests |
24,397 | 22,907 | ||||||
Total equity |
837,581 | 814,282 | ||||||
Total liabilities and equity |
$ | 2,016,816 | $ | 1,937,046 | ||||
See accompanying notes to the consolidated financial statements.
- 3 -
Table of Contents
Consolidated Statements of Cash Flows
For the three months ended April 30, 2010 and 2009
(in thousands)
For the three months ended April 30, 2010 and 2009
(in thousands)
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 10,741 | $ | 9,880 | ||||
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities: |
||||||||
Share-based compensation costs, net |
1,683 | 2,471 | ||||||
Depreciation |
11,412 | 9,854 | ||||||
Amortization of intangible assets |
3,344 | 2,637 | ||||||
Amortization of debt issuance costs |
713 | | ||||||
Restructuring charges |
| 761 | ||||||
Deferred income taxes |
(859 | ) | 2,593 | |||||
Uncertain tax positions |
145 | | ||||||
Tax benefit relating to share-based compensation |
1,369 | 640 | ||||||
Excess tax benefit from share-based compensation |
(251 | ) | | |||||
Loss/(gain) on disposal of property, plant and equipment |
32 | (6,635 | ) | |||||
Provision for doubtful accounts |
730 | 399 | ||||||
Other |
239 | (1,227 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
(Increase)/decrease in trade receivables |
(82,511 | ) | 79,373 | |||||
Decrease in other assets |
2,465 | 19,773 | ||||||
Increase/(decrease) in trade payables |
24,961 | (88,368 | ) | |||||
Decrease in accrued liabilities and other liabilities |
(2,693 | ) | (17,326 | ) | ||||
Net cash (used in)/provided by operating activities |
(28,480 | ) | 14,825 | |||||
INVESTING ACTIVITIES: |
||||||||
Purchases of property, plant and equipment |
(5,651 | ) | (7,083 | ) | ||||
Proceeds from disposal of property, plant and equipment |
488 | 9,056 | ||||||
Net increase in other non-current assets |
(781 | ) | (1,214 | ) | ||||
Acquisitions and contingent earn-out payments |
| (1,178 | ) | |||||
Other |
(95 | ) | 416 | |||||
Net cash used in investing activities |
(6,039 | ) | (3 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Borrowings from lines of credit |
1,420 | 333 | ||||||
Repayments of lines of credit |
(3,797 | ) | (11,950 | ) | ||||
Net borrowings/(repayments) under revolving lines of credit |
25,634 | (9,893 | ) | |||||
Net increase/(decrease) in short-term borrowings |
963 | (1,018 | ) | |||||
Proceeds from issuance of long-term borrowings |
55 | 1,498 | ||||||
Repayment of long-term borrowings |
(300 | ) | (60 | ) | ||||
Repayment of capital lease obligations |
(7,086 | ) | (5,042 | ) | ||||
Dividends paid to noncontrolling interests |
(34 | ) | (202 | ) | ||||
Net proceeds from issuance of ordinary shares |
3,189 | 235 | ||||||
Excess tax benefit from share-based compensation |
251 | | ||||||
Net cash provided by/(used in) financing activities |
20,295 | (26,099 | ) | |||||
Effect of foreign exchange rate changes on cash and cash equivalents |
4,161 | 15,377 | ||||||
Net (decrease)/increase in cash and cash equivalents |
(10,063 | ) | 4,100 | |||||
Cash and cash equivalents at beginning of period |
350,784 | 256,869 | ||||||
Cash and cash equivalents at end of period |
$ | 340,721 | $ | 260,969 | ||||
See accompanying notes to the consolidated financial statements.
- 4 -
Table of Contents
Notes to the Consolidated Financial Statements
For the three months ended April 30, 2010 and 2009 (Unaudited)
For the three months ended April 30, 2010 and 2009 (Unaudited)
NOTE 1. Presentation of Financial Statements
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated financial statements of UTi
Worldwide Inc. and its subsidiaries (the Company, we, us, or UTi) contain all adjustments,
consisting of normal recurring adjustments, considered necessary for a fair presentation of the
consolidated balance sheets as of April 30, 2010 and January 31, 2010, the consolidated statements
of income for the three months ended April 30, 2010 and 2009 and the consolidated statements of
cash flows for the three months ended April 30, 2010 and 2009. These consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) for interim financial information and the instructions to Rule
10-01 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they have
been condensed and do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. The results of operations for the three months ended April 30, 2010
are not necessarily indicative of the results of operations that may be expected for the fiscal
year ending January 31, 2011 or any other future periods. These consolidated financial statements
should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended
January 31, 2010.
All amounts in the notes to the consolidated financial statements are presented in thousands except
for share and per share data.
Income Taxes
Income tax expense for the three months ended April 30, 2010 and 2009, was computed using the
effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
The Company records a provision for estimated additional tax and interest and penalties that may
result from tax authorities disputing uncertain tax positions taken at the largest amount that is
greater than 50% likely of being realized. For further information, see Note 12, Uncertain Tax
Positions.
Segment Reporting
The Companys reportable business segments are Freight Forwarding and Contract Logistics and
Distribution. The Freight Forwarding segment includes airfreight forwarding, ocean freight
forwarding, customs brokerage and other related services. The Contract Logistics and Distribution
segment includes all operations providing contract logistics, distribution and other related
services. Corporate office expenses, eliminations, and various holding companies within the group
structure have been presented separately.
Foreign Currency Translation
Included in other income, net for the three months ended April 30, 2010 and 2009, are net gains on
foreign exchange of $1,033 and net losses of $202, respectively.
Concentration of Credit Risks and Other
The Company maintains its primary cash accounts with established banking institutions around the
world. The Company estimates that approximately $315,225 of these deposits was not insured by the
Federal Deposit Insurance Corporation (FDIC) or similar entities outside of the United States
(U.S.) as of April 30, 2010.
- 5 -
Table of Contents
Call and Put Options
In connection with the Companys merger of one of its subsidiaries with Newlog, Ltd. during fiscal
2008, the Company obtained an option providing it with the right to call the minority partners
shares of the subsidiary under certain circumstances, including a change in control of the minority
partner. The Company recorded an asset related to this call option in other non-current assets.
The amount recorded represents the difference between the estimated strike price and the estimated
fair value of the subsidiary equity held by the minority partner, if the call option becomes
exercisable. The amounts included in other non-current assets were $448 and $476 at April 30, 2010
and January 31, 2010, respectively.
Additionally, the Company granted an option providing the minority partner with the right to call
the Companys shares of the subsidiary in the event the Company does not exercise its right, under
specific circumstances, to call the minority partners shares. The Company recorded a liability
related to this option in other non-current liabilities. The amounts included in other non-current
liabilities were $757 and $811 at April 30, 2010 and January 31, 2010, respectively.
In connection with the formation of a partnership in South Africa that holds the shares of a
subsidiary that distributes pharmaceutical supplies and equipment, the Company granted a put option
to the minority partner providing the partner with a right to put their 25.1% share of the
partnership to the Company in fiscal 2011. The liability at April 30, 2010 and January 31, 2010
was determined to be zero. The Company estimates the redemption value of the put option be
approximately $9,279, which the Company believes to be substantially less than the fair value of
the minority partners interest in the partnership.
Fair Values of Financial Instruments
The estimated fair value of financial instruments has been determined using available market
information or other appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop estimates of fair value. Therefore, the estimates
are not necessarily indicative of the amounts that could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and estimation methodologies may
be material to the estimated fair value amounts.
The Companys principal financial instruments are cash and cash equivalents, trade receivables,
bank lines of credit, short-term bank borrowings, trade payables and other accrued liabilities,
long-term bank borrowings, call and put options, and forward contracts and other derivative
instruments. With the exception of the Companys senior unsecured guaranteed notes and the call and
put options, the carrying value of these financial instruments approximate fair values either
because of the short maturities of these instruments, or because the interest rates are based upon
variable reference rates. As of April 30, 2010 and January 31, 2010, the fair value of the
Companys 6.31% senior unsecured guaranteed notes was $100,200 and $99,569, respectively, compared
to a book value of $100,000, for each of these periods. As discussed further at Note 11,
Borrowings on July 9, 2009, the Company issued $55,000 of senior unsecured guaranteed notes
bearing an interest rate of 8.06%. As of April 30, 2010 and January 31, 2010, the fair value of
these notes was $54,924 and $55,000, respectively, compared to a book value of $55,000, for each of
these periods. The call and put options are recorded at their estimated fair value. For further
information, see Note 1, Call and Put Options.
Sale of Property
Effective April 1, 2009, the Company disposed of property located in South Africa for a sale price
of $8,130. The property comprised of land and buildings with carrying values of $572 and $967,
respectively, all of which was included within corporate in the segment disclosure in Note 5,
Segment Reporting. After adjusting for the net costs of the assets sold and for expenses
associated with the sale, the Company realized a pre-tax gain of $6,271, which was recorded in
other operating expenses in the consolidated statements of income for the three months ended April
30, 2009.
- 6 -
Table of Contents
Change in Cash Flow Presentation
In the consolidated statements of cash flows, the Company has presented gross borrowings on certain
lines of credit with original repayment terms of greater than three months, separate from the
repayments on those lines of credit. The presentation of these lines of credit was previously
reflected on a net basis for the three months ended April 30, 2009. The change has no impact on
cash flows from financing activities or any other financial statement information.
Recent
Accounting Pronouncements
In February 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2010-09 (ASU 2010-09) to Codification Topic 855, Subsequent Events. This update
requires that all SEC filers must evaluate subsequent events through the date the financial
statements are issued. However, it no longer requires filers to disclose either the issuance date
or the revised issuance date. The amended Codification Topic 855 established general standards of
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued. The Company has evaluated subsequent events for appropriate
accounting and disclosure in accordance with ASU 2010-09.
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements (ASU
2009-13), which amends Codification Topic 605, Revenue Recognition. This update provides
amendments to the criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. This update also establishes a selling price
hierarchy for determining the selling price of a deliverable. ASU 2009-13 is effective for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. The Company is currently evaluating the impact the adoption of the update may have on its
consolidated results of operations and financial position.
In June 2009, the FASB issued ASU 2009-17 to Codification Topic 810, Consolidation. This update
amends previous guidance to require the Company to perform an analysis to determine whether its
variable interests give it a controlling financial interest in a variable interest entity. The
update is effective for annual periods beginning after November 15, 2009, for interim periods
within that first annual reporting period, and for interim and annual reporting periods
thereafter. The Companys implementation of this standard on February 1, 2010 did not have a
significant impact on its consolidated statements of income and financial position.
NOTE 2. Acquisitions
All acquired businesses are primarily engaged in providing logistics management, including
international air and ocean freight forwarding, customs brokerage, contract logistics services and
transportation management services. The results of acquired businesses have been included in the
Companys consolidated financial statements from the effective dates of acquisition.
Effective December 21, 2009, the Company acquired the remaining outstanding shares of an Israeli
subsidiary, Excel MPL-A.V.B.A., LP (EMA Israel), of which the Company already held a 50% ownership
interest that was acquired through the Companys acquisition of the Israeli subsidiarys parent
company in the beginning of fiscal 2010. The purchase price totaled $6,500, including the
repayment of a $537 loan and contingent consideration estimated to be $300 which is based on
projected net revenues from a particular customer for the following four years. The contingent
consideration was accrued as an obligation through an increase to goodwill. The acquisition
eliminated a minority shareholder in Israel. The purchase price exceeded the fair value of the
noncontrolling interest received and net assets acquired, including acquired intangible assets with
an estimated fair value of $3,136, and accordingly, $2,035 was allocated to goodwill, all of which
is included within the Companys Contract Logistics and Distribution segment. The Company is
currently determining whether the goodwill is deductible for tax purposes. The estimated purchase
price allocation is preliminary and is subject to revision. A valuation of the additional net
assets acquired is being conducted and the final allocation will be made when completed.
- 7 -
Table of Contents
Effective October 16, 2009, the Company acquired all of the issued and outstanding shares of Tacisa
Transitaria, S.L. (Tacisa), a Spanish freight forwarder. An employee of one of the Companys
Spanish subsidiaries held a majority ownership interest in Tacisa prior to the Companys
acquisition. The purchase
price totaled $5,463, net of cash acquired of $750, and including contingent consideration
estimated to be $4,734 based on projected fiscal 2010 operating results of Tacisa. The contingent
consideration was accrued as an obligation with a corresponding increase to goodwill. The
acquisition expanded the Companys freight forwarding coverage in Spain. The total cost of the
acquisition has been allocated to the assets acquired and the liabilities assumed based on their
estimated fair values at the date of acquisition. The preliminary allocation resulted in an excess
of the purchase price over the fair value of the acquired net assets, and accordingly, $2,536 was
allocated to goodwill, all of which is included in the Companys Freight Forwarding segment. The
Company is currently determining whether the goodwill is deductible for tax purposes.
The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of acquisition and the preliminary purchase price allocation that was recorded
for Tacisa, which is subject to revision. A valuation of the assets acquired and liabilities
assumed is being conducted and the final allocation will be made when completed.
Current assets |
$ | 3,237 | ||
Goodwill |
2,536 | |||
Acquired intangible assets |
3,476 | |||
Other non-current assets |
54 | |||
Total assets acquired |
9,303 | |||
Liabilities assumed |
(2,047 | ) | ||
Deferred income taxes |
(1,043 | ) | ||
Net assets acquired |
$ | 6,213 | ||
Revenues and net income attributable to UTi Worldwide, Inc. as a result of the acquisition of EMA
Israel and Tacisa totaled $12,278 and $254, respectively, for the three months ended April 30,
2010. The following supplemental pro forma information summarizes the results of operations of
Tacisa for the three months ended April 30, 2009, as if the acquisition had occurred at the
beginning of the period presented. The pro forma information gives no effect to actual operating
results that would have actually been obtained if the acquisition had occurred at the beginning of
the period presented or may be obtained in the future.
Net income | ||||||||||||
attributable to | Diluted | |||||||||||
UTi Worldwide | earnings | |||||||||||
2009: | Revenue | Inc. | per share* | |||||||||
As reported |
$ | 768,356 | $ | 9,845 | $ | 0.10 | ||||||
Acquisitions |
2,267 | 177 | | |||||||||
Total |
$ | 770,623 | $ | 10,022 | $ | 0.10 | ||||||
* | Diluted pro forma earnings per share were calculated using 100,845,303 diluted ordinary shares
for the three months ended April 30, 2009. |
- 8 -
Table of Contents
NOTE 3. Earnings per Share
Earnings per share are calculated as follows:
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Amounts attributable to UTi Worldwide Inc. common
shareholders: |
||||||||
Net income |
$ | 10,074 | $ | 9,845 | ||||
Weighted average number of ordinary shares |
100,071,923 | 99,659,276 | ||||||
Incremental shares required for diluted earnings per share
related to stock options/restricted share units |
1,456,405 | 1,186,027 | ||||||
Diluted weighted average number of ordinary
shares |
101,528,328 | 100,845,303 | ||||||
Basic earnings per common share attributable to UTi
Worldwide Inc. common shareholders |
$ | 0.10 | $ | 0.10 | ||||
Diluted earnings per common share attributable to UTi
Worldwide Inc. common shareholders |
$ | 0.10 | $ | 0.10 |
Weighted-average diluted shares outstanding for the three months ended April 30, 2010 and 2009,
exclude 3,065,268 and 3,927,498 shares, respectively, because such shares represent securities that
have an exercise price in excess of the average market price of the Companys common stock during
the period, and were therefore anti-dilutive.
- 9 -
Table of Contents
NOTE 4. Shareholders Equity
Certain information regarding the changes in shareholders equity and noncontrolling interests are
as follows:
UTi Worldwide Inc. Shareholders Equity | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Other | ||||||||||||||||||||
Common | Retained | comprehensive | Noncontrolling | |||||||||||||||||
stock | earnings | loss | interests | Total | ||||||||||||||||
Balance at February 1, 2010 |
$ | 464,731 | $ | 373,548 | $ | (46,904 | ) | $ | 22,907 | $ | 814,282 | |||||||||
Employee share-based
compensation plans |
5,123 | | | | 5,123 | |||||||||||||||
Net income |
| 10,074 | | 667 | 10,741 | |||||||||||||||
Foreign currency translation
adjustment and other |
| | 6,612 | 857 | 7,469 | |||||||||||||||
Distributions to noncontrolling
interests |
| | | (34 | ) | (34 | ) | |||||||||||||
Balance at April 30, 2010 |
$ | 469,854 | $ | 383,622 | $ | (40,292 | ) | $ | 24,397 | $ | 837,581 | |||||||||
Balance at February 1, 2009 |
$ | 450,553 | $ | 338,461 | $ | (112,268 | ) | $ | 16,224 | $ | 692,970 | |||||||||
Employee share-based
compensation plans |
2,517 | | | | 2,517 | |||||||||||||||
Net income |
| 9,845 | | 35 | 9,880 | |||||||||||||||
Foreign currency translation
adjustment and other |
| | 24,494 | 2,865 | 27,359 | |||||||||||||||
Distributions to noncontrolling
interests |
| | | (390 | ) | (390 | ) | |||||||||||||
Balance at April 30, 2009 |
$ | 453,070 | $ | 348,306 | $ | (87,774 | ) | $ | 18,734 | $ | 732,336 | |||||||||
Other comprehensive income is comprised of the following:
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 10,741 | $ | 9,880 | ||||
Other comprehensive income, net of tax: |
||||||||
Foreign exchange translation adjustments and
other |
7,469 | 27,359 | ||||||
Comprehensive income |
18,210 | 37,239 | ||||||
Comprehensive income attributable to
noncontrolling interests |
(1,524 | ) | (2,900 | ) | ||||
Comprehensive income attributable to
UTi Worldwide Inc. |
$ | 16,686 | $ | 34,339 | ||||
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NOTE 5. Segment Reporting
Certain information regarding the Companys operations by segment is summarized as follows:
Three months ended April 30, 2010 | ||||||||||||||||
Contract | ||||||||||||||||
Logistics | ||||||||||||||||
Freight | and | |||||||||||||||
Forwarding | Distribution | Corporate | Total | |||||||||||||
Revenues |
$ | 721,774 | $ | 333,382 | $ | | $ | 1,055,156 | ||||||||
Purchased transportation costs |
562,335 | 127,073 | | 689,408 | ||||||||||||
Staff costs |
94,390 | 106,977 | 5,634 | 207,001 | ||||||||||||
Depreciation |
3,832 | 7,228 | 352 | 11,412 | ||||||||||||
Amortization of intangible assets |
1,030 | 2,314 | | 3,344 | ||||||||||||
Other operating expenses |
46,370 | 73,024 | 5,645 | 125,039 | ||||||||||||
Total operating expenses |
707,957 | 316,616 | 11,631 | 1,036,204 | ||||||||||||
Operating income/(loss) |
$ | 13,817 | $ | 16,766 | $ | (11,631 | ) | 18,952 | ||||||||
Interest income |
2,559 | |||||||||||||||
Interest expense |
(6,678 | ) | ||||||||||||||
Other income, net |
844 | |||||||||||||||
Pretax income |
15,677 | |||||||||||||||
Provision for income taxes |
4,936 | |||||||||||||||
Net income |
10,741 | |||||||||||||||
Net income attributable to noncontrolling interests |
667 | |||||||||||||||
Net income attributable to UTi Worldwide Inc. |
$ | 10,074 | ||||||||||||||
Capital expenditures |
$ | 3,734 | $ | 2,960 | $ | 4,070 | $ | 10,764 | ||||||||
Segment assets |
$ | 1,134,381 | $ | 765,284 | $ | 117,151 | $ | 2,016,816 | ||||||||
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Three months ended April 30, 2009 | ||||||||||||||||
Contract | ||||||||||||||||
Logistics | ||||||||||||||||
Freight | and | |||||||||||||||
Forwarding | Distribution | Corporate | Total | |||||||||||||
Revenues |
$ | 493,590 | $ | 274,766 | $ | | $ | 768,356 | ||||||||
Purchased transportation costs |
359,364 | 99,485 | | 458,849 | ||||||||||||
Staff costs |
80,905 | 91,378 | 3,520 | 175,803 | ||||||||||||
Depreciation |
3,627 | 6,128 | 99 | 9,854 | ||||||||||||
Amortization of intangible assets |
826 | 1,811 | | 2,637 | ||||||||||||
Restructuring charges |
| | 1,231 | 1,231 | ||||||||||||
Other operating expenses |
37,865 | 65,491 | (1,226 | ) | 102,130 | |||||||||||
Total operating expenses |
482,587 | 264,293 | 3,624 | 750,504 | ||||||||||||
Operating income/(loss) |
$ | 11,003 | $ | 10,473 | $ | (3,624 | ) | 17,852 | ||||||||
Interest income |
2,723 | |||||||||||||||
Interest expense |
(6,176 | ) | ||||||||||||||
Other expense, net |
(202 | ) | ||||||||||||||
Pretax income |
14,197 | |||||||||||||||
Provision for income taxes |
4,317 | |||||||||||||||
Net income |
9,880 | |||||||||||||||
Net income attributable to noncontrolling interests |
35 | |||||||||||||||
Net income attributable to UTi Worldwide Inc. |
$ | 9,845 | ||||||||||||||
Capital expenditures |
$ | 3,086 | $ | 4,452 | $ | 978 | $ | 8,516 | ||||||||
Segment assets |
$ | 937,591 | $ | 663,913 | $ | 60,816 | $ | 1,662,320 | ||||||||
For segment reporting purposes by geographic region, airfreight and ocean freight forwarding
revenues for the movement of goods is attributed to the country where the shipment originates.
Revenues for all other services, including contract logistics services, are attributed to the
country where the services are performed.
The following table shows the revenues attributable to the Companys geographic regions, EMENA
(which is comprised of Europe, Middle East and North Africa), the Americas, Asia Pacific and
Africa:
Three months ended April 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Revenue | Revenue | Total | Revenue | Revenue | Total | |||||||||||||||||||
EMENA |
$ | 230,394 | $ | 65,194 | $ | 295,588 | $ | 183,832 | $ | 53,556 | $ | 237,388 | ||||||||||||
Americas |
150,100 | 173,304 | 323,404 | 106,088 | 151,945 | 258,033 | ||||||||||||||||||
Asia Pacific |
255,062 | 9,187 | 264,249 | 145,515 | 7,309 | 152,824 | ||||||||||||||||||
Africa |
86,218 | 85,697 | 171,915 | 58,155 | 61,956 | 120,111 | ||||||||||||||||||
Total |
$ | 721,774 | $ | 333,382 | $ | 1,055,156 | $ | 493,590 | $ | 274,766 | $ | 768,356 | ||||||||||||
- 12 -
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The following table shows revenues and purchased transportation costs attributable to the
Companys principal services:
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
$ | 367,692 | $ | 239,288 | ||||
Ocean freight forwarding |
271,832 | 192,066 | ||||||
Customs brokerage |
25,435 | 19,949 | ||||||
Contract logistics |
177,010 | 142,926 | ||||||
Distribution |
117,374 | 98,500 | ||||||
Other |
95,813 | 75,627 | ||||||
Total |
$ | 1,055,156 | $ | 768,356 | ||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
$ | 293,542 | $ | 175,356 | ||||
Ocean freight forwarding |
227,186 | 152,410 | ||||||
Customs brokerage |
1,570 | 1,118 | ||||||
Contract logistics |
35,723 | 23,391 | ||||||
Distribution |
79,117 | 66,499 | ||||||
Other |
52,270 | 40,075 | ||||||
Total |
$ | 689,408 | $ | 458,849 | ||||
NOTE 6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for the three months ended
April 30, 2010 are as follows:
April 30, 2010 are as follows:
Contract | ||||||||||||
Logistics | ||||||||||||
Freight | and | |||||||||||
Forwarding | Distribution | Total | ||||||||||
Balance at February 1, 2010 |
$ | 170,034 | $ | 244,757 | $ | 414,791 | ||||||
Foreign currency translation |
(850 | ) | 4,217 | 3,367 | ||||||||
Balance at April 30, 2010 |
$ | 169,184 | $ | 248,974 | $ | 418,158 | ||||||
Amortizable intangible assets as of April 30, 2010 and January 31, 2010 relate primarily to the
estimated fair value of the customer relationships acquired with respect to certain acquisitions.
The carrying values of amortizable intangible assets as of April 30, 2010 and January 31, 2010 were
as follows:
Gross | Net | Weighted | ||||||||||||||
carrying | Accumulated | carrying | average/life | |||||||||||||
Value | amortization | value | years | |||||||||||||
As of April 30, 2010: |
||||||||||||||||
Customer relationships |
$ | 105,989 | $ | (39,452 | ) | $ | 66,537 | 9.5 | ||||||||
Non-compete agreements |
3,154 | (2,938 | ) | 216 | 3.0 | |||||||||||
Other |
4,611 | (2,607 | ) | 2,004 | 3.7 | |||||||||||
Total |
$ | 113,754 | $ | (44,997 | ) | $ | 68,757 | |||||||||
As of January 31, 2010: |
||||||||||||||||
Customer relationships |
$ | 105,320 | $ | (36,586 | ) | $ | 68,734 | 9.6 | ||||||||
Non-compete agreements |
3,048 | (2,797 | ) | 251 | 3.1 | |||||||||||
Other |
4,473 | (2,270 | ) | 2,203 | 3.7 | |||||||||||
Total |
$ | 112,841 | $ | (41,653 | ) | $ | 71,188 | |||||||||
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Amortization expense totaled $3,344 and $2,637 for the three months ended April 30, 2010 and 2009,
respectively. The following table shows the expected amortization expense for these intangible
assets for the current and each of the next four fiscal years ending January 31,
2011 |
$ | 12,235 | ||
2012 |
11,463 | |||
2013 |
10,916 | |||
2014 |
10,363 | |||
2015 |
8,279 |
In addition to its amortizable intangible assets, the Company also has $1,005 and $994 of
intangible assets not subject to amortization as of April 30, 2010 and January 31, 2010,
respectively, related primarily to acquired trade names.
NOTE 7. Supplemental Cash Flow Information
The following table shows the supplemental cash flow information and supplemental non-cash
investing and financing activities:
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Net cash paid for: |
||||||||
Interest |
$ | 6,635 | $ | 3,064 | ||||
Income taxes |
3,991 | 4,374 | ||||||
Non-cash activities: |
||||||||
Capital lease obligations incurred to acquire assets |
5,113 | 1,433 |
UTi is a holding company which relies on dividends or advances from its subsidiaries to meet its
financial obligations and to pay dividends on its ordinary shares. The ability of UTis
subsidiaries to pay dividends to the Company and UTis ability to receive distributions is subject
to applicable local law and other restrictions including, but not limited to, applicable tax laws
and limitations contained in some of the Companys bank credit facilities and in the note purchase
agreements for the Companys outstanding senior notes. Such laws and restrictions could limit the
payment of dividends and distributions to the Company which would restrict UTis ability to
continue operations. In general, UTis subsidiaries cannot pay dividends in excess of their
retained earnings and most countries require that the subsidiaries pay a distribution tax on all
dividends paid. In addition, the amount of dividends that UTis subsidiaries could declare may be
limited in certain countries
by exchange controls. Total net assets which may not be transferred to the Company in the form of
loans, advances, or cash dividends by the Companys subsidiaries without the consent of a third
party, were less than 10% of the Companys consolidated total net assets as of the end of the most
recent fiscal year.
NOTE 8. Contingencies
From time to time, claims are made against us or we may make claims against others,
including in the ordinary course of our business, which could result in litigation. Claims and
associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur,
such as monetary damages, fines, penalties or injunctions prohibiting us from engaging in certain
activities. The occurrence of an unfavorable outcome in any specific period could have a material
adverse affect on our consolidated results of operations for that period or future periods. As of
the date of these consolidated financial statements, we are not a party to any material litigation
except as described below.
The Company and one of its subsidiaries (along with sixteen other global corporations) were named
as defendants by a patent holding company, in a patent infringement lawsuit filed on May 7, 2009,
in the United States District Court for the Central District of California (Big Baboon, Inc. v.
Dell Inc., et. al.). The lawsuit alleged that the Companys eMpower software tools were infringing
U.S. Patent Nos. 6,115,690 (the 690 patent) and 6,343,275 (the 275 patent). The claims
asserted are not believed to be material to the Company as a whole. On May 12, 2010, after
discovery regarding the eMpower software tools, the plaintiff dismissed its lawsuit against the
Company and subsidiary without prejudice.
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In June 2007, we responded to a grand jury subpoena requesting documents in connection with the
United States Department of Justice (U.S. DOJ)s investigation into the pricing practices in the
international freight forwarding and cargo transportation industry which had been served on us in
June 2006. On October 10, 2007, the U.S. DOJ executed a search warrant on us at our offices in Long
Beach, California, and served one of our subsidiaries with a subpoena requesting numerous documents
and other materials in connection with its investigation of the international freight forwarding
and cargo transportation industry. In addition to its previous request for documents regarding air
freight forwarding, the U.S. DOJ also requested that we produce various documents regarding ocean
freight forwarding. We believe we are a subject of the U.S. DOJ investigation.
On October 10, 2007, we also received a notice from the Canadian Competition Bureau that the Bureau
commenced an investigation with respect to alleged anti-competitive activities of persons involved
in the provision of international freight forwarding services to and from Canada and requesting
that we preserve records relevant to such investigation. On October 30, 2009, we received notice
from the Canadian Competition Bureau that it had closed its investigation and has withdrawn its
record preservation request.
On October 25, 2007, one of our subsidiaries received a notice from the New Zealand Commerce
Commission that it was conducting an investigation in relation to international freight forwarding
services in New Zealand and requesting that we provide documents and information as it relates to
New Zealand. Our subsidiary responded to the request from the New Zealand Commerce Commission on
December 21, 2007.
In June 2008 and February 2009, we received a request for information issued by the European
Commission (EC) requesting information and records relating to the ECs ongoing investigation of
alleged anti-competitive behavior relating to freight forwarding services in the European
Union/European Economic Area. In July 2008 and March 2009, we submitted responses to these
requests.
In May 2009, we learned that the Brazilian Ministry of Justice is investigating possible alleged
cartel activity in the international air and ocean freight forwarding market and as of the date of
the filing of this report, we have not been contacted by Brazilian authorities regarding this
matter.
In November 2009, one of our subsidiaries received a summons from the South African
Competition Commission requesting certain information and records in connection with its ongoing
investigation of alleged anti-competitive behavior relating to the market for air freight
forwarding services in
South Africa. In January 2010, we responded to this request.
In February 2010, in connection with the ECs investigation discussed above, the EC sent a
Statement of Objections to us and a number of other freight forwarding and logistics providers.
The Statement of Objections alleges infringements of European Union competition law with respect to
various surcharges. We responded in writing to the ECs Statement of Objections in April 2010 and
expect to attend a hearing in July 2010 to discuss our position with the EC officials.
We continue to receive additional requests for information, documents and interviews from various
governmental agencies with respect to these investigations, and we have provided, and expect to
continue to provide in the future, further responses as a result of such requests.
We (along with several other global logistics providers) have been named as a defendant in a
federal antitrust class action lawsuit filed on January 3, 2008 in the United States District Court
of the Eastern District of New York (Precision Associates, Inc., et. al. v. Panalpina World
Transport (Holding) Ltd., et. al.). This lawsuit alleges that the defendants engaged in various
forms of anti-competitive practices and seeks an unspecified amount of treble monetary damages and
injunctive relief under U.S. antitrust laws.
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We have incurred, and we expect to continue to incur, significant legal fees and other costs in
connection with these governmental investigations and lawsuits. If the U.S. DOJ, the EC, or any
other regulatory body concludes that we have engaged in anti-competitive behavior, we could incur
significant additional legal fees and other costs, which could include fines and/or penalties,
which may be material to our consolidated financial statements.
The Company is involved in a dispute with the South African Revenue Service where the Company makes
use of owner drivers for the collection and delivery of cargo. The South African Revenue Service
is claiming that the Company is liable for employee taxes in respect of these owner drivers. The
Company has strongly objected to this and together with its expert legal and tax advisors, believes
that the Company is in full compliance with the relevant sections of the income tax act governing
this situation and has no tax liability in respect of these owner drivers. The amount claimed by
the South African Revenue Service is approximately $9,742 based on exchange rates as of April 30,
2010.
The Company is involved in litigation in Italy (in various cases filed in 2000 in the Court of
Milan) and England (in a case filed on April 13, 2000 in the High Court of Justice, London) with
the former ultimate owner of Per Transport SpA and related entities, in connection with its April
1998 acquisition of Per Transport SpA and its subsequent termination of the employment services of
the former ultimate owner as a consultant. The suits seek monetary damages, including compensation
for termination of the former ultimate owners consulting agreement. The Company has brought
counter-claims for monetary damages in relation to warranty claims under the purchase agreement.
The total of all such actual and potential claims, albeit duplicated in several proceedings, is
approximately $12,559 based on exchange rates as of April 30, 2010. In connection with the Italian
litigation, legal proceedings have also been brought against a former director and officer of the
Company and a current employee of the Company. The Company has agreed to indemnify these
individuals in connection with these proceedings.
The Company was previously engaged through various indirect subsidiaries in the business of
transportation and storage of fine works of art. The Company sold this business and the related
indirect subsidiaries during fiscal 2009. A client of one of these subsidiaries has alleged that
during several weeks of June 2007 a malfunctioning climate-control unit at such subsidiaries
warehouses may have caused numerous works of art to be exposed to humidity levels beyond what are
considered normal storage conditions. The Company has received communication from the client that
several works of art may have been affected by the humidity; however it is not known whether the
works have suffered any depreciation beyond normal restoration costs. Although the Company has
sold this business, the Company has retained any liabilities associated with this matter. The
Company believes that any ultimate liability it may have as a result of a claim may be mitigated
based on a number of factors, including insurance policies in place; limitations of liability
imposed by the Companys standard trading conditions; as well as limitations of liability afforded
by the subsidiary relationship. If a claim does arise and the Company is found liable and is
otherwise unable to successfully mitigate its liability, the claim and its related impact could be
material to the Companys consolidated financial statements.
In connection with ASC 450, Contingencies, the Company has not accrued for a loss contingency
relating to any of the disclosed investigations and legal proceedings because we believe that,
although unfavorable outcomes in the investigations or proceedings may be reasonably possible, they
are not considered by our management to be probable or reasonably estimable.
NOTE 9. Defined Benefit Plans
The Company sponsors defined benefit plans for eligible employees in certain countries. Under
these plans, employees are entitled to retirement benefits based on years of service of the
employees final average salary on attainment of the qualifying retirement age.
- 16 -
Table of Contents
Net periodic pension cost for the Companys defined benefit plans consists of:
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Service cost |
$ | 139 | $ | 99 | ||||
Interest cost |
462 | 394 | ||||||
Expected return on assets |
(309 | ) | (210 | ) | ||||
Amortization of net actuarial loss |
17 | 58 | ||||||
Net periodic pension cost |
$ | 309 | $ | 341 | ||||
For the three months ended April 30, 2010 and 2009, the Company contributed approximately $382 and
$471, respectively, to its defined benefit plans.
NOTE 10. Share-Based Compensation
On June 8, 2009, the Companys shareholders approved the 2009 Long Term Incentive Plan (2009 LTIP).
The plan provides for the issuance of a variety awards, including stock options, share
appreciation rights (sometimes referred to as SARs), restricted shares, restricted share units
(RSUs), deferred share units and performance awards. A total of 6,250,000 shares were originally
reserved for issuance under the 2009 LTIP, subject to adjustments as provided for in the plan.
In addition to the 2009 LTIP, at April 30, 2010, the Company had stock based compensation awards
outstanding under the following plans: the 2004 Long Term Incentive Plan (2004 LTIP), the 2000
Stock Option Plan, the 2000 Employee Share Purchase Plan, the 2004 Non-Employee Directors Share
Incentive Plan (2004 Directors Incentive Plan) and the Non-Employee Directors Share Option Plan
(Directors Option Plan).
Under the 2000 Employee Share Purchase Plan, eligible employees may purchase shares of the
Companys stock at 85% of the market price of the common stock at the beginning of an offering
period through payroll deductions in an amount not to exceed 10% of an employees annual base
compensation subject to an annual maximum of $25.
Under the 2004 Directors Incentive Plan, the Company may grant non-qualified stock options, share
appreciation rights, restricted stock, RSUs and deferred share units.
Since the 2009 LTIP was approved by the Companys shareholders in June 2009, no additional awards
may be made pursuant to the 2004 LTIP. In addition, the Company no longer grants awards under the
2000 Stock Option Plan and the Directors Option Plan. Vesting of these awards occurs over
different periods, depending on the terms of the individual award, however expenses relating to
these awards are all recognized on a straight line basis over the applicable vesting period.
- 17 -
Table of Contents
Employee Share-Based Compensation Activity
A summary of the employee share-based compensation activity for the three months ended April 30,
2010 is as follows:
2009 LTIP | 2004 LTIP | 2000 Stock Option Plan | ||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
average | Shares | average | average | Shares | average | |||||||||||||||||||||||||||
Restricted | grant date | subject to | exercise | Restricted | grant date | subject to | exercise | |||||||||||||||||||||||||
share units | fair value | stock options | price | share units | fair value | stock options | price | |||||||||||||||||||||||||
Outstanding balance at February 1, 2010 |
46,232 | $ | 13.05 | 1,827,663 | $ | 20.32 | 1,794,895 | $ | 18.00 | 1,113,564 | $ | 7.44 | ||||||||||||||||||||
Granted |
973,702 | 17.14 | | | | | | | ||||||||||||||||||||||||
Exercised/vested |
(6,104 | ) | 13.38 | (87,488 | ) | 15.62 | (276,133 | ) | 15.66 | (247,305 | ) | 6.29 | ||||||||||||||||||||
Cancelled/forfeited |
| | (72,225 | ) | | (34,885 | ) | 16.73 | (15,738 | ) | 4.33 | |||||||||||||||||||||
Outstanding balance at April 30, 2010 |
1,013,830 | $ | 16.98 | 1,667,950 | $ | 20.54 | 1,483,877 | $ | 18.30 | 850,521 | $ | 7.89 | ||||||||||||||||||||
Non-Employee Share-Based Compensation Activity
A summary of non-employee share-based compensation activity for the three months ended April 30,
2010 is as follows:
- 18 -
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2004 | ||||||||||||||||
Directors Incentive Plan | Directors Option Plan | |||||||||||||||
Weighted | Shares | Weighted | ||||||||||||||
Restricted | average | subject to | average | |||||||||||||
share | grant date | stock | exercise | |||||||||||||
units | fair value | options | price | |||||||||||||
Outstanding balance at February 1, 2010 |
30,457 | $ | 12.36 | 81,000 | $ | 10.33 | ||||||||||
Outstanding balance at April 30, 2010 |
30,457 | $ | 12.36 | 81,000 | $ | 10.33 | ||||||||||
In connection with its share-based compensation plans, the Company recorded approximately $1,683
and $2,471 of share-based compensation expense for the three months ended April 30, 2010 and 2009,
respectively. As of April 30, 2010, the Company had approximately $27,881 of total unrecognized
compensation related to share-based compensation to be expensed through April 2015.
NOTE 11. Borrowings
At April 30, 2010, the aggregate amount available for borrowing under all borrowing facilities
totaled approximately $305,014. As of April 30, 2010, loans outstanding under these facilities
totaled approximately $56,048 and letters of credit and guarantees outstanding under these
facilities totaled approximately $159,409, excluding letters of credit (or the portion thereof)
used to support loans outstanding. At April 30, 2010, the Company had approximately $89,557 of
available, unused capacity under these facilities, approximately $75,623 of which was available for
cash draw.
Bank Lines of Credit
A significant number of our subsidiaries participate in a cash pooling arrangement which is used to
fund short-term liquidity needs. The cash pooling arrangement has no stated maturity date and
yields and bears interest at varying rates. The facility does not permit cash withdrawals in excess
of cash deposits on a global basis. At April 30, 2010, cash deposits were equivalent to cash
withdrawals. Cash withdrawals of $81,269 are included in bank lines of credit at April 30, 2010.
ABN/RBS Letter of Credit Agreement
On July 9, 2009, the Company and certain of its subsidiaries entered into a letter of credit
facility pursuant to an agreement with ABN AMRO N.V. (ABN) and The Royal Bank of Scotland plc.
(the ABN/RBS Letter of Credit Agreement). The ABN/RBS Letter of Credit Agreement provides for
an aggregate availability of up to $50,000 in letters of credit as of April 30, 2010. The
ABN/RBS Letter of Credit Agreement provided for two separate letter of credit facilities, which
are referred to as the ABN Letter of Credit Facility and the RBS Letter of Credit Facility. As
of April 30, 2010, the letters of credit outstanding under the ABN Letter of Credit Facility
totaled approximately $36,379 and the amount of available, unused capacity was $13,621. The ABN
Letter of Credit Facility matures on July 9, 2011. The RBS Letter of Credit Facility matured on
December 31, 2009 and prior to maturity the Company either obtained the release of the remaining
letters of credit issued pursuant to this facility or provided for alternative arrangements for
the underlying obligations. The Companys obligations under the ABN/RBS Letter of Credit
Agreement are guaranteed by the Company and selected subsidiaries. |
- 19 -
Table of Contents
Nedbank Letter of Credit Agreement
On July 9, 2009, the Company and certain of its subsidiaries also entered into a letter of
credit facility pursuant to an agreement (the Nedbank Letter of Credit Agreement) with Nedbank
Limited, acting through its London Branch. The Nedbank Letter of Credit Agreement provided for
an aggregate initial availability of up to $36,000 in letters of credit. On January 8, 2010,
the Company and certain of its subsidiaries entered into an amendment to this agreement (the
Nedbank Amendment) which temporarily increased the aggregate availability under the facility
to $46,000 in letters of credit. The Nedbank Amendment expired on
March 1, 2010, after which the
aggregate availability under the Nedbank Letter or Credit Agreement reverted to the original
availability of $36,000 in letters of credit. As of April
30, 2010, the letters of credit outstanding under the Nedbank Letter of Credit Agreement totaled
approximately $6,858 and letters of credit issued to support cash borrowings totaled $18,008,
which is included in bank lines of credit in the consolidated balance sheet. As of April 30,
2010, the amount of available, unused capacity was $11,134 under this facility. The Nedbank
Letter of Credit Agreement matures on July 9, 2011. The Companys obligations under the Nedbank
Letter of Credit Agreement are guaranteed by the Company and selected subsidiaries. |
Together, the Company refers to the ABN/RBS Letter of Credit Agreement and the Nedbank Letter of
Credit Agreement as the Letter of Credit Agreements. Pursuant to the terms of the Letter of
Credit Agreements, the Company is charged fees relating to, among other things, the issuance of
letters of credit, the aggregate amount of letters of credit outstanding, and the unused portions
of these facilities, all at the rates specified in the applicable agreement.
South African Facilities Agreement
On July 9, 2009, certain of the Companys subsidiaries operating in South Africa entered into a
South African credit facility pursuant to an agreement (the South African Facilities
Agreement) with Nedbank Limited, acting through its Corporate Banking Division. The South
African Facilities Agreement provides for a 650,000 South African rand revolving credit
facility, which is comprised of a 400,000 South African rand working capital facility and a
250,000 South African rand letter of credit, guarantee and forward exchange contract facility.
At April 30, 2010, based on current exchange rates, the revolving credit facility provided for
an aggregate availability of $87,945. As of April 30, 2010, the borrowings, letters of credit,
and guarantees under the South African Facilities Agreement totaled approximately $32,117,
represented by outstanding letters of credit and guarantees of $32,084 and borrowings of $33,
which is included in bank lines of credit in the consolidated balance sheet. As of April 30,
2010, the amount of available, unused capacity was $55,828 under this facility. The South
African Facilities Agreement also provides the Companys South African operations with a 150,000
South African rand revolving asset-based finance facility, which includes, among other things, a
capital lease line. The obligations of the Companys subsidiaries under the South African
Facilities Agreement are guaranteed by selected subsidiaries registered in South Africa. In
addition, certain of the Companys operating assets in South Africa, and the rights and
interests of the South African branch of one of our subsidiaries in various intercompany loans
made to a South African subsidiary and to a South African partnership, are pledged as collateral
under the South African Facilities Agreement. |
Overdrafts under the new South African working capital facility bear interest at a rate per
annum equal to Nedbanks publicly quoted prime rate minus 1%. The per annum interest rate
payable in respect of foreign currency accounts is generally at the London Interbank Offered
Rate (LIBOR), or with respect to a foreign currency account in euro, the Euro Interbank Offered
Rate (EURIBOR), plus the lenders cost of funds (to the extent greater than LIBOR or EURIBOR, as
applicable), plus 3%. Instruments issued under the letter of credit, guarantee and forward
exchange contract facility bear interest at a rate to be agreed upon in writing by the Companys
subsidiaries party to the South African Facilities Agreement and Nedbank. |
Bank Borrowings
2009 Note Purchase Agreement
On July 9, 2009, the Company issued $55,000 of senior unsecured guaranteed notes (the 2009
Senior Notes) under a note purchase agreement (the 2009 Note Purchase Agreement), entered
into among UTi, certain of its subsidiaries as guarantors and the purchasers named therein. The
2009 Senior Notes mature on August 9, 2014. The 2009 Senior Notes bear interest at a rate of
8.06% per annum, payable semi-annually, on the 9th day of February and August. The Company is
required to repay approximately $9,167, or such lesser principal amount as shall then be
outstanding, on February 9, 2012 and each February 9th and August 9th thereafter up to and
including August 9, 2014. The Companys obligations under the 2009 Senior Notes and the 2009
Note Purchase Agreement are guaranteed by the Company and selected subsidiaries. As of April
30, 2010, the principal amount outstanding under the 2009 Senior Notes was $55,000 and is
included in long-term bank borrowings in the consolidated balance sheet. |
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2006 Note Purchase Agreement
On July 13, 2006, the Company issued $200,000 of senior unsecured guaranteed notes (the 2006
Senior Notes and, together with the 2009 Senior Notes, the Senior Notes) under a note
purchase agreement (the 2006 Note Purchase Agreement, and together with the 2009 Note Purchase
Agreement, the Note Purchase Agreements), entered into among UTi, certain of its subsidiaries
as guarantors and the purchasers named therein. The 2006 Senior Notes mature on July 13, 2011.
The 2006 Senior Notes bear interest at a rate of 6.31% per annum, payable semi-annually, on the
13th day of each January and July. The Company is required to repay approximately $33,333, or
such lesser principal amount as shall then be outstanding, on each January 13th and July 13th up
to and including July 13, 2011. The Companys obligations under the 2006 Senior Notes and the
2006 Note Purchase Agreement are guaranteed by the Company and selected subsidiaries. As of
April 30, 2010, the principal amount outstanding under the 2006 Senior Notes was approximately
$100,000, and is included in long-term bank borrowings in the consolidated balance sheets. |
The Letter of Credit Agreements, the South African Facilities Agreement, and the Note Purchase
Agreements require the Company to comply with financial and other covenants and certain change of
control provisions. In March 2010, the Company amended the financial covenants in the Letter of
Credit Agreements and in the 2009 Note Purchase Agreement. Some of the covenants include
maintaining a specified net worth, maintaining a specified ratio of total debt to consolidated
earnings before interest, taxes, depreciation and amortization (EBITDA) and minimum interest charge
coverage requirements, among others. Should the Company fail to comply with these covenants and be
unable to obtain any necessary amendments or waivers, all or a portion of the obligations under the
Senior Notes, the Letter of Credit Agreements and the South African Facilities Agreement could
become immediately due and payable and the Letter of Credit Agreements and the South African
Facilities Agreement could be terminated and the credit, letter of credit, and guarantee facilities
provided thereunder would no longer be available. The Company was in compliance with all the
covenants set forth in the Note Purchase Agreements, the Letter of Credit Agreements and the South
African Facilities Agreement as of April 30, 2010.
Furthermore, the Letter of Credit Agreements, the South African Facilities Agreement, and the Note
Purchase Agreements each contain cross-default provisions with respect to other indebtedness,
giving the lenders under the Letter of Credit Agreements and the South African Facilities Agreement
and the note holders under the Note Purchase Agreements the right to declare a default if the
Company defaults under other indebtedness in certain circumstances. Should the Company fail to
comply with these provisions and be unable to obtain any necessary amendments or waivers, all or a
portion of the obligations under the Senior Notes, the Letter of Credit Agreements and the South
African Facilities Agreement could become immediately due and payable and the Letter of Credit
Agreements and the South African Facilities Agreement could be terminated and the credit, letter of
credit, and guarantee facilities provided thereunder would no longer be available.
Pursuant to the terms of the Letter of Credit Agreements, the South African Facilities Agreement,
and the Note Purchase Agreements, the Company is required to indemnify the lenders and others with
respect to certain losses, liabilities and costs, those relating to income and other taxes,
increased costs suffered as a result of, among other things, changes in laws or regulations, or
other requirements which may be imposed by regulatory authorities from time to time, and increased
costs suffered as a result of a default under the agreements. The indemnification obligations
created by each respective agreement arose at the time such agreement was entered into and will
continue in accordance with the terms of such agreement. The Company cannot currently estimate the
maximum potential amount which could be payable pursuant to its indemnification obligations under
these agreements. Liabilities for these indemnification obligations were not material to the
Company as a whole as of the dates that each of the respective agreements was entered into. The
Company has not recorded any liabilities related to the indemnification obligations as of April 30,
2010.
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In addition to the credit, letter of credit, and guarantee facilities provided under the Letter of
Credit Agreements and the South African Facilities Agreement, the Company utilizes a number of
other financial institutions to provide it with incremental letter of credit, guarantee and working
capital capacity, certain of which are working capital and credit facilities, and certain of which
are customs bonds and guarantees which are issued by various financial institutions. In many cases,
the use of these particular letter of credit, guarantee, and working capital facilities is
restricted to the country in which they originated although this is not always the case. These
particular borrowing, letter of credit, guarantee, and working capital facilities may restrict
distributions by the subsidiary operating in the country. At April 30, 2010, the aggregate amount
available for borrowing under these other facilities totaled approximately $141,729. Of this, the
amount utilized for customs bonds and other guarantees was approximately $84,088 and the amount
utilized for borrowings was approximately $48,667. At April 30, 2010, the total available, unused
borrowing capacity under these other facilities was approximately $8,974.
NOTE 12. Uncertain Tax Positions
A reconciliation of the total amounts of unrecognized tax positions and interest recognized in
other non-current liabilities at the beginning and end of the period is as follows:
Uncertain | ||||||||
Tax | ||||||||
Positions | Interest | |||||||
Balance at February 1, 2010 |
$ | 8,234 | $ | 2,088 | ||||
Increase for tax positions taken during the current year |
85 | | ||||||
Interest |
| 205 | ||||||
Foreign currency translation |
60 | 20 | ||||||
Balance at April 30, 2010 |
$ | 8,379 | $ | 2,313 | ||||
The Company recognizes interest and penalties related to uncertain tax positions as interest and
other expense, respectively. The total amount of unrecognized tax benefits that would favorably
affect our effective tax rate if recognized was $6,785 as of April 30, 2010. Tax years 2006 through
2010 generally remain open to examination by major taxing jurisdictions in which we operate. In
addition, previously filed tax returns are under review in various other countries in which we
operate.
NOTE 13. Restructuring Charges
Fiscal 2009 Information Technology Cost Reduction Plan
During the fourth quarter of fiscal 2009, the Company initiated several changes to its global
information technology operations and incurred related restructuring charges. For the three months
ended April 30, 2009 amounts charged for employee severance benefits and other exit costs were $887
and $344, respectively. The Company completed all activities under the plan during fiscal 2010.
Employee severance benefits primarily related to the realignment of corporate and regional
information technology functions to reduce overhead costs. Under the plan, the Companys global IT
workforce was reduced by approximately 240 employees.
Other exit costs primarily related to consulting fees incurred in connection with the
implementation of the plan. These amounts were expensed as incurred.
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NOTE 14. Fair Value Disclosures
The Company measures the fair value of certain assets and liabilities on a recurring basis based
upon a fair value hierarchy in accordance with ASC 820, Fair Value Measurements and Disclosures, as
follows:
| Level 1 Quoted prices in active markets for identical assets or liabilities; |
||
| Level 2 Observable market data, including quoted prices for similar assets and
liabilities, and inputs other than quoted prices that are observable, such as interest
rates and yield curves; and |
||
| Level 3 Unobservable data reflecting the Companys own assumptions, where there is
little or no market activity for the asset or liability. |
The following table presents information about the Companys financial assets and liabilities
measured at fair value on a recurring basis as of April 30, 2010, and indicate the fair value
hierarchy of the valuation techniques utilized to determine such fair value.
Fair Value Measurement at Reporting Date Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | |||||||||||||||
Identical | Observable | Significant | ||||||||||||||
Balance at | Assets | Inputs | Unobservable | |||||||||||||
April 30, 2010 | (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Assets |
||||||||||||||||
Cash and cash
equivalents |
$ | 340,721 | $ | 340,721 | $ | | $ | | ||||||||
Forward exchange
contracts |
159 | | 159 | | ||||||||||||
Other |
448 | | | 448 | ||||||||||||
Total |
$ | 341,328 | $ | 340,721 | $ | 159 | $ | 448 | ||||||||
Liabilities |
||||||||||||||||
Forward exchange
contracts |
$ | 280 | $ | | $ | 280 | $ | | ||||||||
Other |
757 | | | 757 | ||||||||||||
Total |
$ | 1,037 | $ | | $ | 280 | $ | 757 | ||||||||
The following methods were used to measure the fair value of assets and liabilities:
Forward Exchange Contracts The Companys forward exchange contracts are over-the-counter
derivatives, which are valued using pricing models that rely on currency exchange rates, and
therefore are classified as
Level 2.
Other Other financial assets and liabilities utilizing Level 3 inputs include minority call and
put options granted to the Company and certain of the Companys minority partners. These call and
put options do not have any quoted prices, nor can they be valued using inputs based on observable
market data. These investments are valued internally, based on the difference between the
estimated strike price and the estimated fair value of the minority partner equity, when the call
and put options become exercisable.
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The following table presents the changes in Level 3 instruments measured on a recurring basis for
the three months ended April 30, 2010:
Assets | Liabilities | |||||||
Beginning balance at February 1, 2010 |
$ | 476 | $ | 811 | ||||
Net change in fair value included in
earnings |
(27 | ) | (53 | ) | ||||
Translation adjustment |
(1 | ) | (1 | ) | ||||
Ending balance at April 30, 2010 |
$ | 448 | $ | 757 | ||||
NOTE 15. Derivative Financial Instruments
The Company generally utilizes forward exchange contracts to reduce its exposure to foreign
currency denominated assets and liabilities. Foreign exchange contracts purchased are primarily
denominated in the currencies of the Companys principal markets. The Company does not enter into
derivative contracts for speculative purposes.
As of April 30, 2010, the Company had contracted to sell the following amounts under forward
exchange contracts which all mature within 60 days of April 30, 2010: $5,387 in Euros; $10,602 in
U.S. dollars; $1,201
in British pound sterling; and, $2,192 in other currencies. Changes in the fair value of forward
exchange contracts are recorded within purchased transportation costs in the consolidated
statements of income.
The Company does not designate foreign currency derivatives as hedges. Foreign currency derivative
assets included in trade receivables were $159 and $273 at April 30, 2010 and January 31, 2010,
respectively. Foreign currency liability derivatives included in trade payables and other accrued
liabilities were $280 and $294 at April 30, 2010 and January 31, 2010, respectively. The Company
recorded net losses on foreign currency derivatives of $121 and $265 for the three months ended
April 30, 2010 and 2009, respectively.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
As used in this Quarterly Report on Form 10-Q, the terms we, us, our, UTi and the company
refer to UTi Worldwide Inc. and its subsidiaries as a consolidated entity, except where it is noted
or the context makes clear the reference is only to UTi Worldwide Inc.
Overview
We are an international, non-asset-based supply chain services and solutions company that provides
airfreight and ocean freight forwarding, contract logistics, customs brokerage, distribution,
inbound logistics, truckload brokerage and other supply chain management services. The company
serves its customers through a worldwide network of freight forwarding offices, and contract
logistics and distribution centers.
The companys operations are principally managed by core business operations. The factors for
determining the reportable segments include the manner in which management evaluates the
performance of the company combined with the nature of the individual business activities. As
discussed above in Note 1 Presentation of Financial Statements of our Notes to the Consolidated
Financial Statements, our operations are broken into the following reportable segments: Freight
Forwarding and Contract Logistics and Distribution. Certain corporate office expenses,
eliminations, and various holding companies within the group structure are presented separately.
Freight Forwarding Segment. As a freight forwarder, we conduct business as an indirect carrier for
our clients or occasionally as an authorized agent for airlines and ocean carriers. We typically
act as an indirect carrier with respect to shipments of freight unless the volume of freight to be
shipped over a particular route is not large enough to warrant consolidating such freight with
other shipments. In such situations, we usually forward the freight as an agent for the carrier.
We do not own or operate aircraft or vessels and consequently, contract with commercial carriers to
arrange for the shipment of cargo. A majority of our freight forwarding business is conducted
through non-committed space allocations with carriers. We arrange for, and in many cases provide,
pick-up and delivery service between the carrier and the location of the shipper or recipient.
When we act as an authorized agent for the airline or ocean carrier, we arrange for the
transportation of individual shipments to the airline or ocean carrier. As compensation for
arranging for the shipments, the carriers pay us a commission. If we provide the client with
ancillary services, such as the preparation of export documentation, we receive an additional fee.
As part of our freight forwarding services, we provide customs brokerage services in the United
States (U.S.) and most of the other countries in which we operate. Within each country, the rules
and regulations vary, along with the level of expertise that is required to perform the customs
brokerage services. We provide customs brokerage services in connection with a majority of the
shipments which we handle as both an airfreight and ocean freight forwarder. We also provide
customs brokerage services in connection with shipments forwarded by our competitors. In addition,
other companies may provide customs brokerage services in connection with the shipments which we
forward.
As part of our customs brokerage services, we prepare and file formal documentation required for
clearance through customs agencies, obtain customs bonds, facilitate the payment of import duties
on behalf of the importer, arrange for payment of collect freight charges, assist with determining
and obtaining the best commodity classifications for shipments and perform other related services.
We determine our fees for our customs brokerage services based on the volume of business
transactions for a particular client, and the type, number and complexity of services provided.
Revenues from customs brokerage and related services are recognized upon completion of the
services.
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We believe that for the Freight Forwarding segment, net revenue (the term used by the company to
describe revenue less purchased transportation costs) is a better measure of growth in our freight
forwarding business than revenue because our revenue for our services as an indirect air and ocean
carrier includes the carriers charges to us for carriage of the shipment. Our revenues are also
impacted by changes in fuel and similar surcharges, which have little relation to the volume or
value of our services provided. When we act as an indirect air and ocean carrier, our net revenue
is determined by the differential between the rates charged to us by the carrier and the rates we
charge our customers plus the fees we receive for our ancillary services. Within our company,
revenue derived from freight forwarding generally is shared between the points of origin and
destination, based on a standard formula. Our revenue in our other capacities includes only
commissions and fees earned by us and is substantially similar to net revenue for the Freight
Forwarding segment in this respect.
A significant portion of our expenses are variable and adjust to reflect the level of our business
activities. Other than purchased transportation costs, staff costs are our single largest variable
expense and are less flexible in the near term.
Contract Logistics and Distribution Segment. Our contract logistics services primarily relate to
the value-added warehousing and subsequent distribution of goods and materials in order to meet
clients inventory needs and production or distribution schedules. Our services include receiving,
deconsolidation and decontainerization, sorting, put away, consolidation, assembly, cargo loading
and unloading, assembly of freight and protective packaging, storage and distribution. Our
outsourced services include inspection services, quality centers and manufacturing support.
Contract logistics revenues are recognized when the service has been completed in the ordinary
course of business.
We also provide a range of distribution and other supply chain management services, such as
domestic ground transportation, warehousing services, consulting, order management, planning and
optimization services, outsourced management services, developing specialized client-specific
supply chain solutions, and customized distribution and inventory management services. We receive
fees for the other supply chain management services that we perform.
In contrast to the Freight Forwarding segment, we believe revenue is a better measure of the growth
in our contract logistics and distribution business because this segment does not incur carrier
costs (and related fuel surcharges) in the same manner as freight forwarding, and purchased
transportation costs under this segment primarily relate to the truck brokerage operation in the
Americas region.
CLIENTasONE Strategy
As we enter our third year of our five-year strategic plan, which we refer to as CLIENTasONE, we
continue to undertake various efforts to increase the number and size of our clients and our
revenue, improve our operational performance, streamline our back-end operations, develop and
implement new systems and train and develop our employees. We have made progress in achieving our
objectives, which involves leveraging client relationships, integrating acquisitions, controlling
costs, improving our systems and processes and implementing effective change management processes.
We continue to face challenges developing, training and recruiting personnel. This strategic
operating plan requires that we successfully manage our operations and growth which we may not be
able to do as well as we anticipate. Our industry is extremely competitive and our business is
subject to numerous factors and risks beyond our control. If we are not able to successfully
implement CLIENTasONE, our efforts associated with this strategic plan may not result in increased
revenues or improved profitability. If we are not able to increase our revenue or improve our
profitability in the future, our results of operations could be adversely affected.
As a central part of our CLIENTasONE strategy, we are continuing a technology-enabled, business
transformation initiative, which we refer to as 4asONE. This program is aimed at establishing a
single system and set of global processes for our freight forwarding business and global financial
management. It is designed to increase efficiency through the adoption of shared services and
enabling technologies. In order to achieve this goal, we intend to deploy enabling technologies to
support enterprise master data management, financial management and freight forwarding operations
management. As with any significant IT-enabled business transformation, we face various challenges
and risks with regard to our 4asONE program, including risks associated with cost increases and
changes to our scope, anticipated cost structure, technical difficulties and delays associated with
the development and implementation of 4asONE. As a result of these and other issues, the
anticipated costs, expected benefits, overall scope and/or deployment schedule may change, and
these changes may be material.
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Fiscal 2009 Information Technology Cost Reduction Plan and Other Cost Reductions
On December 3, 2008, the companys Executive Board approved an information technology restructuring
plan designed to consolidate the companys information technology resources, eliminate
redundancies, reduce costs and improve client services. The information technology restructuring
plan included outsourcing certain information technology functions and support, which ultimately
resulted in a reduction in the companys global information technology workforce by approximately
240 employees.
During the three months ended April 30, 2009, the company incurred aggregate pre-tax restructuring
charges of $1.2 million. The company completed the information technology restructuring plan
during fiscal 2010. All costs associated with the plan were cash expenditures.
In addition to the restructuring charges described above, during the three months ended April 30,
2009, the company incurred approximately $1.2 million in advisory and ancillary costs associated
with the plan.
Effect of Foreign Currency Translation on Comparison of Results
Our reporting currency is the U.S. dollar. However, due to our global operations, we conduct and
will continue to conduct business in currencies other than our reporting currency. The conversion
of these currencies into our reporting currency for reporting purposes will be affected by
movements in these currencies against the U.S. dollar. A depreciation of these currencies against
the U.S. dollar would result in lower revenues reported; however, as applicable costs are also
converted from these currencies, costs would also be lower. Similarly, the opposite effect will
occur if these currencies appreciate against the U.S. dollar. Additionally, the assets and
liabilities of our international operations are denominated in each countrys local currency. As
such, when the values of those assets and liabilities are translated into U.S. dollars, foreign
currency exchange rates may adversely impact the net carrying value of our assets. We cannot
predict the effects of foreign currency exchange rate fluctuations on our future operating results.
Acquisitions
Acquisitions affect the comparison of our results between periods prior to when acquisitions are
made and to the comparable periods in subsequent years, depending on the date of acquisition (e.g.,
acquisitions made on February 1, the first day of the first quarter of our fiscal year, will only
affect a comparison with the prior years results and will not affect a comparison to the following
years results). The results of acquired operations are included in our consolidated financial
statements from the dates of their respective acquisitions. We consider the operating results of
an acquired company during the first twelve months following the date of its acquisition to be an
acquisition impact or a benefit from acquisitions. Thereafter, we consider the growth in an
acquired companys results to be organic growth.
Effective December 21, 2009, the company acquired the remaining outstanding shares of an Israeli
subsidiary, Excel MPL-A.V.B.A., LP (EMA Israel), of which the company had already held a 50%
ownership interest that was acquired through its acquisition of the Israeli subsidiarys parent
company in the beginning of fiscal 2010. The purchase price totaled $6.5 million, including the
repayment of a $0.5 million loan and contingent consideration estimated to be $0.3 million which is
based on projected net revenues from a particular customer for the following four years. The
contingent consideration was accrued as an obligation through an increase to goodwill. The
acquisition eliminated a minority shareholder in Israel. The purchase price exceeded the fair value
of the noncontrolling interest received and net assets acquired, and accordingly, $2.0 million was
allocated to goodwill, all of which is included with the companys Contract Logistics and
Distribution segment. The company is currently determining whether the goodwill is deductible for
tax purposes. The estimated purchase price allocation is preliminary and is subject to revision. A
valuation of the additional net assets acquired is being conducted and the final allocation will be
made when completed.
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Effective October 16, 2009, the company acquired all of the issued and outstanding shares of Tacisa
Transitaria, S.L. (Tacisa), a Spanish freight forwarder. An employee of one of the companys
Spanish subsidiaries held a majority ownership interest in Tacisa prior to the companys
acquisition. The purchase price totaled $5.5 million, net of cash acquired of $0.8 million, and
including contingent consideration estimated to be $4.7 million based on projected fiscal 2010
operating results of Tacisa. The contingent consideration was accrued as an obligation with a
corresponding increase to goodwill. The acquisition expanded the companys freight forwarding
coverage in Spain. The total cost of the acquisition has been allocated to the assets acquired and
the liabilities assumed based on their estimated fair values at the date of acquisition. The
preliminary allocation resulted in an excess of the purchase price over the fair value of the
acquired net assets, and accordingly, $2.5 million was allocated to goodwill, all of which is
included in the companys Freight Forwarding segment. The company is currently determining whether
the goodwill is deductible for tax purposes.
The Tacisa preliminary allocation of the purchase price as of the date of acquisition resulted in
total assets acquired and liabilities assumed of $9.3 million and $3.1 million, respectively.
Total assets acquired at
estimated fair value was comprised of current assets of $3.2 million, comprised primarily of trade
receivables, and noncurrent assets of $6.1 million, of which $2.5 million and $3.5 million have
been allocated to goodwill and intangible assets, respectively. The amortization period of the
client contracts and relationships acquired is currently being assessed by the company. Total
liabilities assumed at estimated fair value were comprised of current liabilities of $2.1 million,
primarily related to trade payables and other accrued liabilities, and noncurrent liabilities of
$1.0 million. The estimated purchase price allocation is preliminary and is subject to revision.
A valuation of the assets acquired and liabilities assumed is being conducted and the final
allocation will be made when completed.
Seasonality
Historically, our operating results have been subject to seasonal trends when measured on a
quarterly basis. Our first and fourth fiscal quarters are traditionally weaker compared with our
other fiscal quarters. This trend is dependent on numerous factors, including the markets in which
we operate, holiday seasons, climate, economic conditions and numerous other factors. A substantial
portion of our revenue is derived from clients in industries whose shipping patterns are tied
closely to consumer demand or are based on just-in-time production schedules. We cannot accurately
predict the timing of these factors, nor can we accurately estimate the impact of any particular
factor, and thus we can give no assurance that these historical seasonal patterns will continue in
future periods.
Forward-Looking Statements, Uncertainties and Other Factors
Except for historical information contained herein, this quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), which involve
certain risks and uncertainties. Forward-looking statements are included with respect to, among
other things, the companys current business plan and strategy and strategic operating plan,
anticipated changes in certain tax benefits, anticipated costs, benefits and timing associated with
our 4asONE technology-enabled, business transformation initiative, the anticipated outcome of
litigation, the companys ability to meet its capital and liquidity requirements for the
foreseeable future, the anticipated impact of various cost reduction efforts, and all other
statements concerning future matters. These forward-looking statements are identified by the use
of such terms and phrases as intends, intend, intended, goal, estimate, estimates,
expects, expect, expected, project, projected, projections, plans, anticipates,
anticipated, should, could, may, will, designed to, foreseeable future, believe,
believes, scheduled and other similar expressions which generally identify forward-looking
statements. Forward-looking statements are inherently subject to risks and uncertainties, some of
which cannot be predicted or quantified. Future events and actual results could
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differ materially
from those set forth in, contemplated by, or underlying our forward-looking statements. Many
important
factors may cause the companys actual results to differ materially from those discussed
in any such forward-looking statements, including but not limited to the economic volatility that
has materially impacted trade volumes, transportation capacity, pricing dynamics and overall
margins; the financial condition of many of our customers; the impact of sharply rising freight
transportation rates on the companys net revenue; planned or unplanned consequences of the
companys sales initiatives, procurement initiatives and business transformation efforts; our
clients demand for our services; the impact of cost reduction measures undertaken by the company
and the amount and timing of the expected benefits from such measures; integration risks associated
with acquisitions; the ability to retain clients and management of acquisition targets; increased
competition; the impact of volatile fuel costs and changes in foreign exchange rates; changes in
the companys effective tax rates; industry consolidation making it more difficult to compete
against larger companies; general economic, political and market conditions, including those in
Africa, Asia and EMENA which is comprised of Europe, Middle East and North Africa; work stoppages
or slowdowns or other material interruptions in transportation services; risks of international
operations; risks associated with, and costs and expenses the company will incur as a result of,
the ongoing publicly announced investigations by the U.S. Department of Justice, the European
Commission (EC) and other governmental agencies into the pricing practices of the international
freight forwarding and cargo transportation industry and other similar or related investigations
and lawsuits; the success and effects of new strategies and of the realignment of the companys
executive management structure; disruptions caused by epidemics, conflicts, wars and terrorism; and
the other risks and uncertainties described herein and in our other filings with the Securities and
Exchange Commission (SEC); and other factors outside our control. Although UTi believes that the
assumptions underlying the forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, we cannot assure you that the results contemplated in
forward-looking statements will be realized in the timeframe anticipated or at all. In light of the
significant uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a
representation by UTi or any other person that UTis objectives or plans will be achieved.
Accordingly, investors are cautioned not to place undue reliance on our forward-looking statements.
UTi undertakes no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required by law.
In addition to the risks, uncertainties and other factors discussed elsewhere in this Form 10-Q,
the risks, uncertainties and other factors that could cause or contribute to actual results
differing materially from those expressed or implied in any forward-looking statements include,
without limitation, those set forth under Part I. Item 1A Risk Factors in the companys Annual
Report on Form 10-K for the fiscal year ended January 31, 2010 filed with the SEC (together with
any amendments thereto and additions and changes thereto contained in subsequent filings of
quarterly reports on Form 10-Q), those contained in the companys other filings with the SEC, and
those set forth above. For these forward-looking statements, we claim the protection of the safe
harbor for forward-looking statements in Section 27A of the Securities Act of 1933 and Section 21E
of the Exchange Act.
Discussion of Results
The following discussion of our operating results explains material changes in our consolidated
results for the first quarter of fiscal 2011 compared to the first quarter of fiscal 2010. The
discussion should be read in conjunction with the consolidated financial statements and related
notes included elsewhere in this quarterly report and our audited consolidated financial statements
and notes thereto for the year ended January 31, 2010, which are included in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2010, on file with the SEC. Our consolidated
financial statements included in this report have been prepared in U.S. dollars and in accordance
with accounting principles generally accepted in the United States (U.S. GAAP).
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Segment Operating Results
The companys operations are principally managed by core business operations. As discussed above in
Note 1 Presentation of Financial Statements of our Notes to the Consolidated Financial
Statements, our operations are broken into the following reportable segments: Freight Forwarding
and Contract Logistics and Distribution. Certain corporate costs are allocated to the operating
segments directly. The remaining corporate costs are those that are not specifically attributable
to operating segments and are presented separately. The factors for determining the reportable
segments include the manner in which management evaluates the performance of the company combined
with the nature of the individual business activities.
For segment reporting purposes by geographic region, airfreight and ocean freight forwarding
revenues for the movement of goods is attributed to the country where the shipment originates.
Revenues for all other services (including contract logistics and distribution services) are
attributed to the country where the services are performed. For the purposes of this managements
discussion and analysis, net revenue is the term management uses to describe revenues minus
purchased transportation costs. Our revenues, purchased transportation costs and operating income
by operating segment for the three months ended April 30, 2010 and 2009, along with the dollar
amount of the changes and the percentage changes between the time periods shown, are set forth in
the following tables (in thousands):
Three months ended April 30, | ||||||||||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||||||||||
Forwarding | Distribution | Corporate | Total | Forwarding | Distribution | Corporate | Total | |||||||||||||||||||||||||
Revenues |
$ | 721,774 | $ | 333,382 | $ | | $ | 1,055,156 | $ | 493,590 | $ | 274,766 | $ | | $ | 768,356 | ||||||||||||||||
Purchased transportation costs |
562,335 | 127,073 | | 689,408 | 359,364 | 99,485 | | 458,849 | ||||||||||||||||||||||||
Staff costs |
94,390 | 106,977 | 5,634 | 207,001 | 80,905 | 91,378 | 3,520 | 175,803 | ||||||||||||||||||||||||
Depreciation |
3,832 | 7,228 | 352 | 11,412 | 3,627 | 6,128 | 99 | 9,854 | ||||||||||||||||||||||||
Amortization of intangible assets |
1,030 | 2,314 | | 3,344 | 826 | 1,811 | | 2,637 | ||||||||||||||||||||||||
Restructuring charges |
| | | | | | 1,231 | 1,231 | ||||||||||||||||||||||||
Other operating expenses |
46,370 | 73,024 | 5,645 | 125,039 | 37,865 | 65,491 | (1,226 | ) | 102,130 | |||||||||||||||||||||||
Total operating expenses |
707,957 | 316,616 | 11,631 | 1,036,204 | 482,587 | 264,293 | 3,624 | 750,504 | ||||||||||||||||||||||||
Operating income/(loss) |
$ | 13,817 | $ | 16,766 | $ | (11,631 | ) | $ | 18,952 | $ | 11,003 | $ | 10,473 | $ | (3,624 | ) | $ | 17,852 | ||||||||||||||
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Change to three months ended April 30, 2010 | ||||||||||||||||||||||||||||||||
from three months ended April 30, 2009 | ||||||||||||||||||||||||||||||||
Amount | Percentage | |||||||||||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||||||||||
Forwarding | Distribution | Corporate | Total | Forwarding | Distribution | Corporate | Total | |||||||||||||||||||||||||
Revenues |
$ | 228,184 | $ | 58,616 | $ | | $ | 286,800 | 46 | % | 21 | % | | % | 37 | % | ||||||||||||||||
Purchased transportation costs |
202,971 | 27,588 | | 230,559 | 56 | 28 | | 50 | ||||||||||||||||||||||||
Staff costs |
13,485 | 15,599 | 2,114 | 31,198 | 17 | 17 | 60 | 18 | ||||||||||||||||||||||||
Depreciation |
205 | 1,100 | 253 | 1,558 | 6 | 18 | 256 | 16 | ||||||||||||||||||||||||
Amortization of intangible assets |
204 | 503 | | 707 | 25 | 28 | | 27 | ||||||||||||||||||||||||
Restructuring charges |
| | (1,231 | ) | (1,231 | ) | | | (100 | ) | (100 | ) | ||||||||||||||||||||
Other operating expenses |
8,505 | 7,533 | 6,871 | 22,909 | 22 | 12 | (560 | ) | 22 | |||||||||||||||||||||||
Total operating expenses |
225,370 | 52,323 | 8,007 | 285,700 | 47 | 20 | 221 | 38 | ||||||||||||||||||||||||
Operating income/(loss) |
$ | 2,814 | $ | 6,293 | $ | (8,007 | ) | $ | 1,100 | 26 | % | 60 | % | 221 | % | 6 | % | |||||||||||||||
Three months ended April 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Revenues | Revenues | Total | Revenues | Revenues | Total | |||||||||||||||||||
EMENA |
$ | 230,394 | $ | 65,194 | $ | 295,588 | $ | 183,832 | $ | 53,556 | $ | 237,388 | ||||||||||||
Americas |
150,100 | 173,304 | 323,404 | 106,088 | 151,945 | 258,033 | ||||||||||||||||||
Asia Pacific |
255,062 | 9,187 | 264,249 | 145,515 | 7,309 | 152,824 | ||||||||||||||||||
Africa |
86,218 | 85,697 | 171,915 | 58,155 | 61,956 | 120,111 | ||||||||||||||||||
Total |
$ | 721,774 | $ | 333,382 | $ | 1,055,156 | $ | 493,590 | $ | 274,766 | $ | 768,356 | ||||||||||||
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Three months ended April 30, | ||||||||||||||||||||||||
2010 | 2009 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Net | Net | Net | Net | |||||||||||||||||||||
Revenues | Revenues | Total | Revenues | Revenues | Total | |||||||||||||||||||
EMENA |
$ | 58,813 | $ | 39,649 | $ | 98,462 | $ | 50,786 | $ | 36,887 | $ | 87,673 | ||||||||||||
Americas |
40,772 | 90,531 | 131,303 | 34,065 | 85,390 | 119,455 | ||||||||||||||||||
Asia Pacific |
38,737 | 6,620 | 45,357 | 33,314 | 5,172 | 38,486 | ||||||||||||||||||
Africa |
21,117 | 69,509 | 90,626 | 16,061 | 47,832 | 63,893 | ||||||||||||||||||
Total |
$ | 159,439 | $ | 206,309 | $ | 365,748 | $ | 134,226 | $ | 175,281 | $ | 309,507 | ||||||||||||
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
$ | 367,692 | $ | 239,288 | ||||
Ocean freight forwarding |
271,832 | 192,066 | ||||||
Customs brokerage |
25,435 | 19,949 | ||||||
Contract logistics |
177,010 | 142,926 | ||||||
Distribution |
117,374 | 98,500 | ||||||
Other |
95,813 | 75,627 | ||||||
Total |
$ | 1,055,156 | $ | 768,356 | ||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
$ | 293,542 | $ | 175,356 | ||||
Ocean freight forwarding |
227,186 | 152,410 | ||||||
Customs brokerage |
1,570 | 1,118 | ||||||
Contract logistics |
35,723 | 23,391 | ||||||
Distribution |
79,117 | 66,499 | ||||||
Other |
52,270 | 40,075 | ||||||
Total |
$ | 689,408 | $ | 458,849 | ||||
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The following table shows our revenues, purchased transportation costs and other operating expenses
for the periods presented, expressed as a percentage of revenues.
Three months ended | ||||||||
April 30, | ||||||||
2010 | 2009 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
35 | % | 31 | % | ||||
Ocean freight forwarding |
26 | 25 | ||||||
Customs brokerage |
2 | 2 | ||||||
Contract logistics |
17 | 19 | ||||||
Distribution |
11 | 13 | ||||||
Other |
9 | 10 | ||||||
Total revenues |
100 | 100 | ||||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
28 | % | 23 | % | ||||
Ocean freight forwarding |
22 | 20 | ||||||
Customs brokerage |
* | * | ||||||
Contract logistics |
3 | 3 | ||||||
Distribution |
7 | 9 | ||||||
Other |
5 | 5 | ||||||
Total purchased transportation costs |
65 | 60 | ||||||
Staff costs |
20 | 23 | ||||||
Depreciation |
1 | 1 | ||||||
Amortization of intangible assets |
* | * | ||||||
Restructuring charges |
* | * | ||||||
Other operating expenses |
12 | 14 | ||||||
Total operating expenses |
98 | 98 | ||||||
Operating income |
2 | 2 | ||||||
Interest income |
* | (1 | ) | |||||
Interest expense |
(1 | ) | * | |||||
Other income |
* | * | ||||||
Pretax income |
1 | 1 | ||||||
Provision for income taxes |
* | * | ||||||
Net income |
1 | 1 | ||||||
Net income attributable to noncontrolling interests |
* | * | ||||||
Net income attributable to UTi Worldwide Inc. |
1 | % | 1 | % | ||||
* | Less than one percent. |
Three months ended April 30, 2010 compared to three months ended April 30, 2009
Revenues
Total revenues increased $286.8 million, or 37%, to $1,055.2 million for the first quarter of
fiscal 2011, compared to total revenues of $768.4 million for the corresponding prior year period.
The increase in revenues was primarily the result of increases in freight volume and rates related
to air and ocean freight and volume increases across our other service lines when compared to the
corresponding prior year period. Foreign currency fluctuations also contributed approximately
$77.6 million to the increase for the first quarter of fiscal 2011, compared to the corresponding
prior year period, as the U.S. dollar, our reporting currency, was at weaker levels during the
current period compared to other major global currencies.
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Freight forwarding revenues in total increased $228.2 million, or 46%, to $721.8 million for the
first quarter of fiscal 2011, compared to $493.6 million for the corresponding prior year period.
The increase was primarily
the result of increased airfreight and ocean freight forwarding volume and rates over the
corresponding prior year period as well as an increase in fuel surcharges for airfreight when
compared to the corresponding prior year period. Both airfreight and ocean freight volume levels
during the first quarter of fiscal 2011 were very close to levels seen in the same quarter two
years ago, before the market downturn. Foreign currency fluctuations also contributed
approximately $51.6 million to the increase for the first quarter of fiscal 2011, compared to the
corresponding prior year period.
Airfreight forwarding revenues increased $128.4 million, or 54%, to $367.7 million for the first
quarter of fiscal 2011, compared to $239.3 million for the corresponding prior year period. Fuel
surcharges increased approximately $17.3 million when compared to the prior year period as a result
of an increase in aviation fuel prices. Movements in fuel surcharges impact revenues but generally
do not have a material impact on net revenues. Airfreight volumes increased 36% for the first
quarter of fiscal 2011 when compared to the prior year first quarter. Restocking activities,
increased consumer demand, and modal shifts from ocean freight brought on by ongoing capacity and
vessel sailing schedule changes, all contributed to the strong airfreight volume growth.
Airfreight rates also increased for the first quarter of fiscal 2011 when compared to the prior
year first quarter. Foreign currency fluctuations also contributed approximately $19.8 million to
the increase for the first quarter of fiscal 2011, compared to the corresponding prior year period.
Ocean freight forwarding revenues increased $79.8 million, or 42%, to $271.8 million for the first
quarter of fiscal 2011, compared to $192.1 million for the corresponding prior year period. This
increase was primarily due to an approximately 29% increase in ocean freight volumes, as expressed
in twenty-foot equivalent units (TEUs) during the first quarter of fiscal 2011, compared to the
corresponding prior year period. Foreign currency fluctuations also contributed approximately
$22.7 million to the increase for the first quarter of fiscal 2011, compared to the corresponding
prior year period.
Customs brokerage revenues increased $5.5 million, or 28%, to $25.4 million for the first quarter
of fiscal 2011, compared to $19.9 million for the corresponding prior year period. The increase in
customs brokerage revenues was primarily due to an 11% increase in the number of clearances.
Foreign currency fluctuations also contributed approximately $2.7 million to the increase for the
first quarter of fiscal 2011, compared to the corresponding prior year period.
Other freight forwarding related revenues increased $14.5 million, or 34%, to $56.8 million for the
first quarter of fiscal 2011, compared to $42.3 million for the corresponding prior year period,
primarily due to increases in road freight and other distribution volumes. Foreign currency
fluctuations contributed approximately $6.4 million to the increase for the first quarter of fiscal
2011, compared to the corresponding prior year period.
Contract logistics and distribution revenues in total increased $58.6 million, or 21%, to $333.4
million for the first quarter of fiscal 2011, compared to $274.8 million for the corresponding
prior year period. The increase was due to the increase in logistics activity and volumes and
associated increases in distribution requirements of our clients primarily as a result of a partial
recovery from the weak economic environment particularly in the United States. Foreign currency
fluctuations also contributed approximately $26.0 million to the increase for the first quarter of
fiscal 2011, compared to the corresponding prior year period.
Contract logistics revenues increased $34.1 million, or 24%, to $177.0 million for the first
quarter of fiscal 2011, compared to $142.9 million for the corresponding prior year period. The
increase was primarily due to increases in client volumes where we provide services, compared to
the same period of last year. Foreign currency fluctuations also contributed approximately $13.6
million to the increase for the first quarter of fiscal 2011, compared to the corresponding prior
year period.
Distribution revenues increased $18.9 million, or 19%, to $117.3 million for the first quarter of
fiscal 2011, compared to $98.5 million for the corresponding prior year period. Domestic freight
volumes in the U.S. have been improving and this has benefited our U.S. distribution businesses.
Foreign currency fluctuations also contributed approximately $7.0 million to the increase for the
first quarter of fiscal 2011, compared to the corresponding prior year period.
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Other contract logistics and distribution related revenues increased $5.7 million, or 17%, to $39.0
million for the first quarter of fiscal 2011, compared to $33.3 million for the corresponding prior
year period. Foreign currency fluctuations contributed approximately $5.4 million to the increase
for the first quarter of fiscal 2011, compared to the corresponding prior year period.
Net revenues
Total net revenues increased $56.2 million, or 18%, to $365.7 million for the first quarter of
fiscal 2011, compared to total net revenues of $309.5 million for the corresponding prior year
period. Foreign currency fluctuations contributed approximately $33.2 million to the increase for
the first quarter of fiscal 2011, compared to the corresponding prior year period, as the U.S.
dollar, our reporting currency, was at weaker levels during the current period compared to other
major global currencies. The remaining increase in net revenues was primarily the result of
significant increases in freight volume across our service lines when compared to the corresponding
prior year period. A decline in our freight forwarding yields, computed as net revenues divided by
revenues, for the first quarter when compared to the same period last year adversely impacted the
increase in net revenues for the period. While volumes improved during the first quarter of fiscal
2011, carrier capacity remained limited, and transportation rates remained high, which led to
continuing pressure on yields, as described below.
Freight forwarding net revenues increased $25.2 million, or 19%, to $159.4 million for the first
quarter of fiscal 2011, compared to $134.2 million for the corresponding prior year period. Net
revenues are primarily a function of volume movements and the expansion or contraction in yields as
described below.
Airfreight forwarding net revenues increased $10.2 million, or 16%, to $74.2 million for the first
quarter of fiscal 2011 compared to $63.9 million for the corresponding prior year period. Although
airfreight forwarding revenues increased 54% for the first quarter of fiscal 2011, airfreight
forwarding yields contracted by approximately 650 basis points on a comparative basis, causing
airfreight forwarding net revenues to increase to a much lesser degree compared to the increase in
airfreight forwarding revenues. The increase in airfreight forwarding net revenues for the first
quarter of fiscal 2011 was primarily due to a 36% increase in airfreight tonnage, which was offset
by a 15% decrease in net revenue per kilo as the rates we charged our customers did not increase to
the same extent as our purchased transportation costs. Tonnage growth was strong throughout the
quarter, but tapered off slightly in the month of April 2010, where we experienced a 33% increase
over the same month of the comparable fiscal year. On a sequential basis, net revenue per kilo for
the first quarter of fiscal 2011 declined 7% from the fourth quarter of fiscal 2010. However, in
the month of April 2010, net revenue per kilo improved, rising 8% from the previous month.
Airfreight yields for the first quarter of fiscal 2011 were 20.2%, a decrease of approximately 650
basis points compared to 26.7% for the corresponding prior year period. However when compared on a
sequential basis to the fourth quarter of fiscal 2010, yields decreased approximately 80 basis
points, from 21.0%. This yield compression from earlier quarters was primarily caused by less
favorable airfreight pricing environments, particularly caused by continued capacity shortages as
described above. Foreign currency fluctuations also contributed approximately $4.3 million to the
increase in airfreight forwarding net revenues for the first quarter of fiscal 2011, compared to
the corresponding prior year period. The Icelandic volcanic eruptions of April 2010 did not have a
significant impact on airfreight net revenue for the first quarter of fiscal 2011.
Ocean freight forwarding net revenues increased $5.0 million, or 13%, to $44.6 million for the
first quarter of fiscal 2011, compared to $39.7 million for the corresponding prior year period.
Foreign currency fluctuations contributed approximately $3.6 million to the increase for the first
quarter of fiscal 2011, compared to the corresponding prior year period. The remaining increase in
ocean freight forwarding net revenues was primarily due to an approximately 29% increase in TEUs,
offset by a 13% decrease in net revenues realized per TEU. Ocean freight TEUs in April 2010
increased 25% from April 2009.
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As with airfreight, ocean freight yields contracted during the first quarter of fiscal 2011,
compared to the corresponding prior year period, causing ocean freight net revenues to increase to
a lesser degree than the increase in revenues. For the first quarter of fiscal 2011, ocean freight
yields contracted approximately 420 basis points to 16.4% from 20.6% for the corresponding prior
year period. When compared on a sequential
basis to the fourth quarter of fiscal 2010, ocean freight yields decreased approximately 120 basis
points from 17.6%. This yield compression resulted primarily from constrained capacity, which in
turn allowed the shipping lines to increase their pricing during the quarter. Because we did not
yet fully pass on these increases to our clients, the increased purchased transportation costs
adversely impacted ocean freight net revenues in the period. Net revenue per TEU in the first
quarter of fiscal 2011 increased one percent from the fourth quarter of fiscal 2010 and 11% from
March 2010 to April 2010.
Customs brokerage net revenues increased $5.0 million, or 27%, to $23.9 million for the first
quarter of fiscal 2011, compared to $18.8 million for the corresponding prior year period. Foreign
currency fluctuations contributed approximately $2.6 million to the increase for the first quarter
of fiscal 2011, compared to the corresponding prior year period. The remaining increase in customs
brokerage net revenues was primarily due to an 11% increase in the number of clearances, combined
with a 14% increase in net revenues per clearance.
Contract logistics net revenues increased $21.8 million or 18% to $141.3 million for the first
quarter of fiscal 2011, compared to $119.5 million for the corresponding prior year period.
Foreign currency fluctuations contributed approximately $12.0 million to the increase for the first
quarter of fiscal 2011, compared to the corresponding prior year period. The remaining increase
was a result of increases in client volumes where we provide services, compared to the
corresponding prior year period.
Distribution net revenues increased $6.3 million, or 20%, to $38.3 million for the first quarter of
fiscal 2011, compared to $32.0 million for the corresponding prior year period. Foreign currency
fluctuations contributed approximately $4.5 million to the increase for the first quarter of fiscal
2011, compared to the corresponding prior year period. The remaining increase in distribution net
revenue was primarily the result of increased shipment volume over comparative periods.
Staff costs
Staff costs in our freight forwarding segment increased $13.5 million, or 17%, to $94.4 million for
the first quarter of fiscal 2011, compared to $80.9 million for the corresponding prior year
period. Roughly half of the increase was caused by foreign currency fluctuations, which
contributed approximately $7.3 million to the increase. As a percentage of freight forwarding
segment revenues, staff costs in the freight forwarding segment were approximately 13% and 16% for
the first quarters of fiscal 2011 and 2010, respectively. Staff costs in our freight forwarding
segment are largely driven by total shipment counts rather than volumes stated in kilograms or
TEUs. We estimate that shipment counts were approximately 18% higher in airfreight and 21% in
ocean freight during the first quarter of fiscal 2011 compared to the corresponding prior year
period.
Staff costs in our contract logistics and distribution segment increased $16.0 million, or 17%, to
$107.0 million for the first quarter of fiscal 2011, compared to $91.4 million for the
corresponding prior year period. The majority of the increase was caused by foreign currency
fluctuations, which contributed approximately $8.9 million to the increase. The remaining
increase is primarily due to increased service requirements associated with increased volumes.
Depreciation
Total depreciation for all segments, was $11.4 million for the first quarter of fiscal 2011,
compared to $9.9 million for the corresponding prior year period. When expressed as a percentage
of revenue, depreciation expense remained constant at approximately 1% of revenue for the first
quarter of fiscal 2011 compared to the corresponding prior year period. Foreign currency
fluctuations contributed approximately $1.1 million to the increase for the first quarter of fiscal
2011, compared to the corresponding prior year period.
Amortization of intangible assets
Amortization of intangible assets was $3.3 million for the first quarter of fiscal 2011, compared
to $2.6 million for the corresponding prior year period. Acquisitions completed since the first
quarter of the preceding year
did not have a material impact on amortization of intangible assets for the first quarter of fiscal
2011, compared to the corresponding prior year period.
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Other operating expenses
Other operating costs in the freight forwarding segment increased $8.5 million, or 22%, to $46.4
million in the first quarter of fiscal 2011, compared to $37.9 million for the corresponding prior
year period. Foreign currency fluctuations also contributed approximately $4.7 million to the
increase. The remaining increase in other operating costs in our freight forwarding segment was
primarily due to higher shipment volumes.
Other operating costs in the contract logistics and distribution segment increased by $7.5 million,
or 12%, to $73.0 million for the first quarter of fiscal 2011, compared to $65.5 million for the
corresponding prior year period. The increase was caused solely by foreign currency fluctuations,
which accounted for approximately $8.7 million in increased reported operating expense. Excluding
operating cost increases due solely to currency fluctuations, operating costs in our contract
logistics and distribution segment decreased $1.2 million, which reflects the continued focus on
managing our operating costs.
Other operating expenses at corporate were $5.6 million for the first quarter of fiscal 2011,
compared to other operating income of $1.2 million during the corresponding prior year period.
During the first quarter of fiscal 2010 the company recognized a gain on the sale of property in
South Africa of $6.3 million. This gain is included as a reduction of other operating expenses in
corporate. Excluding this gain, other operating expenses in corporate for the corresponding prior
year period, were $5.1 million.
Interest expense, net
Interest income relates primarily to interest earned on our cash deposits, while interest expense
consists primarily of interest on our credit facilities, our senior unsecured guaranteed notes, of
which $155.0 million of principle was outstanding as of April 30, 2010, and capital lease
obligations. Interest income decreased $0.2 million, or 6%, and interest expense increased $0.5
million, or 8%, for the first quarter of fiscal 2011, compared to the corresponding prior year
period. The movements in interest income and interest expense are primarily due to a change in the
mix of total net deposits and borrowings outstanding during the comparative periods, as well as
interest rate movements.
Other income and expenses, net
Other income and expenses primarily relates to foreign currency gains and losses on certain of our
intercompany loans, offset by withholding taxes and various other taxes not related to income
taxes. Other income, net of expenses, was $0.8 million in the first quarter of fiscal 2011,
compared to other expense, net of income, of $0.2 million for the corresponding prior year period.
Provision for income taxes
Our effective income tax rate for the first quarter of fiscal 2011 was 31%, resulting in a
provision for income taxes of $4.9 million compared to pretax income of $15.7 million. Our
effective income tax rate for the first quarter of fiscal 2010 was 30%. Changes in our effective
tax rates are primarily attributable to the mix of taxable income across geographic regions. The
effective income tax rate applied to quarterly pretax income for interim quarters is based on
estimated effective tax rates to be applied to our operations for the entire fiscal year. The
company expects our effective tax rate for fiscal 2011 to be approximately 32%, however, the actual
effective tax rate will depend on a variety of factors, including the geographic mix of our
business during the remaining interim periods of fiscal 2011.
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Table of Contents
Net income attributable to noncontrolling interests
Net income attributable to noncontrolling interests was $0.7 million for first quarter of fiscal
2011, compared to $0.1 million for the corresponding prior year period. This increase was the
result of increased net income from operations with noncontrolling interests.
Liquidity and Capital Resources
As of April 30, 2010, our cash and cash equivalents totaled $340.7 million, representing a decrease
of $10.1 million from January 31, 2010, resulting from a decrease of $14.2 million of net cash used
by our operating, investing and financing activities and an increase of $4.2 million related to the
effect of foreign exchange rate changes on our cash balances.
During the first quarter of fiscal 2011, we used approximately $28.5 million in net cash from
operating activities. This resulted from net income of $10.7
million plus depreciation and amortization of intangible assets totaling $14.8 million, provision
for doubtful accounts of $0.7 million, an increase in trade payables and other current liabilities
of $22.3 million, and an increase in other items totaling $3.9 million, offset by an increase in
trade receivables and other current assets of $80.0 million and deferred income taxes of $0.9
million.
The companys primary source of liquidity is the cash generated from operating activities, which is
subject to seasonal fluctuations, particularly in our freight forwarding segment. The company
experiences increased activity associated with its peak season, generally during the second and
third fiscal quarters, requiring significant customer disbursements. During the second quarter and
the first half of the third quarter, this seasonal growth in customer receivables tends to consume
available cash. Historically the second half of the third quarter and the fourth quarter tend to
generate significant cash as cash collections usually exceed customer cash disbursements. Cash
disbursements in the first quarter of the fiscal year typically exceed cash collections and, as a
result, our first fiscal quarter historically results in the usage of available cash.
In addition to cash generated from the companys income generating activities, when the company
acts as a customs broker, we make significant cash advances on behalf of our clients to the various
customs authorities around the world, predominantly in countries where our clients are importers of
goods such as South Africa and Israel. These customs duties and taxes, in addition to certain
other pass-through items, are not included as components of revenues and expenses. However, these
advances temporarily consume cash as these items are typically paid to third parties in advance of
reimbursement from our clients. Accordingly, on a comparative basis, operating cash flows are
typically stronger in periods of declining logistics activity and are comparably weaker in periods
of volume growth as the company must disburse cash in advance of collections from customers.
During the first quarter of fiscal 2011, advances for customs duties and taxes were approximately
$1,048.0 million, an increase of $309.3 million when compared to approximately $738.7 million for
the corresponding prior year period. This increase of customs duties and taxes was primarily
attributable to an increase in the number and value of clearances over the comparable periods. The
increase in these advances and subsequent collection activity related to customs duties and taxes
had an unfavorable impact on our net cash generated from operating activities in the first quarter
of fiscal 2011.
On a comparative basis, during the first quarter of fiscal 2011, net cash used by operating
activities was $28.5 million, compared to net income of $10.7 million
for the same period in fiscal 2011. During the first quarter of fiscal 2010, net cash provided by
operating activities was $14.8 million. Stronger economic conditions prevailed in the first
quarter of fiscal 2011 compared to the first quarter of fiscal 2010. Increased volumes and rate
activities resulted in a consumption of cash in the first quarter of fiscal 2011, as was consistent
with our seasonal norms prior to the recent economic downturn.
Cash used for investing activities for the three months ending April 30, 2010 and 2009 was $6.0
million and $0.3 million, respectively. During the first quarter of fiscal 2011, cash used for
capital expenditures was approximately $5.7 million, consisting primarily of computer hardware and
software and furniture, fixtures and equipment. During the normal course of operations, the company
has a need to acquire technology, office
furniture and equipment to facilitate the handling of our client freight and logistics volumes. The
company currently expects to spend approximately $40.0 million for normal or routine capital
expenditures for fiscal 2011. Included in cash used in investing activities were proceeds of $0.5
million for the disposal of property, plant and equipment.
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The following outlines certain recent earn-out payments associated with prior acquisitions, as well
as the estimated future contingent earn-out payments associated with such prior acquisitions:
We paid the final contingent earn-out payment of $4.2 million in May 2010 related to our
acquisition of Concentrek, which was calculated based on a multiple of Concentreks earnings for
the twelve-month period ended January 31, 2010. There will be no additional earn-out payments
associated with the Concentrek acquisition.
We currently do not expect to make a contingent earn-out payment in regard to our acquisition
of Cargoforte based upon the entitys financial performance during fiscal 2010. One potential
contingent earn-out payment remains, subject to a maximum of $19.6 million in the aggregate,
which payment will be offset against the initial purchase price of $1.0 million and will be
calculated based on a multiple of the acquired operations future earnings for the twelve month
period ending January 31, 2011.
We have one potential contingent earn-out payment remaining related to our acquisition of UTi
Pharma Slovakia, s.r.o. which is subject to a maximum of $3.0 million in the aggregate and is to
be calculated based on a multiple of the acquired operations earnings for the fiscal year
ending January 31, 2012.
In connection with our acquisition of the remaining ownership interest in EMA Israel, based on
net revenue earned from a single customer for each of the next four fiscal years ending January
31, 2011, 2012, 2013 and 2014, we currently anticipate making contingent earn-out payments in
the quarter following each of the twelve month periods above. The companys aggregate
obligation with respect to these contingent earn-out payments has been estimated to be $0.3
million.
We anticipate making one contingent earn-out payment of $4.7 million related to our
acquisition of Tacisa by the end of the second quarter of fiscal 2011. The payment was
calculated based on a multiple of the acquired operations earnings for the twelve months ended
January 31, 2010.
In connection with the formation of the Sisonke Partnership, the partnership in South Africa that
holds the shares of International Healthcare Distributors (Pty), Ltd., the company granted a put
option to the minority partner providing the partner with a right to put their 25.1% share of the
partnership to the company. The put option becomes exercisable upon the later of several events
which are not time-definite, however the company believes the put option will become exercisable
during the first half of fiscal 2011. The liability at April 30, 2010 was determined to be zero,
as measured at fair value. The company estimates the redemption value of the put option to be
approximately $9.3 million, which the company believes to be substantially less than the fair value
of the minority partners interest in the partnership.
Our financing activities during the first quarter of fiscal 2011 provided $20.3 million of cash,
primarily due to an increase in short-term credit facilities of $25.6 million, proceeds from bank
lines of credit of $1.4 million, net borrowings of $1.0 million from short term borrowings and net
proceeds from the issuance of ordinary shares of $3.2 million, offset by repayments of bank lines
of credit and long term bank borrowings, totaling $4.1 million and the repayments of capital lease
obligations totaling $7.1 million.
Many of our businesses operate in functional currencies other than the U.S. dollar. The net assets
of these divisions are exposed to foreign currency translation gains and losses, which are included
as a component of accumulated other comprehensive loss in shareholders equity. The company has
historically not attempted to hedge this equity risk. Other comprehensive income as a result of
foreign currency translation adjustments, net of tax, was $6.6 million was and $24.5 million, for
the three months ended April 30, 2010 and 2009, respectively. Currency movements during the first
quarter of fiscal 2011 were more stable than in prior
quarters. By comparison, the prior year quarter comparative figure was largely caused by
depreciation of the U.S. dollar against the Euro and South African rand.
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Credit Facilities and Senior Notes
At April 30, 2010, the aggregate amount available for borrowing under all borrowing facilities
totaled approximately $305.0 million. As of April 30, 2010, loans outstanding under these
facilities totaled approximately $56.0 million and letters of credit and guarantees outstanding
under these facilities totaled approximately $159.4 million, excluding letters of credit (or the
portion thereof) used to support loans outstanding. At April 30, 2010, the company had
approximately $89.6 million of available, unused capacity under these facilities, approximately
$75.6 million of which was available for cash draw.
Bank Lines of Credit
A significant number of our subsidiaries participate in a cash pooling arrangement which is used to
fund short-term liquidity needs. The cash pooling arrangement has no stated maturity date and
yields and bears interest at varying rates. The facility does not permit cash withdrawals in excess
of cash deposits on a global basis. At April 30, 2010, cash deposits were equivalent to cash
withdrawals. Cash withdrawals of $81.3 million are included in bank lines of
credit at April 30, 2010.
The company has various credit, letter of credit and guarantee facilities. The companys primary
facilities and borrowings include: the ABN/RBS Letter of Credit Agreement and Nedbank Letter of
Credit Agreement; the South African Facilities Agreement; and the 2009 Note Purchase Agreement and
2006 Note Purchase Agreement; all described in more detail below. The purpose of the companys
facilities is to provide the company with working capital, customs and other guarantees, letters of
credit, and funds for general corporate purposes. Due to the global nature of the companys
business, a number of financial institutions are utilized to provide the company with credit
facilities.
ABN/RBS Letter of Credit Agreement
On July 9, 2009, the company and certain of its subsidiaries entered into a letter of credit
facility pursuant to an agreement with ABN AMRO N.V. (ABN) and The Royal Bank of Scotland plc.
(the ABN/RBS Letter of Credit Agreement). The ABN/RBS Letter of Credit Agreement provided for
an aggregate availability of up to $50.0 million in letters of credit as of April 30, 2010. The
ABN/RBS Letter of Credit Agreement originally provided for two separate letter of credit
facilities, which we refer to as the ABN Letter of Credit Facility and the RBS Letter of Credit
Facility. As of April 30, 2010, the letters of credit outstanding under the ABN Letter of Credit
Facility totaled approximately $36.4 million and the amount of available, unused capacity was
$13.6 million. The ABN Letter of Credit Facility matures on July 9, 2011. The RBS Letter of
Credit Facility matured on December 31, 2009 and prior to maturity the company either obtained
the release of the remaining letters of credit issued pursuant to this facility or provided for
alternative arrangements for the underlying obligations. The companys obligations under the
ABN/RBS Letter of Credit Agreement are guaranteed by the company and selected subsidiaries.
Nedbank Letter of Credit Agreement
On July 9, 2009, the company and certain of its subsidiaries also entered into a letter of
credit facility pursuant to an agreement (the Nedbank Letter of Credit Agreement) with Nedbank
Limited, acting through its London Branch. The Nedbank Letter of Credit Agreement provided for
an aggregate initial availability of up to $36.0 million in letters of credit. On January 8,
2010, the company and certain of its subsidiaries entered into an amendment to this agreement
(the Nedbank Amendment) which temporarily increased the aggregate availability under the
facility to $46.0 million in letters of credit. The Nedbank Amendment expired on March 1, 2010,
after which the aggregate availability under the Nedbank Letter or Credit Agreement reverted to
the original availability of $36.0 million in letters of credit. As of April 30, 2010, the
letters of credit outstanding under the Nedbank Letter of Credit Agreement totaled approximately
$6.9 million and letters of credit issued to support cash borrowings totaled $18.0 million,
which is included in bank lines of credit in the consolidated balance sheet. As of April 30,
2010, the amount of available, unused capacity was $11.1 million under this facility. The
Nedbank Letter of Credit Agreement matures on July 9, 2011. The companys obligations under the
Nedbank Letter of Credit Agreement are guaranteed by the company and selected subsidiaries.
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Together, the company refers to the ABN/RBS Letter of Credit Agreement and the Nedbank Letter of
Credit Agreement as the Letter of Credit Agreements. Pursuant to the terms of the Letter of
Credit Agreements, the company is charged fees relating to, among other things, the issuance of
letters of credit, the aggregate amount of letters of credit outstanding, and the unused portions
of these facilities, all at the rates specified in the applicable agreement.
South African Facilities Agreement
On July 9, 2009, certain of the companys subsidiaries operating in South Africa entered into a
South African credit facility pursuant to an agreement (the South African Facilities
Agreement) with Nedbank Limited, acting through its Corporate Banking Division. The South
African Facilities Agreement provides for a 650.0 million South African rand revolving credit
facility, which is comprised of a 400.0 million South African rand working capital facility and
a 250.0 million South African rand letter of credit, guarantee and forward exchange contract
facility. At April 30, 2010, based on current exchange rates, the revolving credit facility
provided for an aggregate availability of $87.9 million. As of April 30, 2010, the borrowings,
letters of credit, and guarantees under the South African Facilities Agreement totaled
approximately $32.1 million, represented by outstanding letters of credit and guarantees of
$32.0 million and borrowings of $0.1 million, which is included in the bank lines of credit in
the consolidated balance sheet. As of April 30, 2010, the amount of available, unused capacity
was $55.8 million under this facility. The South African Facilities Agreement also provides the
companys South African operations with a 150.0 million South African rand revolving asset-based
finance facility, which includes, among other things, a capital lease line. The obligations of
the companys subsidiaries under the South African Facilities Agreement are guaranteed by
selected subsidiaries registered in South Africa. In addition, certain of the companys
operating assets in South Africa, and the rights and interests of the South African branch of
one of our subsidiaries in various intercompany loans made to a South African subsidiary and to
a South African partnership, are pledged as collateral under the South African Facilities
Agreement.
Overdrafts under the South African working capital facility bear interest at a rate per annum
equal to Nedbanks publicly quoted prime rate minus 1%. The per annum interest rate payable in
respect of foreign currency accounts is generally at the London Interbank Offered Rate (LIBOR),
or with respect to a foreign currency account in euro, the Euro Interbank Offered Rate
(EURIBOR), plus the lenders cost of funds (to the extent greater than LIBOR or EURIBOR, as
applicable), plus 3%. Instruments issued under the letter of credit, guarantee and forward
exchange contract facility bear interest at a rate to be agreed upon in writing by the companys
subsidiaries party to the South African Facilities Agreement and Nedbank.
Bank Borrowings
2009 Note Purchase Agreement
On July 9, 2009, the company issued $55.0 million of senior unsecured guaranteed notes (the
2009 Senior Notes) under a note purchase agreement (the 2009 Note Purchase Agreement),
entered into among UTi, certain of its subsidiaries as guarantors and the purchasers named
therein. The 2009 Senior Notes mature on August 9, 2014. The 2009 Senior Notes bear interest at
a rate of 8.06% per annum, payable semi-annually, on the 9th day of February and August. The
company is required to repay approximately $9.2 million, or such lesser principal amount as
shall then be outstanding, on February 9, 2012 and each February 9th and August 9th thereafter
up to and including August 9, 2014. The companys obligations under the 2009 Senior Notes and
the 2009 Note Purchase Agreement are guaranteed by the company and selected subsidiaries. As of
April 30, 2010, the principal amount
outstanding under the 2009 Senior Notes was $55.0 million, and is included in long-term bank
borrowings in the consolidated balance sheet.
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2006 Note Purchase Agreement
On July 13, 2006, the company issued $200.0 million of senior unsecured guaranteed notes (the
2006 Senior Notes and, together with the 2009 Senior Notes, the Senior Notes) under a note
purchase agreement (the 2006 Note Purchase Agreement, and together with the 2009 Note Purchase
Agreement, the Note Purchase Agreements), entered into among UTi, certain of its subsidiaries
as guarantors and the purchasers named therein. The 2006 Senior Notes mature on July 13, 2011.
The 2006 Senior Notes bear interest at a rate of 6.31% per annum, payable semi-annually, on the
13th day of each January and July. The company is required to repay approximately $33.3 million,
or such lesser principal amount as shall then be outstanding, on each January 13th and
July 13th up to and including July 13, 2011. The companys obligations under the 2006 Senior
Notes and the 2006 Note Purchase Agreement are guaranteed by the company and selected
subsidiaries. As of April 30, 2010 and 2009, the principal amount outstanding under the 2006
Senior Notes was approximately $100.0 million and $166.7 million, respectively, and is included
in long-term bank borrowings in the consolidated balance sheets.
The Letter of Credit Agreements, the South African Facilities Agreement, and the Note Purchase
Agreements require the company to comply with financial and other covenants and certain change of
control provisions. In March 2010, we amended the financial covenants in the Letter of Credit
Agreements and in the 2009 Note Purchase Agreement. Some of the covenants include maintaining a
specified net worth, maintaining a specified ratio of total debt to consolidated earnings before
interest, taxes, depreciation and amortization (EBITDA) and minimum interest charge coverage
requirements, among others. Should the company fail to comply with these covenants and be unable to
obtain any necessary amendments or waivers, all or a portion of the obligations under the Senior
Notes, the Letter of Credit Agreements and the South African Facilities Agreement could become
immediately due and payable and the Letter of Credit Agreements and the South African Facilities
Agreement could be terminated and the credit, letter of credit, and guarantee facilities provided
thereunder would no longer be available. The company was in compliance with all the covenants set
forth in the Note Purchase Agreements, the Letter of Credit Agreements and the South African
Facilities Agreement as of April 30, 2010.
Furthermore, the Letter of Credit Agreements, the South African Facilities Agreement, and the Note
Purchase Agreements each contain cross-default provisions with respect to other indebtedness,
giving the lenders under the Letter of Credit Agreements and the South African Facilities Agreement
and the note holders under the Note Purchase Agreements the right to declare a default if the
company defaults under other indebtedness in certain circumstances.
Pursuant to the terms of the Letter of Credit Agreements, the South African Facilities Agreement,
and the Note Purchase Agreements, the company is required to indemnify the lenders and others with
respect to certain losses, liabilities and costs, those relating to income and other taxes,
increased costs suffered as a result of, among other things, changes in laws or regulations, or
other requirements which may be imposed by regulatory authorities from time to time, and increased
costs suffered as a result of a default under the agreements. The indemnification obligations
created by each respective agreement arose at the time such agreement was entered into and will
continue in accordance with the terms of such agreement. The company cannot currently estimate the
maximum potential amount which could be payable pursuant to its indemnification obligations under
these agreements. Liabilities for these indemnification obligations were not material to the
company as a whole as of the dates that each of the respective agreements was entered into. The
company has not recorded any liabilities related to the indemnification obligations as of April 30,
2010.
In addition to the credit, letter of credit, and guarantee facilities provided under the Letter of
Credit Agreements and the South African Facilities Agreement, the Company utilizes a number of
other financial institutions to provide it with incremental letter of credit, guarantee and working
capital capacity, certain of which are working capital and credit facilities, and certain of which
are customs bonds and guarantees which are issued by various financial institutions. In many cases,
the use of these particular letter of credit,
guarantee, and working capital facilities is restricted to the country in which they originated
although this is not always the case. These particular borrowing, letter of credit, guarantee, and
working capital facilities may restrict distributions by the subsidiary operating in the country.
At April 30, 2010, the aggregate amount available for borrowing under these other facilities
totaled approximately $141.7 million. Of this, the amount utilized for customs bonds and other
guarantees was approximately $84.1 million and the amount utilized for borrowings was approximately
$48.7 million. At April 30, 2010, the total available, unused borrowing capacity under these other
facilities was approximately $9.0 million.
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Other Factors which May Affect our Liquidity
We are a holding company and all of our operations are conducted through subsidiaries.
Consequently, we rely on dividends or advances from our subsidiaries (including those that are
wholly owned) to meet our financial obligations and to pay dividends on our ordinary shares. The
ability of our subsidiaries to pay dividends to us and our ability to receive distributions on our
investments in other entities are subject to applicable local law and other restrictions including,
but not limited to, applicable tax laws and limitations contained in our bank credit facilities and
in the Note Purchase Agreements. Such laws and restrictions could limit the payment of dividends
and distributions to us which would restrict our ability to continue operations. In general, our
subsidiaries cannot pay dividends to us in excess of their retained earnings and most countries in
which we conduct business require us to pay a distribution tax on all dividends paid. In addition,
the amount of dividends that our subsidiaries could declare may be limited in certain countries by
exchange controls.
Off-Balance Sheet Arrangements
Other than operating leases, we have no material off-balance sheet arrangements.
Critical Accounting Estimates
The companys consolidated financial statements are prepared in conformity with U.S. GAAP. The
preparation thereof requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingencies at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available information and
actual results could differ materially from those estimates.
There have been no significant changes in the companys critical accounting policies during the
first quarter of fiscal 2011.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
The nature of our operations necessitates dealing in many foreign currencies. Our results are
subject to fluctuations due to changes in exchange rates. We attempt to limit our exposure to
changing foreign exchange rates through both operational and financial market actions. We provide
services to clients in locations throughout the world and, as a result, operate with many
currencies including the key currencies of the Americas, Africa, Asia Pacific and EMENA.
Our short-term exposures to fluctuating foreign currency exchange rates are related primarily to
intercompany transactions. The duration of these exposures is minimized through our use of an
intercompany netting and settlement system that settles all of our intercompany trading obligations
once per month. In addition, selected exposures are managed by financial market transactions in the
form of forward foreign exchange contracts (typically with maturities at the end of the month
following the purchase of the contract). Forward foreign exchange contracts are primarily
denominated in the currencies of our principal markets. We will normally generate foreign exchange
gains and losses through normal trading operations. We do not enter into derivative contracts for
speculative purposes.
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We do not hedge our foreign currency exposure in a manner that would entirely eliminate the effects
of changes in foreign exchange rates on our consolidated net income.
Many of our operations operate in functional currencies other than the U.S. dollar. The net assets
of these divisions are exposed to foreign currency translation gains and losses, which are included
as a component of accumulated other comprehensive loss in shareholders equity. The company has
historically not attempted to hedge this equity risk.
Interest Rate Risk
We are subject to changing interest rates as a result of our normal borrowing and leasing
activities with both fixed and variable interest rates. We do not purchase or hold any derivative
financial instruments for trading or speculative purposes.
As of April 30, 2010, there had been no material changes to our exposure to market risks since
January 31, 2010, as described in our Annual Report on Form 10-K for the fiscal year ended January
31, 2010 on file with the SEC. For a discussion of the companys market risks associated with
foreign currencies, interest rates and market rates, see Part II, Item 7A, Quantitative and
Qualitative Disclosures about Market Risk, of our Annual Report on Form 10-K for the fiscal year
ended January 31, 2010.
Item 4. Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act) are the controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports filed or submitted by it under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in its Exchange Act reports is accumulated and communicated to the
issuers management, including its principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure.
Our management, under the direction and with the participation of our Chief Executive Officer and
Chief Financial Officer, has evaluated our disclosure controls and procedures as of April 30, 2010.
Based upon this evaluation, management, including our Chief Executive Officer and Chief Financial
Officer, has concluded that our disclosure controls and procedures were effective as of April 30,
2010.
Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) is a process designed by, or under the supervision of, the issuers principal
executive and financial officers, and effected by the issuers board of directors, management, and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the issuer;
(2) Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the issuer are being made only in
accordance with authorizations of management and directors of the issuer; and
(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuers assets that could have a material effect on
the financial statements.
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The companys management, including the Chief Executive Officer and Chief Financial Officer,
concluded there were no changes to our internal controls over financial reporting during the fiscal
quarter ended April 30, 2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, claims are made against us or we may make claims against others, including in
the ordinary course of our business, which could result in litigation. Claims and associated
litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as
monetary damages, fines, penalties or injunctions prohibiting us from engaging in certain
activities. The occurrence of an unfavorable outcome in any specific period could have a material
adverse effect on our results of operations for that period or future periods. As of the date of
this report, we are not a party to any material litigation except as described below.
The company and one of its subsidiaries (along with sixteen other global corporations) were named
as defendants by a patent holding company, in a patent infringement lawsuit filed on May 7, 2009,
in the United States District Court for the Central District of California (Big Baboon, Inc. v.
Dell Inc., et. al.). The lawsuit alleged that the companys eMpower software tools were infringing
U.S. Patent Nos. 6,115,690 (the 690 patent) and 6,343,275 (the 275 patent). The claims
asserted are not believed to be material to the company as a whole. On May 12, 2010, after
discovery regarding the eMpower software tools, the plaintiff dismissed its lawsuit against the
company and subsidiary without prejudice.
In June 2007, we responded to a grand jury subpoena requesting documents in connection with the
United States Department of Justice (U.S. DOJ)s investigation into the pricing practices in the
international freight forwarding and cargo transportation industry which had been served on us in
June 2006. On October 10, 2007, the U.S. DOJ executed a search warrant on us at our offices in Long
Beach, California, and served one of our subsidiaries with a subpoena requesting numerous documents
and other materials in connection with its investigation of the international freight forwarding
and cargo transportation industry. In addition to its previous request for documents regarding air
freight forwarding, the U.S. DOJ also requested that we produce various documents regarding ocean
freight forwarding. We believe we are a subject of the U.S. DOJ investigation.
On October 10, 2007, we also received a notice from the Canadian Competition Bureau that the Bureau
commenced an investigation with respect to alleged anti-competitive activities of persons involved
in the provision of international freight forwarding services to and from Canada and requesting
that we preserve records relevant to such investigation. On October 30, 2009, we received notice
from the Canadian Competition Bureau that it had closed its investigation and has withdrawn its
record preservation request.
On October 25, 2007, one of our subsidiaries received a notice from the New Zealand Commerce
Commission that it was conducting an investigation in relation to international freight forwarding
services in New Zealand and requesting that we provide documents and information as it relates to
New Zealand. Our subsidiary responded to the request from the New Zealand Commerce Commission on
December 21, 2007.
In June 2008 and February 2009, we received requests for information issued by the EC requesting
information and records relating to the ECs ongoing investigation of alleged anti-competitive
behavior relating to air freight forwarding services in the European Union/European Economic Area.
In July 2008 and March 2009, we submitted responses to these requests.
In May 2009, we learned that the Brazilian Ministry of Justice is investigating possible alleged
cartel activity in the international air and ocean freight forwarding market and as of the date of
the filing of this report we have not been contacted by Brazilian authorities regarding this
matter.
In November 2009, one of our subsidiaries received a summons from the South African
Competition Commission requesting certain information and records in connection with its ongoing
investigation of alleged anti-competitive behavior relating to the market for freight forwarding
services in South Africa. In January 2010, we responded to this request.
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In February 2010, in connection with the ECs investigation discussed above, the EC sent a
Statement of Objections to us and a number of other freight forwarding and logistics providers.
The Statement of Objections alleges infringements of European Union competition law with respect to
various surcharges. We responded in writing to the ECs Statement of Objections in April 2010 and
expect to attend a hearing in July 2010 to discuss our position with the EC officials.
We continue to receive additional requests for information, documents and interviews from various
governmental agencies with respect to these investigations, and we have provided, and expect to
continue to provide in the future, further responses as a result of such requests.
We (along with several other global logistics providers) have been named as a defendant in a
federal antitrust class action lawsuit filed on January 3, 2008 in the United States District Court
of the Eastern District of New York (Precision Associates, Inc., et. al. v. Panalpina World
Transport (Holding) Ltd., et. al.). This lawsuit alleges that the defendants engaged in various
forms of anti-competitive practices and seeks an unspecified amount of treble monetary damages and
injunctive relief under U.S. antitrust laws.
We have incurred, and we expect to continue to incur, significant legal fees and other costs in
connection with these governmental investigations and lawsuits. If the U.S. DOJ, the EC, or any
other regulatory body concludes that we have engaged in anti-competitive behavior, we could incur
significant additional legal fees and other costs, which could include fines and/or penalties,
which may be material to our consolidated financial statements.
The company is involved in a dispute with the South African Revenue Service where the company makes
use of owner drivers for the collection and delivery of cargo. The South African Revenue Service
is claiming that the company is liable for employee taxes in respect of these owner drivers. The
company has strongly objected to this and together with its expert legal and tax advisors, believes
that the company is in full compliance with the relevant sections of the income tax act governing
this situation and has no tax liability in respect of these owner drivers. The amount claimed by
the South African Revenue Service is approximately $9.7 million based on exchange rates as of April
30, 2010. There were no material developments concerning this matter during the first quarter of
fiscal 2011.
The company is involved in litigation in Italy (in various cases filed in 2000 in the Court of
Milan) and England (in a case filed on April 13, 2000 in the High Court of Justice, London) with
the former ultimate owner of Per Transport SpA and related entities, in connection with its April
1998 acquisition of Per Transport SpA and its subsequent termination of the employment services of
the former ultimate owner as a consultant. The suits seek monetary damages, including compensation
for termination of the former ultimate owners consulting agreement. The company has brought
counter-claims for monetary damages in relation to warranty claims under the purchase agreement.
The total of all such actual and potential claims, albeit duplicated in several proceedings, is
approximately $12.6 million, based on exchange rates as of April 30, 2010. In connection with the
Italian litigation, legal proceedings have also been brought against a former director and officer
of the company and a current employee of the company. The company has agreed to indemnify these
individuals in connection with these proceedings. There were no material developments concerning
this matter during the first quarter of fiscal 2011.
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The company was previously engaged through various indirect subsidiaries in the business of
transportation and storage of fine works of art. The company sold this business and the related
indirect subsidiaries during fiscal 2009. A client of one of these subsidiaries has alleged that
during several weeks of June 2007 a malfunctioning climate-control unit at such subsidiaries
warehouses may have caused numerous works of art to be exposed to humidity levels beyond what are
considered normal storage conditions. The company has received communication from the client that
several works of art may have been affected by the humidity;
however it is not known whether the works have suffered any depreciation beyond normal restoration
costs. Although the company has sold this business, the company has retained any liabilities
associated with this matter. The company believes that any ultimate liability it may have as a
result of a claim may be mitigated based on a number of factors, including insurance policies in
place; limitations of liability imposed by the companys standard trading conditions; as well as
limitations of liability afforded by the subsidiary relationship. If a claim does arise and the
company is found liable and is otherwise unable to successfully mitigate its liability, the claim
and its related impact could be material to the companys consolidated financial statements.
Item 1A. Risk Factors
Our business, financial condition and operations are subject to a number of factors, risks and
uncertainties, There have been no material changes to the risk factors as disclosed in Part I. Item
1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.
The disclosures in our Annual Report on Form 10-K and in our subsequent reports and filings are not
necessarily a definitive list of all factors that may affect our business, financial condition and
future results of operations.
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Table of Contents
Item 6. Exhibits
Exhibit | Description | ||
3.1
|
Memorandum of Association of the company, as amended (incorporated by reference to Exhibit 3.1 to the companys Current Report on Form 8-K, filed July 31, 2007) | ||
3.2
|
Articles of Association of the company, as amended (incorporated by reference to Exhibit 3.2 to the companys Current Report on Form 8-K, filed July 31, 2007) | ||
10.1
|
+ | Amended and Restated Employment Agreement of Mr. Gene Ochi, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.7 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.2
|
+ | Amended and Restated Employment Agreement of Mr. Lawrence Samuels, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.8 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.3
|
+ | Amended and Restated Employment Agreement of Mr. William Gates, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.9 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.4
|
+ | Form of Employment Agreement for Executive Officers (incorporated by reference to Exhibit 10.11 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.5
|
+ | Amended and Restated Employment Agreement of Mr. Eric Kirchner, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.12 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.6
|
+ | Amended and Restated Employment Agreement of Mr. Lance DAmico, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.13 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.7
|
Second Amendment to Letter of Credit Agreement, dated as of March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and Nedbank Limited, acting through its London Branch (incorporated by reference to Exhibit 10.45 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
10.8
|
First Amendment to Letter of Credit Agreement, dated as of March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and ABN AMRO Bank N.V., as Performance-Based LC Issuing Bank and The Royal Bank of Scotland plc, in its capacity as Financial LC Issuing Bank (incorporated by reference to Exhibit 10.46 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
10.9
|
First Amendment Agreement to Note Purchase Agreement dated as of July 9, 2009, dated March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and the purchasers party thereto (incorporated by reference to Exhibit 10.47 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
31.1
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2
|
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
+ | Management contract or compensatory arrangement. |
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Table of Contents
SIGNATURES
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.
UTi Worldwide Inc. |
||||
Date: June 4, 2010 | By: | /s/ Eric W. Kirchner | ||
Eric W. Kirchner | ||||
Chief Executive Officer | ||||
Date: June 4, 2010 | By: | /s/ Lawrence R. Samuels | ||
Lawrence R. Samuels | ||||
Executive Vice President Finance and Chief Financial Officer Principal Financial Officer and Principal Accounting Officer |
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EXHIBIT INDEX
Exhibit | Description | ||
3.1
|
Memorandum of Association of the company, as amended (incorporated by reference to Exhibit 3.1 to the companys Current Report on Form 8-K, filed July 31, 2007) | ||
3.2
|
Articles of Association of the company, as amended (incorporated by reference to Exhibit 3.2 to the companys Current Report on Form 8-K, filed July 31, 2007) | ||
10.1
|
+ | Amended and Restated Employment Agreement of Mr. Gene Ochi, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.7 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.2
|
+ | Amended and Restated Employment Agreement of Mr. Lawrence Samuels, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.8 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.3
|
+ | Amended and Restated Employment Agreement of Mr. William Gates, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.9 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.4
|
+ | Form of Employment Agreement for Executive Officers (incorporated by reference to Exhibit 10.11 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.5
|
+ | Amended and Restated Employment Agreement of Mr. Eric Kirchner, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.12 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.6
|
+ | Amended and Restated Employment Agreement of Mr. Lance DAmico, dated as of March 25, 2010 (incorporated by reference to Exhibit 10.13 to the companys Annual Report on Form 10-K, filed March 29, 2010) | |
10.7
|
Second Amendment to Letter of Credit Agreement, dated as of March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and Nedbank Limited, acting through its London Branch (incorporated by reference to Exhibit 10.45 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
10.8
|
First Amendment to Letter of Credit Agreement, dated as of March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and ABN AMRO Bank N.V., as Performance-Based LC Issuing Bank and The Royal Bank of Scotland plc, in its capacity as Financial LC Issuing Bank (incorporated by reference to Exhibit 10.46 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
10.9
|
First Amendment Agreement to Note Purchase Agreement dated as of July 9, 2009, dated March 25, 2010, by and among UTi Worldwide Inc. and certain of its subsidiaries party thereto and the purchasers party thereto (incorporated by reference to Exhibit 10.47 to the companys Annual Report on Form 10-K, filed March 29, 2010) | ||
31.1
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2
|
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
+ | Management contract or compensatory arrangement. |
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