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EXCEL - IDEA: XBRL DOCUMENT - UTi WORLDWIDE INC | Financial_Report.xls |
EX-32 - EXHIBIT 32 - UTi WORLDWIDE INC | c16012exv32.htm |
EX-31.2 - EXHIBIT 31.2 - UTi WORLDWIDE INC | c16012exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - UTi WORLDWIDE INC | c16012exv31w1.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, 2011
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 (State or Other Jurisdiction of Incorporation or Organization) |
N/A (IRS Employer Identification Number) |
|
9 Columbus Centre, Pelican Drive Road Town, Tortola British Virgin Islands |
c/o UTi, Services, Inc. 100 Oceangate, Suite 1500 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 þ 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 6, 2011, the number of shares outstanding of the issuers ordinary shares was
102,650,083.
UTi Worldwide Inc.
Report on Form 10-Q
For the Quarter Ended April 30, 2011
For the Quarter Ended April 30, 2011
Table of Contents
- i -
Table of Contents
Part I. Financial Information
Item 1. | Financial Statements |
Consolidated Statements of Income
For the three months ended April 30, 2011 and 2010
(in thousands, except share and per share amounts)
For the three months ended April 30, 2011 and 2010
(in thousands, except share and per share amounts)
Three months ended April 30, | ||||||||
2011 | 2010 | |||||||
Unaudited | ||||||||
Revenues |
$ | 1,198,705 | $ | 1,055,156 | ||||
Purchased transportation costs |
788,128 | 689,408 | ||||||
Staff costs |
233,345 | 207,001 | ||||||
Depreciation |
12,441 | 11,412 | ||||||
Amortization of intangible assets |
3,455 | 3,344 | ||||||
Severance and restructuring charges |
4,849 | | ||||||
Other operating expenses |
137,694 | 125,039 | ||||||
Operating income |
18,793 | 18,952 | ||||||
Interest income |
4,228 | 2,559 | ||||||
Interest expense |
(8,452 | ) | (6,678 | ) | ||||
Other income, net |
176 | 844 | ||||||
Pretax income |
14,745 | 15,677 | ||||||
Provision for income taxes |
4,235 | 4,936 | ||||||
Net income |
10,510 | 10,741 | ||||||
Net income attributable to noncontrolling interests |
1,767 | 667 | ||||||
Net income attributable to UTi Worldwide Inc. |
$ | 8,743 | $ | 10,074 | ||||
Basic earnings per common share attributable to UTi
Worldwide Inc. common shareholders |
$ | 0.09 | $ | 0.10 | ||||
Diluted earnings per common share attributable to
UTi Worldwide Inc. common shareholders |
$ | 0.08 | $ | 0.10 | ||||
Number of weighted average common shares
outstanding used for per share calculations |
||||||||
Basic shares |
102,110,811 | 100,071,923 | ||||||
Diluted shares |
104,015,880 | 101,528,328 |
See accompanying notes to the consolidated financial statements.
- 2 -
Table of Contents
Consolidated Balance Sheets
As of April 30, 2011 and January 31, 2011
(in thousands, except share amounts)
As of April 30, 2011 and January 31, 2011
(in thousands, except share amounts)
April 30, | January 31, | |||||||
2011 | 2011 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 304,997 | $ | 326,795 | ||||
Trade receivables (net of allowance for doubtful
accounts of $15,099 and $13,676 as of April 30,
2011 and January 31, 2011, respectively) |
1,027,723 | 879,842 | ||||||
Deferred income taxes |
22,238 | 20,400 | ||||||
Other current assets |
141,874 | 131,295 | ||||||
Total current assets |
1,496,832 | 1,358,332 | ||||||
Property, plant and equipment (net of accumulated
depreciation of $227,602 and $206,584 as of April
30, 2011 and January 31, 2011, respectively) |
205,014 | 175,700 | ||||||
Goodwill |
438,610 | 423,974 | ||||||
Other intangible assets, net |
98,912 | 91,604 | ||||||
Investments |
1,159 | 1,102 | ||||||
Deferred income taxes |
31,093 | 29,526 | ||||||
Other non-current assets |
36,293 | 32,467 | ||||||
Total assets |
$ | 2,307,913 | $ | 2,112,705 | ||||
LIABILITIES & EQUITY |
||||||||
Bank lines of credit |
$ | 198,910 | $ | 170,732 | ||||
Short-term borrowings |
7,724 | 7,238 | ||||||
Current portion of long-term borrowings |
43,448 | 34,232 | ||||||
Current portion of capital lease obligations |
16,673 | 16,232 | ||||||
Trade payables and other accrued liabilities |
907,755 | 822,887 | ||||||
Income taxes payable |
8,819 | 8,521 | ||||||
Deferred income taxes |
3,976 | 3,881 | ||||||
Total current liabilities |
1,187,305 | 1,063,723 | ||||||
Long-term borrowings, excluding current portion |
72,160 | 61,230 | ||||||
Capital lease obligations, excluding current portion |
19,179 | 19,158 | ||||||
Deferred income taxes |
31,047 | 30,487 | ||||||
Other non-current liabilities |
39,377 | 37,943 | ||||||
Commitments and contingencies |
||||||||
UTi Worldwide Inc. shareholders equity: |
||||||||
Common stock ordinary shares of no par
value: 102,579,346 and 101,972,483 shares issued
and outstanding as of April 30, 2011 and January 31,
2011, respectively |
489,193 | 484,884 | ||||||
Retained earnings |
446,050 | 437,307 | ||||||
Accumulated other comprehensive income/(loss) |
7,879 | (35,116 | ) | |||||
Total UTi Worldwide Inc. shareholders equity |
943,122 | 887,075 | ||||||
Noncontrolling interests |
15,723 | 13,089 | ||||||
Total equity |
958,845 | 900,164 | ||||||
Total liabilities and equity |
$ | 2,307,913 | $ | 2,112,705 | ||||
See accompanying notes to the consolidated financial statements.
- 3 -
Table of Contents
Consolidated Statements of Cash Flows
For the three months ended April 30, 2011 and 2010
(in thousands)
For the three months ended April 30, 2011 and 2010
(in thousands)
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 10,510 | $ | 10,741 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Share-based compensation costs |
3,698 | 1,683 | ||||||
Depreciation |
12,441 | 11,412 | ||||||
Amortization of intangible assets |
3,455 | 3,344 | ||||||
Amortization of debt issuance costs |
782 | 713 | ||||||
Deferred income taxes |
(1,717 | ) | (859 | ) | ||||
Uncertain tax positions |
168 | 145 | ||||||
Excess tax benefit from share-based compensation |
(398 | ) | (251 | ) | ||||
Loss on disposal of property, plant and equipment |
54 | 32 | ||||||
Provision for doubtful accounts |
1,089 | 730 | ||||||
Other |
398 | 239 | ||||||
Changes in operating assets and liabilities: |
||||||||
Increase in trade receivables |
(94,581 | ) | (82,511 | ) | ||||
(Increase)/decrease in other assets |
(5,308 | ) | 2,465 | |||||
Increase in trade payables |
35,348 | 24,961 | ||||||
Decrease in accrued liabilities and other liabilities |
(9,572 | ) | (1,324 | ) | ||||
Net cash used in operating activities |
(43,633 | ) | (28,480 | ) | ||||
INVESTING ACTIVITIES: |
||||||||
Purchases of property, plant and equipment |
(3,935 | ) | (5,064 | ) | ||||
Proceeds from disposal of property, plant and equipment |
906 | 488 | ||||||
Purchases of software and other intangible assets |
(5,153 | ) | (587 | ) | ||||
Net increase in other non-current assets |
(1,620 | ) | (781 | ) | ||||
Other |
(4 | ) | (95 | ) | ||||
Net cash used in investing activities |
(9,806 | ) | (6,039 | ) | ||||
FINANCING ACTIVITIES: |
||||||||
Borrowings from bank lines of credit |
28,873 | 1,420 | ||||||
Repayments of bank lines of credit |
(20,177 | ) | (3,797 | ) | ||||
Net borrowings under revolving lines of credit |
9,139 | 25,634 | ||||||
Net increase in short-term borrowings |
57 | 963 | ||||||
Proceeds from issuance of long-term borrowings |
198 | 55 | ||||||
Repayment of long-term borrowings |
(1,787 | ) | (300 | ) | ||||
Repayment of capital lease obligations |
(4,373 | ) | (7,086 | ) | ||||
Contingent consideration paid |
(26 | ) | | |||||
Acquisition of noncontrolling interest |
(1,168 | ) | | |||||
Dividends paid to noncontrolling interests |
(157 | ) | (34 | ) | ||||
Net proceeds from issuance of ordinary shares |
1,334 | 3,189 | ||||||
Excess tax benefit from share-based compensation |
398 | 251 | ||||||
Net cash provided by financing activities |
12,311 | 20,295 | ||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
19,330 | 4,161 | ||||||
Net decrease in cash and cash equivalents |
(21,798 | ) | (10,063 | ) | ||||
Cash and cash equivalents at beginning of period |
326,795 | 350,784 | ||||||
Cash and cash equivalents at end of period |
$ | 304,997 | $ | 340,721 | ||||
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, 2011 and 2010 (Unaudited)
For the three months ended April 30, 2011 and 2010 (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, 2011 and January 31, 2011, the
consolidated statements of income for the three months ended April 30, 2011 and 2010 and the
consolidated statements of cash flows for the three months ended April 30, 2011 and 2010. 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, 2011 are not necessarily indicative of the results of operations
that may be expected for the fiscal year ending January 31, 2012 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 fiscal year ended January 31, 2011.
All amounts in the notes to the consolidated financial statements are presented in thousands
except for share and per share data.
Income Taxes. Under the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 270, Interim Reporting, and ASC 740, Income Taxes, the Company is required to
adjust its effective tax rate for each quarter to be consistent with its estimated annual effective
tax rate. Jurisdictions with a projected loss where no tax benefit can be recognized are excluded
from the calculation of the estimated annual effective tax rate. Applying the provisions of ASC
270 and ASC 740 could result in a higher or lower effective tax rate during a particular quarter,
based upon the mix and timing of actual earnings versus annual projections.
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. The Company recognizes accrued interest and
penalties related to uncertain tax positions in interest and other expense, respectively. For
further information, see Note 12, Uncertain Tax Positions.
Segment Reporting. The Companys reportable business segments are (i) Freight Forwarding and
(ii) 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. Certain corporate costs, enterprise-led costs, and
various holding company expenses within the group structure are presented separately.
Foreign Currency Translation. Included in other income, net, are net gains on foreign
exchange of $176 and $1,033, for the three months ended April 30, 2011 and 2010, 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
$274,152 of these deposits were not insured by the Federal Deposit Insurance Corporation (FDIC) or
similar entities outside of the United States (U.S.) as of April 30, 2011.
- 5 -
Table of Contents
Call and Put Options. In connection with the Companys activities in Israel, options were
granted providing the Company with the right to call the minority partners shares of a subsidiary
under certain circumstances, and also 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 certain circumstances,
to call the minority partners shares. The Company records assets and liabilities which represent
the difference between the estimated strike price and the estimated fair value of the attributable
subsidiary equity, if the call options become exercisable. The amounts included in other
non-current assets were $98 and $388 and the amounts included in other non-current liabilities were
$128 and $649 at April 30, 2011 and January 31, 2011, respectively.
In connection with the Companys activities in Indonesia, options were granted providing the
Company with the right to call a minority partners shares of a subsidiary under certain
circumstances. The Company records assets and liabilities which represent the difference between
the estimated strike price and estimated fair value of the attributable subsidiary equity. The
amounts included in other non-current assets were $1,780 at April 30, 2011. This amount was not
material at January 31, 2011.
Pharma Property Development Agreements. During the first quarter of fiscal 2012, the Company
entered into various agreements providing for the development of a logistics facility to be used in
the Companys pharmaceutical distribution business in South Africa. In addition to a property
development agreement, the Company signed an agreement to purchase the property at the conclusion
of the development at the projects total cost, which cost includes interest on the financing for
the project, subject to certain conditions being met, including among other items, the property
having been registerable for transfer and having been ready for beneficial occupation as described
under the development agreement. In addition to the other documents for the transaction, the
Company also entered into a lease agreement for the property and facility following the conclusion
of its development, should the property not be saleable to the Company at that time. Together
these agreements are referred to as the Pharma Property Development Agreements. As of April 30,
2011, included in both property, plant and equipment, and long-term borrowings, is $20,619 under
this arrangement. The amount included in long-term borrowings represents an obligation to the
developer under the agreement. The Company currently estimates that its total capital commitments
under this arrangement will be approximately $45,000, excluding warehouse-related equipment, and
that the property development activities will be conducted over a several year period.
Fair Values of Financial Instruments. The estimated fair value of financial instruments has
been determined using available market information and 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 borrowings, trade payables and other accrued
liabilities, long-term borrowings, call and put options, forward contracts and other derivative
instruments. With the exception of the Companys senior unsecured guaranteed notes and the call and
put options, the carrying values 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, 2011 and January 31, 2011, the fair value of the
Companys 6.31% senior unsecured guaranteed notes was $33,607 and $33,971, respectively, compared
to a book value of $33,335, respectively, for each of these periods. As discussed further in 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, 2011 and January 31, 2011, the fair value of
these notes was $60,078 and $60,721, 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.
- 6 -
Table of Contents
Recent Accounting Pronouncements
Adoption of New Accounting Standards. In October 2009, the FASB issued Accounting Standards
Update (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 Companys current
implementation of this standard on February 1, 2011 did not have a significant impact on its
consolidated statements of operations and financial position.
Standards Issued But Not Yet Effective. Other new pronouncements issued but not effective
until after April 30, 2011 are not expected to have a material impact on the Companys consolidated
financial statements.
Proposed Amendments to Current Accounting Standards. Updates to existing accounting standards
and exposure drafts, such as exposure drafts related to revenue recognition, lease accounting, loss
contingencies, comprehensive income and fair value measurements, that have been issued or proposed
by FASB or other standards setting bodies that do not require adoption until a future date, are
being evaluated by the Company to determine whether adoption will have a material impact on the
Companys consolidated financial statements.
Reclassifications
In the consolidated statements of cash flows, the Company has presented the purchases of
software and other intangible assets as a separate line item within cash flow from investing
activities for the three months ended April 30, 2011 and 2010. Historically, these amounts were
included within the purchases of property, plant and equipment line item within investing
activities. These changes did not impact cash flows from operating activities, investing
activities or any other financial statement information.
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. The Company
did not complete any acquisitions during the three months ended April 30, 2011.
- 7 -
Table of Contents
NOTE 3. Earnings per Share
Earnings per share are calculated as follows:
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
Amounts attributable to UTi Worldwide Inc. common shareholders: |
||||||||
Net income |
$ | 8,743 | $ | 10,074 | ||||
Weighted average number of ordinary shares |
102,110,811 | 100,071,923 | ||||||
Incremental shares required for diluted earnings per share
related to stock options/restricted share units |
1,905,069 | 1,456,405 | ||||||
Diluted weighted average number of ordinary shares |
104,015,880 | 101,528,328 | ||||||
Basic earnings per common share attributable to UTi Worldwide
Inc. common shareholders |
$ | 0.09 | $ | 0.10 | ||||
Diluted earnings per common share attributable to UTi
Worldwide Inc. common shareholders |
$ | 0.08 | $ | 0.10 | ||||
Weighted-average diluted shares outstanding exclude 1,158,579 and 3,065,268 shares for
the three months ended April 30, 2011 and 2010, respectively, because such shares represent stock
options that have exercise prices in excess of the average market price of the Companys common
stock during the relevant period, and were therefore anti-dilutive.
- 8 -
Table of Contents
NOTE 4. Equity
Certain information regarding changes in equity and noncontrolling interests are as follows:
UTi Worldwide Inc.s Equity | ||||||||||||||||||||
Accumulated | ||||||||||||||||||||
other | ||||||||||||||||||||
Common | Retained | comprehensive | Noncontrolling | |||||||||||||||||
stock | earnings | income/(loss) | interests | Total | ||||||||||||||||
Balance at February 1, 2011 |
$ | 484,884 | $ | 437,307 | $ | (35,116 | ) | $ | 13,089 | $ | 900,164 | |||||||||
Employee share-based compensation plans |
5,430 | | | | 5,430 | |||||||||||||||
Net income |
| 8,743 | | 1,767 | 10,510 | |||||||||||||||
Foreign currency translation adjustment and other |
| | 42,995 | 1,024 | 44,019 | |||||||||||||||
Acquisition of noncontrolling interest |
(1,121 | ) | | | | (1,121 | ) | |||||||||||||
Distributions to noncontrolling interests |
| | | (157 | ) | (157 | ) | |||||||||||||
Balance at April 30, 2011 |
$ | 489,193 | $ | 446,050 | $ | 7,879 | $ | 15,723 | $ | 958,845 | ||||||||||
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 | |||||||||
Other comprehensive income is comprised of the following:
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
Net income |
$ | 10,510 | $ | 10,741 | ||||
Other comprehensive income, net of tax: |
||||||||
Foreign currency translation adjustments and other |
44,019 | 7,469 | ||||||
Comprehensive income |
54,529 | 18,210 | ||||||
Comprehensive income attributable to noncontrolling interests |
2,791 | 1,524 | ||||||
Comprehensive income attributable to UTi Worldwide Inc. |
$ | 51,738 | $ | 16,686 | ||||
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Table of Contents
NOTE 5. Segment Reporting
Certain information regarding the Companys operations by segment is summarized as follows:
Three months ended April 30, 2011 | ||||||||||||||||
Contract | ||||||||||||||||
Logistics | ||||||||||||||||
Freight | and | |||||||||||||||
Forwarding | Distribution | Corporate | Total | |||||||||||||
Revenues |
$ | 829,753 | $ | 368,952 | $ | | $ | 1,198,705 | ||||||||
Purchased transportation costs |
645,250 | 142,878 | | 788,128 | ||||||||||||
Staff costs |
109,667 | 116,713 | 6,965 | 233,345 | ||||||||||||
Depreciation |
4,388 | 7,394 | 659 | 12,441 | ||||||||||||
Amortization of intangible assets |
1,086 | 1,719 | 650 | 3,455 | ||||||||||||
Severance and restructuring charges |
1,973 | 2,876 | | 4,849 | ||||||||||||
Other operating expenses |
48,664 | 83,756 | 5,274 | 137,694 | ||||||||||||
Total operating expenses |
811,028 | 355,336 | 13,548 | 1,179,912 | ||||||||||||
Operating income/(loss) |
$ | 18,725 | $ | 13,616 | $ | (13,548 | ) | 18,793 | ||||||||
Interest income |
4,228 | |||||||||||||||
Interest expense |
(8,452 | ) | ||||||||||||||
Other income, net |
176 | |||||||||||||||
Pretax income |
14,745 | |||||||||||||||
Provision for income taxes |
4,235 | |||||||||||||||
Net income |
10,510 | |||||||||||||||
Net income attributable to noncontrolling interests |
1,767 | |||||||||||||||
Net income attributable to UTi Worldwide Inc. |
$ | 8,743 | ||||||||||||||
Capital expenditures |
$ | 5,003 | $ | 27,142 | $ | 2,670 | $ | 34,815 | ||||||||
Internally-developed software |
$ | | $ | 141 | $ | 6,799 | $ | 6,940 | ||||||||
Segment assets |
$ | 1,353,473 | $ | 847,518 | $ | 106,922 | $ | 2,307,913 | ||||||||
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Table of Contents
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 | ||||||||
Internally-developed software |
$ | | $ | | $ | 587 | $ | 587 | ||||||||
Segment assets |
$ | 1,134,381 | $ | 765,284 | $ | 117,151 | $ | 2,016,816 | ||||||||
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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, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Revenue | Revenue | Total | Revenue | Revenue | Total | |||||||||||||||||||
EMENA |
$ | 273,831 | $ | 56,471 | $ | 330,302 | $ | 230,394 | $ | 65,194 | $ | 295,588 | ||||||||||||
Americas |
176,057 | 202,725 | 378,782 | 150,100 | 173,304 | 323,404 | ||||||||||||||||||
Asia Pacific |
257,588 | 13,046 | 270,634 | 255,062 | 9,187 | 264,249 | ||||||||||||||||||
Africa |
122,277 | 96,710 | 218,987 | 86,218 | 85,697 | 171,915 | ||||||||||||||||||
Total |
$ | 829,753 | $ | 368,952 | $ | 1,198,705 | $ | 721,774 | $ | 333,382 | $ | 1,055,156 | ||||||||||||
The following table shows revenues and purchased transportation costs attributable to the
Companys principal services:
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
$ | 439,029 | $ | 367,692 | ||||
Ocean freight forwarding |
281,578 | 271,832 | ||||||
Customs brokerage |
30,253 | 25,435 | ||||||
Contract logistics |
198,979 | 177,010 | ||||||
Distribution |
129,353 | 117,374 | ||||||
Other |
119,513 | 95,813 | ||||||
Total |
$ | 1,198,705 | $ | 1,055,156 | ||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
$ | 350,177 | $ | 293,542 | ||||
Ocean freight forwarding |
234,235 | 227,186 | ||||||
Customs brokerage |
1,554 | 1,570 | ||||||
Contract logistics |
45,153 | 35,723 | ||||||
Distribution |
87,859 | 79,117 | ||||||
Other |
69,150 | 52,270 | ||||||
Total |
$ | 788,128 | $ | 689,408 | ||||
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NOTE 6. Goodwill and Other Intangible Assets
Goodwill. The changes in the carrying amount of goodwill by reportable segment for the three
months ended April 30, 2011 are as follows:
Contract | ||||||||||||
Logistics | ||||||||||||
Freight | and | |||||||||||
Forwarding | Distribution | Total | ||||||||||
Balance at February 1, 2011 |
$ | 174,287 | $ | 249,687 | $ | 423,974 | ||||||
Foreign currency translation |
8,826 | 5,810 | 14,636 | |||||||||
Balance at April 30, 2011 |
$ | 183,113 | $ | 255,497 | $ | 438,610 | ||||||
In accordance with ASC 350, Intangibles Goodwill and Other, the Company reviews goodwill
and other intangible assets for impairment annually at the end of the second quarter of each fiscal
year, or more often if events or circumstances indicate that impairment may have occurred. In
addition to the testing above, management considers whether certain impairment indicators are
present in assessing whether the carrying value of goodwill and other intangible assets may be
impaired. No impairment was recognized during the three months ended April 30, 2011 and the year
ended January 31, 2011. The Companys accumulated goodwill impairment charge since its adoption of
ASC 350 was $100,494 at April 30, 2011 and January 31, 2011.
Other Intangible Assets. Amortizable intangible assets at April 30, 2011 and January 31, 2011
relate primarily to the estimated fair values of customer relationships acquired with respect to
certain acquisitions and software applications internally-developed by the Company for internal
use. The carrying values of amortizable intangible assets at April 30, 2011 and January 31, 2011
were as follows:
Gross | Net | Weighted | ||||||||||||||
carrying | Accumulated | carrying | average/life | |||||||||||||
Value | amortization | value | years | |||||||||||||
As of April 30, 2011: |
||||||||||||||||
Customer relationships |
$ | 113,329 | $ | (54,170 | ) | $ | 59,159 | 9.5 | ||||||||
Internally-developed software |
39,531 | (2,263 | ) | 37,268 | 4.7 | |||||||||||
Non-compete agreements |
898 | (712 | ) | 186 | 4.7 | |||||||||||
Other |
5,295 | (3,920 | ) | 1,375 | 3.8 | |||||||||||
Total |
$ | 159,053 | $ | (61,065 | ) | $ | 97,988 | |||||||||
As of January 31, 2011: |
||||||||||||||||
Customer relationships |
$ | 106,530 | $ | (48,330 | ) | $ | 58,200 | 9.5 | ||||||||
Internally-developed software |
32,146 | (1,404 | ) | 30,742 | 4.6 | |||||||||||
Non-compete agreements |
3,348 | (3,119 | ) | 229 | 3.0 | |||||||||||
Other |
5,031 | (3,518 | ) | 1,513 | 3.8 | |||||||||||
Total |
$ | 147,055 | $ | (56,371 | ) | $ | 90,684 | |||||||||
Amortization expense totaled $3,455 and $3,344 for the three months ended April 30, 2011 and
2010, respectively. The following table shows the expected amortization expense for these
intangible assets for the current fiscal year and each of the next four fiscal years ending January
31:
2012 |
$ | 16,854 | ||
2013 |
20,759 | |||
2014 |
18,693 | |||
2015 |
15,476 | |||
2016 |
12,911 |
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In addition to the amortizable intangible assets, the Company also had $924 and $920 of
intangible assets not subject to amortization at April 30, 2011 and January 31, 2011, 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, | ||||||||
2011 | 2010 | |||||||
Net cash paid for: |
||||||||
Interest |
$ | 9,896 | $ | 6,635 | ||||
Income taxes |
8,104 | 3,991 | ||||||
Non-cash activities: |
||||||||
Capital lease obligations incurred to acquire assets |
3,688 | 5,113 | ||||||
Long-term obligations incurred to acquire assets
pursuant to the Pharma Property Development
Agreements |
20,619 | |
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
In connection with ASC 450, Contingencies, the Company has not accrued for a loss contingency
relating to any of the investigations and legal proceedings disclosed below 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.
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.
Industry-Wide Anti-Trust Investigations. In 2007, in connection with the U.S. Department of
Justices (U.S. DOJ) investigation into the pricing practices in the international freight
forwarding industry, we responded to a grand jury subpoena requesting documents and 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 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.
- 14 -
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In 2008, 2009 and
2011, we responded to requests for information issued by the European Commission
(EC) requesting information and records relating to the ECs investigation of alleged
anti-competitive behavior relating to freight forwarding services in the European Union/European
Economic Area. In February 2010, in connection with the ECs ongoing investigation, 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. We
attended a hearing in July 2010 to discuss our position with the EC officials.
In May 2009, we learned that the Brazilian Ministry of Justice was investigating possible
alleged cartel activity in the international air and ocean freight forwarding market. On August 6,
2010, we received notice of an administrative proceeding from the Brazilian Ministry of Justice.
The administrative proceeding initiates a proceeding against the Company, its Brazilian subsidiary
and two of its employees, among many other forwarders and their employees, alleging possible
anti-competitive behavior contrary to Brazilian rules on competition. The Company intends to
respond to this proceeding within 30 days after the last defendant in this global proceeding has
been notified.
In November 2009, one of our subsidiaries received a summons from the South African
Competition Commission (SACC) requesting certain information and records in connection with its
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. On April 14,
2011, one of the Companys subsidiaries was notified that the SACC has decided to refer a complaint
against various freight forwarding companies, including such subsidiary, to the South African
Competition Tribunal (the Tribunal) for adjudication. The Commissions complaint stems from its
previously disclosed investigation into alleged anti-competitive behavior by a number of freight
forwarders and alleges infringements of South African competition law with respect to certain
surcharges and fees.
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 U.S. 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,
the SACC 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.
South Africa Revenue Service Matter. 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 objected to this claim and,
together with its legal and tax advisors, believes that the owner drivers are not employees and
that accordingly there is no tax liability in respect of these owner drivers in terms of the South
African income tax act. Historically, this matter related to the years 2002 and 2003. In March
2011, the South African Revenue Service extended the years under review to include the years 2006
and 2007. The aggregate amount claimed by the South African Revenue Service for all years under
review is approximately $10,901 based on exchange rates as of April 30, 2011. The tax years 2004
and 2005 are not under assessment.
- 15 -
Table of Contents
Per Transport Litigation. 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 $14,087 based on exchange rates as of April 30,
2011. In connection with the Per Transport 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.
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 and the
employees final average salary on attainment of qualifying retirement age.
Net periodic benefit cost for the Companys defined benefit plans consists of:
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
Service cost |
$ | 329 | $ | 139 | ||||
Interest cost |
523 | 462 | ||||||
Expected return on assets |
(369 | ) | (309 | ) | ||||
Amortization of net actuarial loss |
30 | 17 | ||||||
Net periodic benefit cost |
$ | 513 | $ | 309 | ||||
For the three months ended April 30, 2011 and 2010, the Company contributed approximately $684
and $382, 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 of 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, 2011, 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 (ESPP), eligible employees may purchase shares of
the Companys stock at the end 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. Prior to
February 1, 2011, the purchase price under the plan was set at 85% of the fair market value of the
Companys ordinary shares on the first day of each offering period. Commencing February 1, 2011,
the purchase price under the plan was set at 100% of the fair market value of the Companys
ordinary shares on the last day of each offering period.
- 16 -
Table of Contents
Under the 2004 Directors Incentive Plan, the Company may grant non-qualified stock options,
share appreciation rights, restricted shares, RSUs and deferred share units.
Since the adoption of the 2009 LTIP, 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.
Employee Share-Based Compensation Activity
A summary of share-based compensation activity applicable to employee shared-based plans for
the three months ended April 30, 2011 is as follows:
2009 LTIP | ||||||||||||||||
Weighted | ||||||||||||||||
Shares | Weighted | Restricted | average | |||||||||||||
subject to | average | share | grant date | |||||||||||||
stock options | exercise price | units | fair value | |||||||||||||
Outstanding balance at February 1, 2011 |
8,408 | $ | 12.58 | 1,016,552 | $ | 16.95 | ||||||||||
Granted |
180,962 | 20.07 | 787,038 | 20.07 | ||||||||||||
Exercised/vested |
| | (205,130 | ) | 16.98 | |||||||||||
Cancelled/forfeited |
| | (3,595 | ) | 13.11 | |||||||||||
Outstanding balance at April 30, 2011 |
189,370 | $ | 19.74 | 1,594,865 | $ | 18.49 | ||||||||||
2004 LTIP | ||||||||||||||||
Weighted | ||||||||||||||||
Shares | Weighted | Restricted | average | |||||||||||||
subject to | average | share | grant date | |||||||||||||
stock options | exercise price | units | fair value | |||||||||||||
Outstanding balance at February 1, 2011 |
1,582,102 | $ | 20.51 | 1,319,950 | $ | 18.05 | ||||||||||
Exercised/vested |
(53,550 | ) | 16.32 | (255,687 | ) | 15.45 | ||||||||||
Cancelled/forfeited |
| | (5,043 | ) | 27.84 | |||||||||||
Outstanding balance at April 30, 2011 |
1,528,552 | $ | 20.65 | 1,059,220 | $ | 18.68 | ||||||||||
2000 Stock Option Plan | ||||||||
Shares | Weighted | |||||||
subject to | average | |||||||
stock options | exercise price | |||||||
Outstanding balance at February 1, 2011 |
570,775 | $ | 8.57 | |||||
Exercised |
(79,125 | ) | 8.90 | |||||
Cancelled/forfeited |
| | ||||||
Outstanding balance at April 30, 2011 |
491,650 | $ | 8.57 | |||||
- 17 -
Table of Contents
Non-Employee Share-Based Compensation Activity. A summary of share-based compensation
activity applicable to the non-employee director share-based plans for the three months ended April
30, 2011 is as follows:
2004 | ||||||||||||||||
Directors Incentive Plan | Directors Option Plan | |||||||||||||||
Weighted | ||||||||||||||||
Restricted | average | Shares | Weighted | |||||||||||||
share | grant date | subject to | average | |||||||||||||
units | fair value | stock options | fair value | |||||||||||||
Outstanding balance at February 1, 2011 |
39,970 | $ | 14.01 | 72,000 | $ | 10.80 | ||||||||||
Outstanding balance at April 30, 2011 |
39,970 | $ | 14.01 | 72,000 | $ | 10.80 | ||||||||||
In connection with its share-based compensation plans, the Company recorded approximately
$3,698 and $1,683 of share-based compensation expense for the three months ended April 30, 2011 and
2010, respectively. As of April 30, 2011, the Company had approximately $29,543 of total
unrecognized compensation related to share-based compensation to be expensed through April 2016.
NOTE 11. Borrowings
Bank Lines of Credit. The Company utilizes a number of financial institutions to provide it
with borrowings, letters of credit, guarantees and working capital facilities. Certain of these
credit facilities are used for working capital and for issuing letters of credit to support the
working capital and operational needs of various subsidiaries and to support various customs bonds
and guarantees and funds for general corporate purposes. In other cases, customs bonds and
guarantees are issued directly by various financial institutions. In some cases, the use of these
particular borrowings, letter of credit, guarantee, and working capital facilities is restricted to
the country in which they originated. These particular borrowings, letter of credit, guarantee,
and working capital facilities may restrict distributions by the subsidiary operating in such
country.
- 18 -
Table of Contents
The following table presents information about the facility limits, aggregate amounts of
borrowings outstanding as well as availability for borrowings under various bank lines and letters
of credit and other credit facilities as of April 30, 2011:
South | ||||||||||||||||||||||||||||
African | Other | |||||||||||||||||||||||||||
ABN/RBS | Nedbank | Facilities1 | US Facility2 | Spain Facility3 | Facilities4 | Total | ||||||||||||||||||||||
Credit facility limit |
$ | 50,000 | $ | 61,000 | $ | 145,383 | $ | 25,000 | $ | 25,000 | $ | 147,084 | $ | 453,467 | ||||||||||||||
Facility usage for bank lines of credit |
$ | 9,233 | $ | 57,493 | $ | 57 | $ | 25,000 | $ | 24,332 | $ | 82,795 | $ | 198,910 | ||||||||||||||
Letters of credit and guarantees outstanding |
42,503 | 6,631 | 81,282 | | | 53,530 | 183,946 | |||||||||||||||||||||
Total facility Usage |
$ | 51,736 | $ | 64,124 | $ | 81,339 | $ | 25,000 | $ | 24,332 | $ | 136,325 | $ | 382,856 | ||||||||||||||
Available, unused capacity |
$ | | $ | | $ | 64,044 | $ | | $ | 668 | $ | 10,759 | $ | 75,471 | ||||||||||||||
Available for cash withdrawal |
$ | | $ | | $ | 60,503 | $ | | $ | 668 | $ | 10,759 | $ | 71,930 |
1 | Represents one of the Companys three largest single-country credit facilities. A
portion of the availability under these facilities expires in July 2012 and the remainder
expires in July 2014. |
|
2 | Represents one of the Companys three largest single-country credit facilities. This
facility expires in June 2011. |
|
3 | Represents one of the Companys three largest single-country credit facilities. The
Company is currently in discussion with the lender regarding the possible refinancing or
renewal of this facility. |
|
4 | Includes cash pooling arrangements utilized by a significant number of the Companys
subsidiaries. |
A significant number of the Companys subsidiaries participate in a cash pooling arrangement
administered by a European-based bank, which is used to fund individual subsidiaries liquidity
needs. The cash pooling arrangement has no stated maturity date and yields and bears interest at
varying rates based on a base rate plus or minus a margin as determined by the type of currency
deposited or withdrawn from the cash pool. The facility does not permit cash withdrawals in excess
of cash deposits on a global basis. At April 30, 2011, cash deposits exceeded cash withdrawals.
Cash deposits of $10,923 and cash withdrawals of $1,508 are included in cash and cash deposits and
in bank lines of credit at April 30, 2011.
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, 2011. As of April 30, 2011, the aggregate amount of letters of credit
outstanding under this facility exceeded the facility limit by approximately $1,736 and the bank
has the right, if it desires, to require collateral for such excess. 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. The ABN Letter of Credit Facility
matures on July 9, 2011. The RBS Letter of Credit Facility matured on December 31, 2009. 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. On July 23,
2010, UTi Worldwide Inc. (UTi) and certain of its subsidiaries as guarantors (collectively with
UTi, the Obligors) entered into an amendment to the Nedbank Letter of Credit Agreement which
amendment, among other things increased the aggregate availability under the Nedbank Letter of
Credit Agreement by $25,000, from $36,000 to $61,000. As of April 30, 2011, the aggregate amount
of letters of credit outstanding under this facility exceeded the facility limit by approximately
$3,124 and the bank has the right, if it desires, to require collateral for such excess. In
addition, the amendment provided that in no event shall any letter of credit issued after July 23,
2010 under the Nedbank Letter of Credit Agreement have an expiration date later than July 9, 2011
unless otherwise agreed to by Nedbank. 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. The South African Facilities Agreement also provides the Companys South African
operations with a 150,000 South African rand revolving asset-based finance facility. 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. A portion of the availability under the South African Facilities Agreement expires in
July 2012 and the remainder expires in July 2014.
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.
In addition to the facilities described above, the South African entities have obtained
customs bonds to support their customs and duties obligations to the South African customs
authorities. These customs bonds are issued by South African registered insurance companies. As
of April 30, 2011 the value of these contingent liabilities was $46,972.
During the second quarter ended July 31, 2010, the Company entered into a number of new credit
facilities with aggregate borrowing credit facility limits of approximately $65,000. Such
facilities include those entered into by the Companys subsidiaries in the U.S. and Spain as well
as a borrowing by the parent company, UTi Worldwide, Inc. and generally expire on various dates in
calendar 2011 and bear interest at rates determined based on certain benchmark interest rates plus
a margin as specified in the underlying agreements. Total borrowings outstanding under such
facilities totaled approximately $64,332 at April 30, 2011.
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Cash Pooling Arrangements. A significant number of our subsidiaries participate in a cash
pooling arrangement which is used by us to fund liquidity needs of the subsidiaries. The cash
pooling arrangement
has no stated maturity date and yields and bears interest at varying rates. The facility does
not permit aggregate outstanding withdrawals by our subsidiaries under the arrangement to exceed
the aggregate amount of cash deposits by our subsidiaries in the arrangement at any one time, as
determined on a global basis. At April 30, 2011, cash deposits exceeded cash withdrawals. Under
this arrangement, cash withdrawals of $1,508 are included in bank lines of credit and cash deposits
of $10,923 are included in cash and cash equivalents on our balance sheet at April 30, 2011.
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 some cases, the use of these particular letter of credit, guarantee and working
capital facilities are restricted to the country in which they originated. These particular letter
of credit, guarantee, and working capital facilities may restrict distributions by the subsidiary
operating in the country.
Short-term Borrowings. The Company also has a number of short-term borrowings issued by
various parties, not covered under the facilities listed above. The total of such bank borrowings
at April 30, 2011 and January 31, 2011 was $7,724, and $7,238 respectively. Included in short-term
borrowings is a loan from a shipping services company of $4,417 and $4,042 as of April 30, 2011 and
January 31, 2011, respectively.
The maximum and average borrowings against bank lines of credit during first quarter of fiscal
2012 were $306,608 and $262,408, respectively. The maximum and average borrowings against bank
lines of credit during first quarter of fiscal 2011 were $195,268 and $151,917, respectively.
Long-term Borrowings. The following table presents information about the aggregate amount of
the Companys indebtedness pursuant to its outstanding senior unsecured guaranteed notes as of
April 30, 2011:
2006 Note | 2009 Note | |||||||||||||||
Purchase | Purchase | Other | ||||||||||||||
Agreement | Agreement | Borrowings | Total | |||||||||||||
Current portion of long-term borrowings |
$ | 33,335 | $ | 9,167 | $ | 946 | $ | 43,448 | ||||||||
Long-term borrowings, excluding current portion |
| 45,833 | 26,327 | 72,160 | ||||||||||||
Total |
$ | 33,335 | $ | 55,000 | $ | 27,273 | $ | 115,608 | ||||||||
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 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 2009
Senior Notes mature on 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, 2011, the principal amount outstanding under the 2009 Senior Notes was $55,000, of which
$45,833 is included in long-term bank borrowings on our balance sheet.
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
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 2006 Senior Notes mature on 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, 2011, the principal amount
outstanding under the 2006 Senior Notes was approximately $33,335 and is included in the current
portion of long-term bank borrowings in the consolidated balance sheets.
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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. 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, 2011.
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.
The Company intends to replace, refinance or renew its various credit, letters of credit and
guarantee facilities before their applicable maturity dates. The Company is in various stages of
discussions and negotiations with potential lenders with respect to replacing its facilities which
come due in 2011. No assurances can be given that the Company will be able to replace, refinance
or renew such facilities and indebtedness or obtain additional financing on terms which the Company
considers acceptable, or at all. Changes in the credit markets could adversely affect the terms
upon which the Company is able to replace, renew or refinance such facilities and obtain additional
indebtedness or other replacement financing. The Companys short-term or long-term borrowing costs
and aggregate outstanding indebtedness could increase as a result of any replacement, renewal or
refinancing of its credit facilities and other indebtedness and its efforts to obtain additional
financing.
Pharma Property Development Agreements. In connection with the Pharma Property Development
Agreements, as of April 30, 2011, the Company has included $20,619 in long-term borrowings as a
result of this arrangement. Pursuant to the development agreement, $9,513 of borrowings bear
interest at a rate per annum equal to Nedbanks publicly quoted prime rate, and the remainder of
the borrowings bear interest at a rate per annum equal to Nedbanks publicly quoted prime rate
minus 0.8%. Upon completion of the development agreement, the Company intends to replace the
borrowings under this agreement with a long-term replacement financing.
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, 2011 |
$ | 5,508 | $ | 1,626 | ||||
Interest |
| 168 | ||||||
Foreign currency translation |
244 | 71 | ||||||
Balance at April 30, 2011 |
$ | 5,752 | $ | 1,865 | ||||
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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 $5,488 as of April 30, 2011. 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. However, as a result
of the expiration of the statute of limitations in various jurisdictions, it is reasonably possible
that the total amounts of unrecognized tax benefits as of April 30, 2011 will decrease by up to
$1,568 during the next twelve months. This reduction would have a favorable impact on the
Companys provision for income taxes.
NOTE 13. Fair Value Disclosures
Fair Value Measurements on Recurring Basis. 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, 2011 and January 31, 2011 and indicates
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 | ||||||||||||||
Assets | Inputs | Unobservable | ||||||||||||||
Total | (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
Balance at April 30, 2011: |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 304,997 | $ | 304,997 | $ | | $ | | ||||||||
Forward exchange contracts |
436 | | 436 | | ||||||||||||
Other |
1,878 | | | 1,878 | ||||||||||||
Total |
$ | 307,311 | $ | 304,997 | $ | 436 | $ | 1,878 | ||||||||
Liabilities |
||||||||||||||||
Forward exchange contracts |
$ | 233 | $ | | $ | 233 | $ | | ||||||||
Other |
128 | | | 128 | ||||||||||||
Total |
$ | 361 | $ | | $ | 233 | $ | 128 | ||||||||
Balance at January 31, 2011: |
||||||||||||||||
Assets |
||||||||||||||||
Cash and cash equivalents |
$ | 326,795 | $ | 326,795 | $ | | $ | | ||||||||
Forward exchange contracts |
445 | | 445 | | ||||||||||||
Other |
388 | | | 388 | ||||||||||||
Total |
$ | 327,628 | $ | 326,795 | $ | 445 | $ | 388 | ||||||||
Liabilities |
||||||||||||||||
Forward exchange contracts |
$ | 108 | $ | | $ | 108 | $ | | ||||||||
Other |
649 | | | 649 | ||||||||||||
Total |
$ | 757 | $ | | $ | 108 | $ | 649 | ||||||||
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.
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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.
The following table presents the changes in Level 3 instruments measured on a recurring basis
for the three months ended April 30, 2011:
Assets | Liabilities | |||||||
Assets: |
||||||||
Balance at February 1, 2011 |
$ | 388 | $ | 649 | ||||
Additions |
1,780 | | ||||||
Net change in fair value included in earnings |
(311 | ) | (554 | ) | ||||
Translation adjustment |
21 | 33 | ||||||
Balance at April 30, 2011 |
$ | 1,878 | $ | 128 | ||||
Fair Value Measurements on Non-Recurring Basis. Certain assets and liabilities are not
measured at fair value, but are recognized and disclosed at fair value on a non-recurring basis.
During the three months ended April 30, 2011, such measurements of fair value related primarily to
the identifiable assets and liabilities with respect to business combinations that closed within
the period. For business combinations, the Company uses inputs other than quoted prices that are
observable, such as interest rates, cost of capital and market comparable royalty rates, which are
applied to income and market valuation approaches, and therefore are classified as Level 2. The
fair value of net identifiable tangible and intangible assets acquired and liabilities assumed
(excluding goodwill) for business combinations that closed during the period indicated were not
material to the Companys consolidated financial statements.
NOTE 14. 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, 2011, the Company had contracted to sell the following amounts under forward
exchange contracts which all mature within 60 days of April 30, 2011: $9,004 in Euros; $826 in U.S.
dollars; $4,129 in British pound sterling; and, $1,858 in other currencies. 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 $436 and $445 at April 30, 2011 and January
31, 2011, respectively. Foreign currency liability derivatives included in trade payables and
other accrued liabilities were $233 and $108 at April 30, 2011 and January 31, 2011, respectively.
The Company recorded net gains and losses on foreign currency derivatives of $203 and $121 for the
three months ended April 30, 2011 and 2010, respectively.
NOTE 15. Restructuring Charges
During the first quarter of fiscal 2012, the Company incurred restructuring charges related to
severance costs within both freight forwarding and contract logistics and distribution, and
facility exit costs relating to the closure of underutilized contract logistics facilities in
Europe. As of April 30, 2011, the Company has completed its activities with respect to these
plans.
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Severance. Amounts included in the provision for employee severance benefits for the three
months ended April 30, 2011 are as follows:
Amounts | ||||||||||||||||
Liability at | charged to | Settlements | Liability at | |||||||||||||
January 31, 2011 | expense | and other | April 30, 2011 | |||||||||||||
Freight Forwarding |
$ | | $ | 1,973 | $ | (1,973 | ) | $ | | |||||||
Contract Logistics and Distribution |
| 962 | (962 | ) | | |||||||||||
Corporate |
| | | | ||||||||||||
Total |
$ | | $ | 2,935 | $ | (2,935 | ) | $ | | |||||||
Facility exit costs. Amounts charged for other exit costs for the three months ended April
30, 2011 were $1,914, of this amount $1,676 of which were recorded as a liability at April 30,
2011. Unpaid amounts with respect to these charges are expected to be paid during the Companys
second quarter of fiscal 2012. These charges were incurred in the Companys Contract Logistics and
Distribution segment. These charges were incurred in connection with the closure of certain
contract logistics facilities in Europe. There were no other exit costs for Freight Forwarding and
corporate for the three months ended April 30, 2011.
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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.
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, which involve certain risks and
uncertainties. Forward-looking statements are included with respect to, among other things, the
companys discussion of the companys current business plan and strategy and intended costs,
benefits and timing thereof, anticipated costs and timing associated with our technology-enabled,
business transformation initiative, the anticipated outcome or impact of litigation, regulatory
matters and other contingencies, the companys ability to meet its capital and liquidity
requirements for the foreseeable future and its intentions with respect to refinancing, replacing
or renewing its credit facilities, the intended timetable for responding to the antitrust
investigation in Brazil, anticipated capital and other expenditures, the future impact of recent
accounting pronouncements, the number of shares of equity-based compensation that will vest in the
future, 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, projects, project, projected,
projections, plans, planned, seeks, 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 differ materially from those set forth in, contemplated by,
or underlying our forward-looking statements. Many important factors may cause the companys
results to differ materially from those discussed in any such forward-looking statements, including
but not limited to the recent economic volatility that has materially impacted trade volumes,
transportation capacity, pricing dynamics and overall margins; the financial condition of the
companys customers, the companys ability to refinance, renew or replace its credit facilities and
other indebtedness on commercially reasonable terms or at all; capacity constraints and the
companys ability to secure space on third party airplanes, ocean vessels and other modes of
transportation; planned or unplanned consequences of the companys sales initiatives, procurement
initiatives and business transformation efforts; demand for the companys services; 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
and unrest, including 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 United States (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; disruptions caused by epidemics, conflicts,
wars, natural disasters and terrorism; the other risks and uncertainties described herein and in
the companys other filings with the Securities and Exchange Commission (SEC); and other factors
outside the companys control. Although UTi believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, UTi 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 UTis
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.
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In addition to the risks, uncertainties and other factors discussed elsewhere in this
Quarterly Report 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, 2011 filed with the SEC (together with any
amendments thereto and additions and changes thereto contained in this Quarterly Report on Form
10-Q and 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.
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 clients 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: (i) Freight
Forwarding and (ii) Contract Logistics and Distribution. Certain corporate costs, enterprise-led
costs, and various holding company expenses within the group structure are presented separately.
There have been no material changes to our reportable segments since January 31, 2011, as described
in our Annual Report on Form 10-K for the fiscal year ended January 31, 2011 on file with the SEC.
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 as we must staff to meet uncertain future
demand. Staff costs and other operating costs in our freight forwarding segment are largely driven
by total shipment counts rather than volumes stated in kilograms for airgreight or containers for
ocean freight, which are most commonly expressed as twenty foot units (TEUs).
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 ocean 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. As part of our
freight forwarding services, we provide customs brokerage services in the United States (U.S.) and
in most of the other countries in which we operate.
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. 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.
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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 businesses are included in our
consolidated financial statements from the effective dates of the respective acquisitions. We
consider the operating results of an acquired business during the first twelve months following the
date of acquisition to be an acquisition impact or benefit from acquisitions. Thereafter we
consider the growth in an acquired businesss results to be organic growth. During the three
months ended April 30, 2011, we did not make any acquisitions.
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.
Discussion of Results
The following discussion of our operating results explains material changes in our
consolidated results for the first quarter of fiscal 2012 compared to the first quarter of fiscal
2011. 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 fiscal year ended January 31, 2011, which are included in our
Annual Report on Form 10-K for the fiscal year ended January 31, 2011, 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).
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: (i) Freight Forwarding and (ii) 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.
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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 purposes of this discussion and
analysis, we believe net revenue (the term we use to describe revenues less purchased
transportation costs) is a better measure of growth in our freight forwarding business than revenue
because 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. In
contrast to the Freight Forwarding segment, we believe revenue is a better measure of the growth in
our Contract Logistics and Distribution segment 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 and certain logistics related expense which are directly related to revenue.
Three months ended April 30, 2011 compared to three months ended April 30, 2010
The following tables and discussion and analysis address the operating results attributable to
our reportable segments for the three months ended April 30, 2011 compared to the three months
ended April 30, 2010:
Freight Forwarding
Freight Forwarding | ||||||||||||||||
Three months ended April 30, | ||||||||||||||||
Change | Change | |||||||||||||||
2011 | 2010 | Amount | Percentage | |||||||||||||
Revenues: |
||||||||||||||||
Airfreight forwarding |
$ | 439,029 | $ | 367,692 | $ | 71,337 | 19 | % | ||||||||
Ocean freight forwarding |
281,578 | 271,832 | 9,746 | 4 | ||||||||||||
Customs brokerage |
30,253 | 25,435 | 4,818 | 19 | ||||||||||||
Other |
78,893 | 56,815 | 22,078 | 39 | ||||||||||||
Total revenues |
829,753 | 721,774 | 107,979 | 15 | ||||||||||||
Purchased transportation costs: |
||||||||||||||||
Airfreight forwarding |
350,177 | 293,542 | 56,635 | 19 | ||||||||||||
Ocean freight forwarding |
234,235 | 227,186 | 7,049 | 3 | ||||||||||||
Customs brokerage |
1,554 | 1,570 | (16 | ) | (1 | ) | ||||||||||
Other |
59,284 | 40,037 | 19,247 | 48 | ||||||||||||
Total purchased transportation costs |
645,250 | 562,335 | 82,915 | 15 | ||||||||||||
Net revenues: |
||||||||||||||||
Airfreight forwarding |
88,852 | 74,150 | 14,702 | 20 | ||||||||||||
Ocean freight forwarding |
47,343 | 44,646 | 2,697 | 6 | ||||||||||||
Customs brokerage |
28,699 | 23,865 | 4,834 | 20 | ||||||||||||
Other |
19,609 | 16,778 | 2,831 | 17 | ||||||||||||
Total net revenues |
184,503 | 159,439 | 25,064 | 16 | ||||||||||||
Yields: |
||||||||||||||||
Airfreight forwarding |
20.2 | % | 20.2 | % | | |||||||||||
Ocean freight forwarding |
16.8 | % | 16.4 | % | | |||||||||||
Staff costs |
109,667 | 94,390 | 15,277 | 16 | ||||||||||||
Depreciation |
4,388 | 3,832 | 556 | 15 | ||||||||||||
Amortization of intangible assets |
1,086 | 1,030 | 56 | 5 | ||||||||||||
Severance and restructuring charges |
1,973 | | 1,973 | 100 | ||||||||||||
Other operating expenses |
48,664 | 46,370 | 2,294 | 5 | ||||||||||||
Operating income |
$ | 18,725 | $ | 13,817 | $ | 4,908 | 36 | % | ||||||||
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Table of Contents
Airfreight Forwarding. Airfreight forwarding revenues increased $71.3 million, or 19%, for
the first quarter of fiscal 2012, compared to the corresponding prior year period. The increase in
airfreight forwarding revenues was primarily the result of increased volumes, and fuel surcharges
over the corresponding prior year period as well as foreign currency fluctuations. Airfreight
volumes increased approximately 9% for the first quarter of fiscal 2012 when compared to the
corresponding prior year period. Airfreight volumes were strong during the first quarter of fiscal
2012, despite more challenging comparatives compared to the corresponding prior year period.
Strong volumes were reflective of new business wins and continued low inventory levels as shippers
cautiously assess the direction of the global economy. Foreign currency fluctuations also
contributed $14.6 million to the increase for the first quarter of 2012, compared to the 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. Fuel surcharges increased approximately $37.5 million
for the first quarter of fiscal 2012 when compared to the prior year comparable 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 forwarding net revenues increased $14.7 million, or 20%, for the first quarter of
fiscal 2012, compared to the corresponding prior year period. The increase in airfreight net
revenues for the first quarter of fiscal 2012 was primarily a result of a 9% increases in freight
volume and a 10% increase in net revenue per kilo, when compared to the corresponding prior year
period. The increase in net revenue per kilo reflected declines in carrier spot rates compared to
the corresponding prior year period. Foreign currency fluctuations contributed $3.0 million, to
the increase for the first quarter of 2012, compared to the corresponding prior year period. Our
freight forwarding yields are computed as net revenues divided by revenues. Airfreight yields for
the first quarter of fiscal 2012 were consistent with the corresponding prior year period. However
when compared on a sequential basis to the fourth quarter of fiscal 2011, yields decreased 180
basis points from 22.0%.
Ocean Freight Forwarding. Ocean freight forwarding revenues increased $9.7 million, or 4%,
for the first quarter of fiscal 2012, compared to the corresponding prior year period. Foreign
currency fluctuations contributed $11.7 million to the increase for the first quarter of 2012,
compared to the prior year period. Ocean freight volumes, as expressed in twenty-foot equivalent
units (TEUs), were at slightly lower levels for the first quarter of 2012, compared to the
corresponding prior year period, primarily due to unseasonably strong volumes in the first quarter
of last year, and the exit from low-yielding business that we handled in the prior year quarter.
Ocean freight forwarding net revenues increased $2.7 million, or 6%, for the first quarter of
fiscal 2012, compared to the corresponding prior year period. Foreign currency fluctuations
contributed $1.8 million to the increase for the first quarter of 2012, compared to the prior year
period. Ocean freight volumes, as expressed in TEUs, were at slightly lower levels for the first
quarter of 2012, compared to the corresponding prior year period. Ocean freight yields increased
approximately 40 basis points to 16.8% from 16.4% during the first quarter of fiscal 2012, compared
to the corresponding prior year period, which is partially reflective of the exit from low-yielding
businesses from the prior year quarter.
Customs Brokerage and Other. Customs brokerage revenues increased $4.8 million, or 19%, for
the first quarter of fiscal 2012, compared to the corresponding prior year period. Foreign currency
fluctuations contributed $1.3 million to the increase in revenues for the first quarter of 2012,
compared to the prior year period. Customs brokerage net revenues increased $4.8 million, or 20%,
for the first quarter of fiscal 2012, compared to the corresponding prior year period. The number
of total clearances was consistent for the first quarter of 2012, compared to the prior year
period. The increase in net revenue was attributable to an increase in net revenue per clearance
as well as foreign currency fluctuations.
Other freight forwarding related revenues increased $22.1 million, or 39%, for the first
quarter of fiscal 2012, primarily due to increases in international road freight and distribution
volumes as well as increased fuel surcharges associated with road freight distribution. Movements
in fuel surcharges impact revenues but generally do not have a material impact on net revenues.
Foreign currency fluctuations contributed $3.9 million to the increase for the first quarter of
2012, compared to the prior year period. Other freight forwarding related net revenues increased
$2.8 million, or 17%, compared to the corresponding prior year period.
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Severance and restructuring charges. Severance and restructuring costs in our freight
forwarding segment were $2.0 million for the first quarter of fiscal 2012. No such costs were
incurred in the corresponding prior year period. These costs were comprised of $2.0 million of
severance costs related to transformation activities during the quarter.
Operating Expenses. Staff costs in our freight forwarding segment increased $15.3 million, or
16%, for the first quarter of fiscal 2012, compared to the corresponding prior year period.
Foreign currency fluctuations contributed $3.2 million to the increase in staff costs for the first
quarter of 2012, compared to the prior year period. As a percentage of freight forwarding segment
revenues, staff costs in the freight forwarding segment were approximately 13% for the first
quarters of each of fiscal 2012 and 2011. Other operating costs in the freight forwarding segment
increased $2.3 million, or 5%, for the first quarter of fiscal 2012, compared to the corresponding
prior year period. Foreign currency fluctuations contributed $1.1 million to the increase in other
operating costs in the freight forwarding segment for the first quarter of 2012, compared to the
prior year period. Staff costs and other operating costs in our freight forwarding segment are
largely driven by total shipment counts rather than volumes stated in kilograms or TEUs, and
increased shipment counts largely contributed to the increase in these costs for the period.
Contract Logistics and Distribution
Contract Logistics and Distribution | ||||||||||||||||
Three months ended April 30, | ||||||||||||||||
Change | Change | |||||||||||||||
2011 | 2010 | Amount | Percentage | |||||||||||||
Revenues: |
||||||||||||||||
Contract logistics |
$ | 198,979 | $ | 177,010 | $ | 21,969 | 12 | % | ||||||||
Distribution |
129,353 | 117,374 | 11,979 | 10 | ||||||||||||
Other |
40,620 | 38,998 | 1,622 | 4 | ||||||||||||
Total revenues |
368,952 | 333,382 | 35,570 | 11 | ||||||||||||
Purchased transportation costs: |
||||||||||||||||
Contract logistics |
45,153 | 35,723 | 9,430 | 26 | ||||||||||||
Distribution |
87,859 | 79,117 | 8,742 | 11 | ||||||||||||
Other |
9,866 | 12,233 | (2,367 | ) | (19 | ) | ||||||||||
Total purchased transportation costs |
142,878 | 127,073 | 15,805 | 12 | ||||||||||||
Staff costs |
116,713 | 106,977 | 9,736 | 9 | ||||||||||||
Depreciation |
7,394 | 7,228 | 166 | 2 | ||||||||||||
Amortization of intangible assets |
1,719 | 2,314 | (595 | ) | (26 | ) | ||||||||||
Severance and restructuring charges |
2,876 | | 2,876 | 100 | ||||||||||||
Other operating expenses |
83,756 | 73,024 | 10,732 | 15 | ||||||||||||
Operating income |
$ | 13,616 | $ | 16,766 | $ | (3,150 | ) | (19 | )% | |||||||
Contract logistics revenues increased $22.0 million, or 12%, for the first quarter of fiscal
2012, compared to the corresponding prior year period. The increase of contract logistics revenue
was primarily due to increases in existing business activity, compared to the same period last
year. Foreign currency fluctuations contributed $6.4 million to the increase for the first quarter
of 2012, compared to the prior year period.
Distribution revenues increased $12.0 million, or 10%, for the first quarter of fiscal 2012,
compared to the corresponding prior year period. The increase is the result of increased
distribution volumes as well as increased fuel surcharges. Movements in fuel surcharges impact
revenues but generally do not have a material long-term impact on net revenues. However, due to
numerous increases in fuel prices, net revenue growth in the quarter was lower than revenue growth
as fuel surcharges were passed onto our clients at a slower rate than they were incurred by us.
Foreign currency fluctuations contributed $2.4 million to the increase for the first quarter of
2012, compared to the prior year period.
Staff costs in our contract logistics and distribution segment increased $9.7 million, or 9%,
for the first quarter of fiscal 2012, compared to the corresponding prior year period. The
majority of the increase of staff costs in our contract logistics and distribution segment was due
to an increase in the number of client sites and an increase in logistics volumes over the
corresponding prior year period. In addition, our U.S. contract
logistics business was negatively impacted by higher medical and unemployment insurance costs
during the first quarter of fiscal 2012. Foreign currency fluctuations contributed $2.8 million to
the increase for the first quarter of 2012, compared to the prior year period.
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Severance and restructuring charges. Severance and restructuring costs in our contract
logistics and distribution segment were $2.9 million for the first quarter of fiscal 2012. There
were no such costs in the corresponding prior year period. These costs were comprised of $2.9
million of severance and facility exit costs associated with the closure of certain underutilized
contract logistics facilities in Europe.
Corporate
Staff costs at corporate were $7.0 million for the first quarter of fiscal 2012, compared to
$5.6 million during the corresponding prior year period. Other operating expenses at corporate
were $5.3 million for the first quarter of fiscal 2012, compared to $5.6 million during the
corresponding prior year period. Included in staff cost and other operating expenses at corporate
are $0.5 million and $0.6 million, respectively, related to the companys transformation
initiatives during the current quarter.
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 and capital lease obligations. Interest income increased $1.7
million and interest expense increased $1.8 million for the first quarter of fiscal 2012, 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 relate to foreign
currency gains and losses on certain of our intercompany loans, and withholding taxes and various
other taxes not related to income taxes. Other income, net of expenses, was $0.2 million in the
first quarter of fiscal 2012, compared to $0.8 million for the corresponding prior year period.
Provision for income taxes. Our effective income tax rate for the first quarter of fiscal
2012 was 29%, resulting in a provision for income taxes of $4.2 million compared to pretax income
of $14.7 million. Our effective income tax rate for the first quarter of fiscal 2011 was 31%.
Changes in our effective tax rates are primarily attributable to the mix of taxable income across
geographic regions.
Net income attributable to noncontrolling interests. Net income attributable to
noncontrolling interests was $1.8 million for the first quarter of fiscal 2012, compared to $0.7
million for the corresponding prior year period.
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, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Revenue | Revenue | Total | Revenue | Revenue | Total | |||||||||||||||||||
EMENA |
$ | 273,831 | $ | 56,471 | $ | 330,302 | $ | 230,394 | $ | 65,194 | $ | 295,588 | ||||||||||||
Americas |
176,057 | 202,725 | 378,782 | 150,100 | 173,304 | 323,404 | ||||||||||||||||||
Asia Pacific |
257,588 | 13,046 | 270,634 | 255,062 | 9,187 | 264,249 | ||||||||||||||||||
Africa |
122,277 | 96,710 | 218,987 | 86,218 | 85,697 | 171,915 | ||||||||||||||||||
Total |
$ | 829,753 | $ | 368,952 | $ | 1,198,705 | $ | 721,774 | $ | 333,382 | $ | 1,055,156 | ||||||||||||
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Three months ended April 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Contract | Contract | |||||||||||||||||||||||
Logistics | Logistics | |||||||||||||||||||||||
Freight | and | Freight | and | |||||||||||||||||||||
Forwarding | Distribution | Forwarding | Distribution | |||||||||||||||||||||
Net | Net | Net | Net | |||||||||||||||||||||
Revenue | Revenue | Total | Revenue | Revenue | Total | |||||||||||||||||||
EMENA |
$ | 64,970 | $ | 38,025 | $ | 102,995 | $ | 58,813 | $ | 39,649 | $ | 98,462 | ||||||||||||
Americas |
45,609 | 99,373 | 144,982 | 40,772 | 90,531 | 131,303 | ||||||||||||||||||
Asia Pacific |
48,171 | 8,850 | 57,021 | 38,737 | 6,620 | 45,357 | ||||||||||||||||||
Africa |
25,753 | 79,826 | 105,579 | 21,117 | 69,509 | 90,626 | ||||||||||||||||||
Total |
$ | 184,503 | $ | 226,074 | $ | 410,577 | $ | 159,439 | $ | 206,309 | $ | 365,748 | ||||||||||||
The following table shows revenues and purchased transportation costs attributable to the
companys principal services:
Three months ended | ||||||||
April 30, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
$ | 439,029 | $ | 367,692 | ||||
Ocean freight forwarding |
281,578 | 271,832 | ||||||
Customs brokerage |
30,253 | 25,435 | ||||||
Contract logistics |
198,979 | 177,010 | ||||||
Distribution |
129,353 | 117,374 | ||||||
Other |
119,513 | 95,813 | ||||||
Total |
$ | 1,198,705 | $ | 1,055,156 | ||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
$ | 350,177 | $ | 293,542 | ||||
Ocean freight forwarding |
234,235 | 227,186 | ||||||
Customs brokerage |
1,554 | 1,570 | ||||||
Contract logistics |
45,153 | 35,723 | ||||||
Distribution |
87,859 | 79,117 | ||||||
Other |
69,150 | 52,270 | ||||||
Total |
$ | 788,128 | $ | 689,408 | ||||
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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, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Airfreight forwarding |
36 | % | 35 | % | ||||
Ocean freight forwarding |
23 | 26 | ||||||
Customs brokerage |
3 | 2 | ||||||
Contract logistics |
17 | 17 | ||||||
Distribution |
11 | 11 | ||||||
Other |
10 | 9 | ||||||
Total revenues |
100 | 100 | ||||||
Purchased transportation costs: |
||||||||
Airfreight forwarding |
29 | 28 | ||||||
Ocean freight forwarding |
20 | 22 | ||||||
Customs brokerage |
* | * | ||||||
Contract logistics |
4 | 3 | ||||||
Distribution |
7 | 7 | ||||||
Other |
6 | 5 | ||||||
Total purchased transportation costs |
66 | 65 | ||||||
Staff costs |
19 | 20 | ||||||
Depreciation |
1 | 1 | ||||||
Amortization of intangible assets |
* | * | ||||||
Severance and restructuring charges |
* | * | ||||||
Other operating expenses |
12 | 12 | ||||||
Total operating expenses |
98 | 98 | ||||||
Operating income |
2 | 2 | ||||||
Interest income |
* | * | ||||||
Interest expense |
(1 | ) | (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. |
Liquidity and Capital Resources
As of April 30, 2011, our cash and cash equivalents totaled $305.0 million, representing a
decrease of $21.8 million from January 31, 2011. The decrease resulted from a decrease of $41.1
million of net cash used in our operating, investing and financing activities, offset by an
increase of $19.3 million related to the effect of foreign exchange rate changes on our cash
balances when compared to our position at January 31, 2011.
Cash Used In Operating Activities. The seasonal increase in volumes and carrier rates during
the first three months of fiscal 2012 necessitated significant working capital to fund duties and
carrier costs on behalf of clients, resulting in cash used in
operating activities compared to net income for the corresponding period. During the first quarter of fiscal 2012, we used
approximately $43.6 million in net cash from operating activities. This resulted from deferred
income taxes of $1.7 million, an increase in trade receivables and other current assets of $99.9
million offset by net income of $10.5 million plus depreciation and amortization of intangible
assets totaling $15.9 million, provision for doubtful accounts of $1.1 million, an increase in
trade payables and other current liabilities of $25.8 million, and an increase in other items
totaling $4.7 million.
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Table of Contents
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 client disbursements. During the second quarter
and the first half of the third quarter, this seasonal growth in client 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 client 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
clients. The significant increases in volumes and carrier rates during the first three months of
fiscal 2012 necessitated significant working capital to fund custom duties and taxes on behalf of
clients, and carrier disbursements resulting from higher volumes and rates.
During the first quarter of fiscal 2012, advances for customs duties and taxes were
approximately $1,015.5 million, a decrease of $32.5 million when compared to approximately $1,048.0
million for the corresponding prior year period. This change in customs duties and taxes was
primarily attributable to changes in the number of clearances and the value of goods imported
over the comparable periods.
On a comparative basis, during the first quarter of fiscal 2012, net cash used in operating
activities was $43.6 million, compared to net income of $10.5 million for the same period in fiscal
2012. By comparison, during the first quarter of fiscal 2011, net cash used in operating
activities was $28.5 million, compared to net income of $10.7 million for the same period in fiscal
2011. Increased volumes and freight activities during the first quarter of fiscal 2012 compared to
the corresponding prior year period resulted in greater consumption of cash on a comparative basis
during the period. Usage of cash during the first quarter of fiscal 2012 was at a rate that is
consistent with our seasonal norms prior to the recent economic downturn.
Cash Used in Investing Activities. Cash used for investing activities for the three months
ended April 30, 2011 and 2010 was $9.8 million and $6.0 million, respectively. The increase was
partially attributable to the increased development activities with respect to certain business
transformation initiatives, including the development of our next generation freight forwarding
system, and other software related activities. During the first quarter of fiscal 2012, we used
$5.2 million of cash relating to these business transformation initiatives, as compared to $0.6
million for the first quarter of fiscal 2011. In addition, $3.9 million of cash was used for
capital expenditures consisting primarily of computer hardware and software and furniture, fixtures
and equipment for the three months ending April 30, 2011. 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. Inclusive of these technology upgrades and
business transformation initiatives, the company currently expects to incur an aggregate of
approximately $86.0 million for capital expenditures for fiscal 2012, which will be incurred
through both cash purchases and leasing facilities.
- 35 -
Table of Contents
The following outlines our estimated future contingent earn-out payments associated with prior
acquisitions:
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.
We have three potential contingent earn-out payments remaining related to our acquisitions
of the remaining ownership interest in UTI Inventory Management Solutions Limited and UTI
Inventory Management Solutions Limited Partnership, based on estimated net revenue to be
earned from a single client for each of the next three fiscal years ending January 31, 2012,
2013 and 2014. The companys aggregate obligation with respect to these contingent earn-out
payments is estimated to be $0.6 million. An earn-out payment related to the fiscal year
ended January 31, 2011 for these acquisitions totaling $0.03 million was paid in April 2011.
Cash Provided by Financing Activities. Our financing activities during the first quarter of
fiscal 2012 provided $12.3 million of cash, primarily due to proceeds from bank lines of credit of
$28.9 million, net borrowings under revolving lines of credit of
$9.1 million, and net proceeds from the issuance of ordinary shares of $1.3 million offset by
repayments of bank lines of credit and long term borrowings, totaling $22.0 million, repayments of
capital lease obligations totaling $4.4 million, and the acquisition of a noncontrolling interest
of one of the companys subsidiaries of $1.2 million. Other
net financing activities provided $0.5.
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 is a
result of foreign currency translation adjustments, net of tax and other adjustments. Such gains
and adjustments were $44.0 million and $7.5 million, for the three months ended April 30, 2011 and
2010 respectively. Foreign currency fluctuations during the first quarter of fiscal 2012 were
pronounced as the US dollar depreciated significantly against other major currencies during the
quarter.
Pharma Property Development Agreements. During the first quarter of fiscal 2012, the company
entered into various agreements providing for the development of a logistics facility to be used in
the companys pharmaceutical distribution business in South Africa. In addition to a property
development agreement, the company signed an agreement to purchase the property at the conclusion
of the development at the projects total cost, which cost includes interest on the financing for
the project, subject to certain conditions being met, including among other items, the property
having been registerable for transfer and having been ready for beneficial occupation as described
under the development agreement. The company also entered into a lease agreement for the property
and facility following the conclusion of its development, should the property not be saleable to
the company at that time. Together these agreements are referred to as the Pharma Property
Development Agreements. As of April 30, 2011, included in both property, plant and equipment, and
long-term borrowings, is $20.6 million under this arrangement. The amount included in long-term
borrowings represents an obligation to the developer under the agreement. The company currently
estimates that its total capital commitments under this arrangement will be approximately $45.0
million, excluding warehouse-related equipment, and that the property development activities will
be conducted over a several year period. Upon completion of the development agreement, the company
intends to replace the borrowings under this agreement with a long-term replacement financing.
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Table of Contents
Credit Facilities and Senior Notes
Bank Lines of Credit. We utilize a number of financial institutions to provide us with
borrowings, letters of credit, guarantees and working capital facilities. Certain of these credit
facilities are used for working capital and for issuing letters of credit to support the working
capital and operational needs of various subsidiaries and to support various customs bonds and
guarantees and funds for general corporate purposes. In other cases, customs bonds and guarantees
are issued directly by various financial institutions. In many cases, the use of these particular
borrowings, letters of credit, guarantee, and working capital facilities is restricted to the
country in which they originated. These particular borrowings, letter of credit, guarantee, and
working capital facilities may restrict distributions by the subsidiary operating in such country.
The following table presents information about the facility limits, aggregate amounts of
borrowings outstanding as well as availability for borrowings under the various bank lines and
letters of credit and other credit facilities as of April 30, 2011 (in thousands).
South | ||||||||||||||||||||||||||||
African | Other | |||||||||||||||||||||||||||
ABN/RBS | Nedbank | Facilities1 | US Facility2 | Spain Facility3 | Facilities4 | Total | ||||||||||||||||||||||
Credit facility limit |
$ | 50,000 | $ | 61,000 | $ | 145,383 | $ | 25,000 | $ | 25,000 | $ | 147,084 | $ | 453,467 | ||||||||||||||
Facility usage for bank lines of credit |
$ | 9,233 | $ | 57,493 | $ | 57 | $ | 25,000 | $ | 24,332 | $ | 82,795 | $ | 198,910 | ||||||||||||||
Letters of credit and guarantees
outstanding |
42,503 | 6,631 | 81,282 | | | 53,530 | 183,946 | |||||||||||||||||||||
Total facility usage |
$ | 51,736 | $ | 64,124 | $ | 81,339 | $ | 25,000 | $ | 24,332 | $ | 136,325 | $ | 382,856 | ||||||||||||||
Available, unused capacity |
$ | | $ | | $ | 64,044 | $ | | $ | 668 | $ | 10,759 | $ | 75,471 | ||||||||||||||
Available for cash withdrawal |
$ | | $ | | $ | 60,503 | $ | | $ | 668 | $ | 10,759 | $ | 71,930 |
1 | Represents one of our three largest single-country credit facilities. A portion of
the availability under these facilities expires in July 2012 and the remainder expires in July
2014. |
|
2 | Represents one of our three largest single-country credit facilities. This facility
expires in June 2011. |
|
3 | Represents one of our three largest single-country credit facilities. The company is
currently in discussion with the lender regarding the possible refinancing or renewal of this
facility. |
|
4 | Includes cash pooling arrangements utilized by a significant number of the companys
subsidiaries. |
A significant number of our subsidiaries participate in a cash pooling arrangement
administered by a European-based bank, which is used to fund individual subsidiaries liquidity
needs. The cash pooling arrangement has no stated maturity date and yields and bears interest at
varying rates based on a base rate plus or minus a margin as determined by the type of currency
deposited or withdrawn from the cash pool. The facility does not permit cash withdrawals in excess
of cash deposits on a global basis. At April 30, 2011, cash deposits exceeded cash withdrawals.
Cash deposits of $10.9 million and cash withdrawals $1.5 million are included in cash and cash
deposits and in bank lines of credit at April 30, 2011.
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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, 2011. As of April 30, 2011, the aggregate amount of
letters of credit outstanding under this facility exceeded the facility limit by approximately
$1.7 million and the bank has the right, if it desires, to require collateral for such excess.
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. The ABN Letter of Credit Facility matures on July 9, 2011. The RBS Letter of Credit
Facility matured on December 31, 2009. 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.
On July 23, 2010, UTi Worldwide Inc. (UTi) and certain of its subsidiaries as guarantors
(collectively with UTi, the Obligors) entered into an amendment to the Nedbank Letter of Credit
Agreement which amendment among other things increased the availability under the Nedbank
Letter of Credit Agreement by $25.0 million, from $36.0 million to $61.0 million. As of April
30, 2011, the aggregate amount of letters of credit outstanding under this facility exceeded the
facility limit by approximately $3.1 million and the bank has the right, if it desires, to
require collateral for such excess. In addition, the amendment provided that in no event shall
any letter of credit) issued after July 23, 2010 under the Nedbank Letter of Credit Agreement
have an expiration date later than July 9, 2011 unless otherwise agreed to by Nedbank. 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 650.0 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. 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. 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. A portion of the availability under the South
African Facilities Agreement expires in July 2012 and the remainder expires in July 2014.
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.
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In addition to the facilities described above, the South African entities have obtained
customs bonds to support their customs and duties obligations to the South African customs
authorities. These customs bonds are issued by South African registered insurance companies. As of April 30, 2011 the
value of these contingent liabilities was $47.0 million.
During the second quarter ended July 31, 2010, the company entered into a number of new
credit facilities with aggregate borrowing credit facility limits of approximately $65.0
million. Such facilities include those entered into by the companys subsidiaries in the U.S.
and Spain as well as a borrowing by the parent company, UTi Worldwide, Inc. and generally expire
on various dates in calendar 2011 and bear interest at rates determined based on certain
benchmark interest rates plus a margin as specified in the underlying agreements. Total
borrowings outstanding under such facilities totaled approximately $64.3 million as of April 30,
2011.
Cash Pooling Arrangements. A significant number of our subsidiaries participate in a cash
pooling arrangement which we use to fund liquidity needs of the subsidiaries. The cash pooling
arrangement has no stated maturity date and yields and bears interest at varying rates. The
facility does not permit aggregate outstanding withdrawals by our subsidiaries under the
arrangement to exceed the aggregate amount of cash deposits by our subsidiaries in the
arrangement at any one time, as determined on a global basis. At April 30, 2011, cash deposits
exceeded cash withdrawals. Under the arrangement, cash withdrawals of $1.5 million are included
in bank lines of credit and cash deposits of $10.9 million are included in cash and cash
equivalents on our balance sheet at April 30, 2011.
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 some cases, the use of these particular letter of credit guarantee
and working capital facilities are restricted to the country in which they originated. These
particular letter of credit, guarantee, and working capital facilities may restrict
distributions by the subsidiary operating in the country.
Short-term Borrowings. The company also has a number of short-term borrowings issued by
various parties, not covered under the facilities listed above. The total of such bank borrowings
at April 30, 2011 and January 31, 2011 was $7.7 million, and $7.2 million, respectively. Included
in short-term borrowings is a loan from a shipping services company of $4.4 million and $4.0
million as of April 30, 2011 and January 31, 2011, respectively.
The maximum and average borrowings against bank lines of credit during the first quarter of
fiscal 2012 were $306.6 million and $262.4 million, respectively. The maximum and average
borrowings against bank lines of credit during first quarter of fiscal 2011 were $195.3 million and
$151.9 million, respectively.
Long-term Borrowings. The following table presents information about the aggregate amount of
the companys indebtedness pursuant to its outstanding senior unsecured guaranteed notes as of
April 30, 2011 (in thousands):
2006 Note | 2009 Note | |||||||||||||||
Purchase | Purchase | Other | ||||||||||||||
Agreement | Agreement | Borrowings | Total | |||||||||||||
Current portion of long-term borrowings |
$ | 33,335 | $ | 9,167 | $ | 946 | $ | 43,448 | ||||||||
Long-term borrowings, excluding current portion |
| 45,833 | 26,327 | 72,160 | ||||||||||||
Total |
$ | 33,335 | $ | 55,000 | $ | 27,273 | $ | 115,608 | ||||||||
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 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 2009 Senior Notes mature on 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, 2011, the principal amount outstanding under the 2009 Senior Notes was $55.0 million,
of which $45.8 million is included in long-term bank borrowings
on our 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 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 2006 Senior Notes mature on 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, 2011, the principal amount
outstanding under the 2006 Senior Notes was approximately $33.3 million, and is included in the
current portion of 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. 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, 2011.
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.
We intend to replace, refinance or renew our various credit, letters of credit and guarantee
facilities before their applicable maturity dates. We are in various stages of discussions and
negotiations with potential lenders with respect to replacing our facilities which come due in
2011. No assurances can be given that we will be able to replace, refinance or renew such
facilities and indebtedness or obtain additional financing on terms which we consider acceptable,
or at all. Changes in the credit markets could adversely affect the terms upon which we are able
to replace, renew or refinance such facilities and obtain additional indebtedness or other
replacement financing. Our short-term or long-term borrowing costs and aggregate outstanding
indebtedness could increase as a result of any replacement, renewal or refinancing of our credit
facilities and other indebtedness and our efforts to obtain additional financing.
Pharma Property Development Agreements. In connection with the Pharma Property Development
Agreements, as of April 30, 2011, the company has included $20.6 million in long-term borrowings.
Pursuant to the development agreement, $9.5 million of borrowings bear interest at a rate per annum
equal to Nedbanks publicly quoted prime rate, and the remainder of the borrowings bear interest at
a rate per annum equal to Nedbanks publicly quoted prime rate minus 0.8%. Upon completion of the
development agreement, the company intends to replace the borrowings under this agreement with a
long-term replacement financing.
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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 2012.
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.
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.
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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, 2011, there had been no material changes to our exposure to market risks since
January 31, 2011, as described in our Annual Report on Form 10-K for the fiscal year ended January
31, 2011 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, 2011.
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 each of its principal executive officer and principal financial
officer, 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,
2011. 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, 2011.
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 each of the issuers
principal executive officer and principal financial officer, 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.
We have initiated a multi-year effort to upgrade the technology supporting our financial
systems. As part of this effort, we have licensed enterprise resource planning (ERP) software and
have begun a process to expand and upgrade our financial systems. There were no changes in our
internal control over financial reporting during the most recently completed fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
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Part II. Other Information
Item 1. | Legal Proceedings |
In connection with ASC 450, Contingencies, the company has not accrued for a loss contingency
relating to any of the investigations and legal proceedings disclosed below 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.
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.
Industry-Wide Anti-Trust Investigation. In 2007, in connection with the U.S. Department of
Justices (U.S. DOJ) investigation into the pricing practices in the international freight
forwarding industry, we responded to a grand jury subpoena requesting documents and 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 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.
In 2008, 2009
and 2011, we responded to requests for information issued by the European Commission
(EC) requesting information and records relating to the ECs investigation of alleged
anti-competitive behavior relating to freight forwarding services in the European Union/European
Economic Area. In February 2010, in connection with the ECs ongoing investigation, 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. We
attended a hearing in July 2010 to discuss our position with the EC officials.
In May 2009, we learned that the Brazilian Ministry of Justice was investigating possible
alleged cartel activity in the international air and ocean freight forwarding market. On August 6,
2010, we received notice of an administrative proceeding from the Brazilian Ministry of Justice.
The administrative proceeding initiates a proceeding against us, our Brazilian subsidiary and two
of its employees, among many other forwarders and their employees, alleging possible
anti-competitive behavior contrary to Brazilian rules on competition. We intend to respond to this
proceeding within 30 days after the last defendant in this global proceeding has been notified.
In November 2009, one of our subsidiaries received a summons from the South African
Competition Commission (SACC) requesting certain information and records in connection with its
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. On April 14,
2011, one of the companys subsidiaries was notified that the SACC has decided to refer a complaint
against various freight forwarding companies, including such subsidiary, to the South African
Competition Tribunal (the Tribunal) for adjudication. The Commissions complaint stems from its
previously disclosed investigation into alleged anti-competitive behavior by a number of freight
forwarders and alleges infringements of South African competition law with respect to certain
surcharges and fees.
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 U.S. 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,
the SACC 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.
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South Africa Revenue Service Matter. 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 objected to this claim and,
together with its legal and tax advisors, believes that the owner drivers are not employees and
that accordingly there is no tax liability in respect of these owner drivers in terms of the South
African income tax act. Historically, this matter related to the years 2002 and 2003. In March
2011, the South African Revenue Service extended the years under review to include the years 2006
and 2007. The aggregate amount claimed by the South African Revenue Service for all years under
review is approximately $10.9 million based on exchange rates as of April 30, 2011. The tax years
2004 and 2005 are not under assessment.
Per Transport Litigation. 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 $14.1 million, based on exchange rates as of
April 30, 2011. In connection with the Per Transport 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.
Item 1A. | Risk Factors |
Our business, financial condition and results of operations are subject to a number of
factors, risks and uncertainties, including those previously disclosed under Part I. Item 1A Risk
Factors in our Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as well as
any amendments thereto or additions and changes thereto contained in subsequent filings of
quarterly reports on Form 10-Q. The disclosures in our Annual Report on Form 10-K and in other
reports and filings are not necessarily a definitive list of all factors that may affect our
business, financial condition and future results of operations. There have been no material changes
to the risk factors as disclosed in our Annual Report on Form 10-K for the fiscal year ended
January 31, 2011, except as provided in any amendments, additions and changes thereto as set forth
below.
Several U.S. and other foreign governmental agencies either have investigated or are currently
investigating alleged anti-competitive behavior in the international air cargo transportation
industry, which includes us, we have been named as a defendant in a federal antitrust class action
lawsuit that alleges that we engaged in various forms of anti-competitive practices, and we may
become subject to other governmental investigations and may be named in additional litigation, all
of which have required, and could continue to require, significant management time and attention
and could result in significant expenses as well as unfavorable outcomes which could have a
material adverse effect on our business, financial condition, results of operations, reputation,
cash flow and prospects.
The U.S. Department of Justice (U.S. DOJ) and several other governments, including the
governments of Brazil and South Africa, along with the European Union, have conducted inspections
or raids at local offices of global freight forwarders or have issued subpoenas or requests for
information in connection with various investigations into alleged anti-competitive behavior in the
international air cargo transportation industry. In 2007, in connection with the U.S. DOJs
investigation into the pricing practices in the international freight forwarding industry, we
responded to a grand jury subpoena requesting documents and 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 grand
jury subpoena requesting numerous documents and other materials. 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 that we are a subject of the U.S.
DOJ investigation.
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In 2008, 2009 and
2011, we responded to requests 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 air freight forwarding services in the European
Union/European Economic Area. In February 2010, in connection with the ECs ongoing investigation,
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. We attended a hearing in July 2010 to discuss our position with the EC officials.
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. On August 6,
2010, we received notice of an administrative proceeding from the Brazilian Ministry of Justice.
The administrative proceeding initiates a proceeding against us, our Brazilian subsidiary and two
of its employees, among many other forwarders and their employees, alleging possible
anti-competitive behavior contrary to Brazilian rules on competition. We intend to respond to this
proceeding within 30 days after the last defendant in this global proceeding has been notified.
In November 2009, one of our subsidiaries received a summons from the South African
Competition Commission (SACC) requesting certain information and records in connection with its
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. On April 14,
2011, one of the Companys subsidiaries was notified that the SACC has decided to refer a complaint
against various freight forwarding companies, including such subsidiary, to the South African
Competition Tribunal (the Tribunal) for adjudication. The Commissions complaint stems from its
previously disclosed investigation into alleged anti-competitive behavior by a number of freight
forwarders and alleges infringements of South African competition law with respect to certain
surcharges and fees.
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 will
provide in the future, further responses as a result of such requests.
There can be no assurances that additional regulatory inquiries or investigations will not be
commenced by other U.S. or foreign regulatory agencies. We do not know when or how the above
investigations or any future investigations will be resolved or what, if any, actions the various
governmental agencies may require us and/or any of our current or former officers, directors and
employees to take as part of that resolution. We have incurred, and expect to continue to incur,
significant legal fees and other costs in connection with these governmental investigations. A
conclusion by the U.S. DOJ, the EC or by another foreign regulatory agency that we have engaged in
anti-competitive behavior or other unfavorable resolution of these investigations could result in
criminal sanctions and/or fines against us and/or certain of our current or former officers,
directors and employees.
In addition, we have been named, along with seven other large European and North
American-based global logistics providers, as a defendant in a federal antitrust class action
lawsuit filed in January 2008. This lawsuit alleges that the defendants engaged in various forms of
anti-competitive practices and seeks an unspecified amount of monetary damages and injunctive
relief under U.S. antitrust laws. There can be no assurance that further lawsuits by parties who
have allegedly suffered injury in connection with these allegations will not be filed in the future
in the U.S. or in other jurisdictions or that additional civil litigation will not result from the
pending or any future governmental investigations, including but not limited to, shareholder class
action lawsuits. There are uncertainties associated with any litigation and the amount of time
necessary to resolve these current and potentially future lawsuits is uncertain, and these matters
could require significant management and financial resources which could otherwise be devoted to
the operation of our business.
The resolution
of the pending investigations by the U.S. DOJ, the EC, the SACC and other foreign governmental
agencies, the process of dealing with any future domestic or foreign governmental investigations,
the defense of our pending civil litigation, and the defense of any additional litigation that
may arise relating to these matters could result in significant costs and expenses. Dealing
with investigations and regulatory inquiries can be time consuming and diverts the attention
of our key employees from the conduct of our business. If any of the governmental investigations
result in a determination adverse to us and/or our current or former officers, directors and
employees or if we do not prevail in the civil litigation, we may be subject to criminal
prosecution and substantial fines and penalties and liable for damages. Furthermore, any
negative outcome or publicity that may occur from these investigations and litigation could
impact our relationships with clients and our ability to generate revenue. These or other
negative developments with respect to such governmental investigations or civil litigation
could harm our business, operating results, cash flow, financial condition, reputation and
prospects.
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Table of Contents
Item 6. | Exhibits |
Exhibit | Description | |||
3.1 | Amended and Restated Memorandum of Association of the company
(incorporated by reference to Exhibit 3.1 to the companys Current
Report on Form 8-K, filed April 18, 2011) |
|||
3.2 | Amended and Restated Articles of Association of the company
(incorporated by reference to Exhibit 3.2 to the companys Current
Report on Form 8-K, filed April 18, 2011) |
|||
10.1 | + | Master Services Agreement between Mr. William Gates and the
company, dated as of February 1, 2011 (incorporated by reference
to Exhibit 10.9 to the companys Annual Report on Form 10-K, filed
March 30, 2011) |
||
10.2 | + | Letter Agreement between Mr. Eric Kirchner and the company, dated
as of March 25, 2011 (incorporated by reference to Exhibit 10.9 to
the companys Annual Report on Form 10-K, filed March 30, 2011) |
||
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 6, 2011 | By: | /s/ Eric W. Kirchner | ||
Eric W. Kirchner | ||||
Chief Executive Officer | ||||
Date: June 6, 2011 | 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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Table of Contents
EXHIBIT INDEX
Exhibit | Description | |||
3.1 | Amended and Restated Memorandum of Association of the company
(incorporated by reference to Exhibit 3.1 to the companys Current
Report on Form 8-K, filed April 18, 2011) |
|||
3.2 | Amended and Restated Articles of Association of the company
(incorporated by reference to Exhibit 3.2 to the companys Current
Report on Form 8-K, filed April 18, 2011) |
|||
10.1 | + | Master Services Agreement between Mr. William Gates and the
company, dated as of February 1, 2011 (incorporated by reference
to Exhibit 10.9 to the companys Annual Report on Form 10-K, filed
March 30, 2011) |
||
10.2 | + | Letter Agreement between Mr. Eric Kirchner and the company, dated
as of March 25, 2011 (incorporated by reference to Exhibit 10.9 to
the companys Annual Report on Form 10-K, filed March 30, 2011) |
||
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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