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Table of Contents

 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 31, 2015

Or

 

¨ 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)

 

 

UTi Worldwide Inc.

(Exact name of Registrant as Specified in its Charter)

 

 

 

British Virgin Islands   N/A

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification Number)

9 Columbus Centre, Pelican Drive, P.O. Box 805   c/o UTi, Services, Inc.
Road Town, Tortola, VG1110   100 Oceangate, Suite 1500
British Virgin Islands   Long Beach, CA 90802 USA

(Addresses of Principal Executive Offices)

562.552.9400

(Registrant’s Telephone Number, Including Area Code)

N/A

(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  x    No  ¨

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  x    No  ¨

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   x    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

At December 7, 2015, the number of shares outstanding of the issuer’s ordinary shares of no par value was 106,081,706.

 

 

 


Table of Contents

UTi Worldwide Inc.

Report on Form 10-Q

For the Quarter Ended October 31, 2015

Table of Contents

 

PART I. Financial Information

     2   

Item 1. Financial Statements (Unaudited)

     2   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     55   

Item 4. Controls and Procedures

     55   

PART II. Other Information

     56   

Item 1. Legal Proceedings

     56   

Item 1A. Risk Factors

     57   

Item 5. Other Information

     59   

Item 6. Exhibits

     60   

Signatures

     61   

Exhibit Index

     62   

 

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Table of Contents

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

UTi Worldwide Inc.

Condensed Consolidated Balance Sheets

As of October 31, 2015 and January 31, 2015

(in thousands, except share amounts)

 

     October 31, 2015     January 31, 2015  
     (Unaudited)     (Unaudited)  
ASSETS     

Cash and cash equivalents

   $ 264,871      $ 211,832   

Cash held as collateral

     34,104        29,068   

Trade receivables (net of allowances for doubtful accounts of $16,524 and $19,964 as of October 31, 2015 and January 31, 2015, respectively)

     806,058        887,084   

Deferred income taxes

     12,154        12,596   

Other current assets

     145,248        154,756   
  

 

 

   

 

 

 

Total current assets

     1,262,435        1,295,336   

Property, plant and equipment (net of accumulated depreciation of $283,954 and $281,287 as of October 31, 2015 and January 31, 2015, respectively)

     167,660        195,523   

Goodwill

     219,640        282,572   

Other intangible assets, net

     131,878        147,018   

Investments

     4,730        1,023   

Deferred income taxes

     10,423        11,175   

Other non-current assets

     37,229        41,305   
  

 

 

   

 

 

 

Total assets

   $ 1,833,995      $ 1,973,952   
  

 

 

   

 

 

 
LIABILITIES & EQUITY     

Bank lines of credit

   $ 131,178      $ 31,306   

Short-term borrowings

     48,515        52,825   

Current portion of long-term borrowings

     7,080        1,429   

Current portion of capital lease obligations

     11,849        11,429   

Trade payables and other accrued liabilities

     650,840        698,450   

Income taxes payable

     5,899        8,995   

Deferred income taxes

     11,953        12,177   
  

 

 

   

 

 

 

Total current liabilities

     867,314        816,611   

Long-term borrowings, excluding current portion

     368,801        366,846   

Capital lease obligations, excluding current portion

     47,842        56,455   

Deferred income taxes

     14,906        14,204   

Other non-current liabilities

     34,212        36,892   

Convertible preference shares

     191,978        181,957   

Commitments and contingencies

    

UTi Worldwide Inc. shareholders’ equity:

    

Common stock - ordinary shares of no par value; issued and outstanding 106,074,789 and 105,534,957 shares as of October 31, 2015 and January 31, 2015 respectively

     581,537        575,164   

(Accumulated deficit)/retained earnings

     (54,081     92,664   

Accumulated other comprehensive loss

     (227,371     (179,423
  

 

 

   

 

 

 

Total UTi Worldwide Inc. shareholders’ equity

     300,085        488,405   

Non-controlling interests

     8,857        12,582   
  

 

 

   

 

 

 

Total equity

     308,942        500,987   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,833,995      $ 1,973,952   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

UTi Worldwide Inc.

Condensed Consolidated Statements of Operations

For the three and nine months ended October 31, 2015 and 2014

(in thousands, except share and per share amounts)

 

     Three months ended October 31,     Nine months ended October 31,  
     2015     2014     2015     2014  
     (Unaudited)     (Unaudited)  

Revenues

   $ 884,711      $ 1,077,179      $ 2,771,956      $ 3,215,212   
  

 

 

   

 

 

   

 

 

   

 

 

 

Purchased transportation costs

     556,520        694,828        1,775,764        2,069,787   

Staff costs

     199,171        219,105        605,911        664,250   

Depreciation

     12,284        14,207        38,209        42,235   

Amortization of intangible assets

     7,296        7,398        22,147        21,417   

Severance and other

     —          23,674        5,483        25,965   

Goodwill impairment

     —          —          50,000        —     

Other operating expenses

     121,241        139,842        366,316        415,744   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (11,801     (21,875     (91,874     (24,186

Interest income

     2,212        6,332        9,262        17,624   

Interest expense

     (13,543     (16,888     (42,729     (46,843

Loss on debt extinguishment

     —          —          —          (21,820

Other expense, net

     (1,712     (205     (1,716     (1,202
  

 

 

   

 

 

   

 

 

   

 

 

 

Pretax loss

     (24,844     (32,636     (127,057     (76,427

Provision for income taxes

     7,184        2,321        10,981        21,055   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (32,028     (34,957     (138,038     (97,482

Net income/(loss) attributable to non-controlling interests

     677        (1,271     (1,313     1,855   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to UTi Worldwide Inc.

   $ (32,705   $ (33,686   $ (136,725   $ (99,337
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted loss per common share attributable to UTi Worldwide Inc. common shareholders

   $ (0.34   $ (0.35   $ (1.39   $ (1.02
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of weighted average common shares outstanding used for per share calculations Basic and diluted shares

     106,052,511        105,438,911        105,901,067        105,257,604   

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

UTi Worldwide Inc.

Condensed Consolidated Statements of Comprehensive Loss

For the three and nine months ended October 31, 2015 and 2014

(in thousands)

 

     Three months ended October 31,     Nine months ended October 31,  
     2015     2014     2015     2014  
     (Unaudited)     (Unaudited)  

Net loss

   $ (32,028   $ (34,957   $ (138,038   $ (97,482

Other comprehensive loss:

        

Foreign currency translation

     (18,742     (19,828     (49,869     (3,765

Defined benefit plan adjustments

     190        224        383        234   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive loss

     (18,552     (19,604     (49,486     (3,531
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss, before non-controlling interests

     (50,580     (54,561     (187,524     (101,013

Comprehensive (loss)/income attributable to non-controlling interests

     (77     (1,749     (2,851     2,033   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to UTi Worldwide Inc.

   $ (50,503   $ (52,812   $ (184,673   $ (103,046
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

UTi Worldwide Inc.

Condensed Consolidated Statements of Cash Flows

For the nine months ended October 31, 2015 and 2014

(in thousands)

 

     Nine months ended October 31,  
     2015     2014  
     (Unaudited)  

OPERATING ACTIVITIES:

    

Net loss

   $ (138,038   $ (97,482

Adjustments to reconcile net loss to net cash provided by/ (used in) operating activities:

    

Share-based compensation costs

     7,159        10,365   

Depreciation

     38,209        42,235   

Amortization of intangible assets

     22,147        21,417   

Amortization of debt issuance costs

     2,927        2,805   

Make-whole payment

     —          20,830   

Accretion of convertible senior notes

     6,490        5,290   

Goodwill impairment

     50,000        —     

Deferred income taxes

     662        (2,438

Uncertain tax positions

     610        792   

Gain on disposal of property, plant and equipment

     (2,480     (522

Provision for doubtful accounts

     299        4,328   

Installment receivable impairment and other

     2,264        20,449   

Changes in operating assets and liabilities:

    

Decrease/(increase) in trade receivables

     28,432        (128,995

Decrease/(increase) in other current assets

     4,928        (1,363

Increase/(decrease) in trade payables

     2,686        (8,412

(Decrease)/increase in accrued liabilities and other liabilities

     (10,816     5,611   
  

 

 

   

 

 

 

Net cash provided by/(used in) operating activities

     15,479        (105,090

INVESTING ACTIVITIES:

    

Net increase in cash held as collateral

     (5,036     (32,801

Purchases of property, plant and equipment, excluding software

     (17,317     (20,989

Proceeds from disposals of property, plant and equipment

     4,161        4,058   

Purchases of software and other intangible assets

     (8,425     (9,845

Net increase in other non-current assets and other

     (104     (558

Investment in joint venture and other

     (3,732     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (30,453     (60,135

FINANCING ACTIVITIES:

    

Proceeds from issuances of long-term borrowings

     —          404,644   

Proceeds from the issuance of preference shares

     —          175,000   

Borrowings from bank lines of credit

     219,000        183,569   

Repayments of bank lines of credit

     (121,000     (356,387

Net borrowings/(repayments) under revolving lines of credit

     3,680        (3,012

Proceeds from issuance of financing agreements

     74,984        —     

Repayments of financing agreements

     (63,700     —     

Net (decrease)/increase in short-term borrowings

     (9,404     2,472   

Repayments of long-term borrowings

     (5,321     (203,517

Make-whole payment

     —          (20,830

Debt and preferred shares issuance costs

     —          (25,789

Repayments of capital lease obligations

     (9,449     (10,770

Distributions to non-controlling interests and other

     (874     (1,416

Ordinary shares settled under share-based compensation plans

     (1,164     (1,807

Proceeds from issuance of ordinary shares

     179        89   
  

 

 

   

 

 

 

Net cash provided by financing activities

     86,931        142,246   

Effect of foreign exchange rate changes on cash and cash equivalents

     (18,918     10,464   
  

 

 

   

 

 

 

Net increase/(decrease) in cash and cash equivalents

     53,039        (12,515

Cash and cash equivalents at beginning of period

     211,832        204,384   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 264,871      $ 191,869   
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

UTi Worldwide Inc.

Notes to the Condensed Consolidated Financial Statements

For the three and nine months ended October 31, 2015 and 2014 (Unaudited)

NOTE 1. Presentation of Financial Statements

Basis of Presentation. The accompanying unaudited condensed 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 October 31, 2015 and January 31, 2015, and the consolidated statements of operations, comprehensive loss and cash flows for the three and nine months ended October 31, 2015 and 2014. 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 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 and nine months ended October 31, 2015 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending January 31, 2016 or any other future periods. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

All amounts in the notes to the consolidated financial statements are presented in thousands except for share and per share data.

Merger Agreement. On October 9, 2015, the Company entered into a Merger Agreement (Merger Agreement) with DSV A/S, a Danish corporation (DSV) and an indirect wholly-owned subsidiary of DSV (Merger Sub). Pursuant to the Merger Agreement and subject to its terms and conditions, Merger Sub will be merged with and into the Company (Merger), with the Company surviving the Merger as an indirect wholly-owned subsidiary of DSV. At the effective time of the Merger, each ordinary share, no par value, of the Company (Ordinary Shares) issued and outstanding immediately prior to the effective time (other than Ordinary Shares owned by (1) DSV, Merger Sub, the Company’s subsidiaries or held by the Company as treasury shares or (2) shareholders who have properly exercised dissenter’s rights under the law of the British Virgin Islands) will be converted into the right to receive $7.10 per share in cash, without interest. At the effective time of the Merger, each of the Company’s Class A 7.0% Convertible Preference Shares, no par value (Convertible Preference Shares) issued and outstanding immediately prior to the effective time will become the right to receive $1,125.71 per share in cash, without interest. The completion of the Merger is subject to various customary conditions, including (a) the absence of any law or order preventing the consummation of the Merger, (b) the receipt of certain required antitrust and other regulatory approvals and (c) the Company obtaining the approval of the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement by the Company’s holders of Ordinary Shares (including the holders of the Convertible Preference Shares voting on an as-converted basis) and the holders of the Company’s Ordinary Shares (excluding our largest shareholder and the Convertible Preference Shares). The Merger Agreement contains customary representations and warranties from both the Company and DSV, and also contains customary pre-closing covenants. The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under specified circumstances, the Company will pay DSV a termination fee of $34,000.

Use of Estimates. The preparation of the consolidated financial statements, in accordance with U.S. GAAP, requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include, but are not limited to, useful life assumptions and the dates at which certain software applications became (or will become) ready for their intended use (both of which impact the timing and amount of amortization), revenue recognition, income taxes, allowances for doubtful accounts, the initial and recurring valuation of certain assets acquired and liabilities assumed through business combinations (including goodwill, indefinite lived intangible assets, and contingent liabilities), impairment of long-lived assets, and contingencies. Actual results could differ from those estimates.

Foreign Currency Translation. Included in other expense, net, are net losses of $1,712 and $1,716 on foreign exchange for the three and nine months ended October 31, 2015, respectively. Included in other expense, net, are net losses of $205 and $1,202 on foreign exchange for the three and nine months ended October 31, 2014, respectively.

 

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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 can 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.

Segment Reporting. The Company’s reportable business segments (which are also the Company’s operating 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.

Earnings Per Share. The Company calculates basic earnings per share based on earnings (loss) available to common shareholders and the weighted average number of ordinary common shares outstanding during each period. Diluted earnings per share is computed in a similar manner using the weighted average number of ordinary common shares, but also considers potentially dilutive common shares outstanding. Potentially dilutive common shares includes outstanding employee share-based compensation awards that are assumed to be exercised or vested and paid out in shares of common stock, in addition to the dilutive effects of the Convertible Preference Shares and the 2019 Notes (as defined below) and as described in Note 11, “Borrowings.”

In connection with the Convertible Preference Shares, net earnings (loss) for the period are adjusted by the amount of dividends declared in order to calculate earnings (loss) available to common shareholders. In addition, the Company utilizes the “if-converted” method in determining diluted earnings per share. In periods where the “if-converted” method is dilutive, the Convertible Preference Shares are assumed to have been converted as of the beginning of the reporting period. As such, preferred dividends for the period are added back to earnings (loss) available to common shareholders and the number of common shares to be issued upon conversion are assumed to be outstanding for the entire reporting period.

Until the Company has the ability and intent to settle the 2019 Notes partially or wholly in cash, the “if converted” method is used to account for the 2019 Notes in the calculation of diluted earnings per share. In periods when the effect of the 2019 Notes is dilutive, the expected number of common shares to be issued upon conversion is included in the computation and the pro forma effects of excluding accrued interest on the 2019 Notes is added to net earnings/(loss) to compute diluted earnings per share.

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 $289,464 of these deposits including both cash and cash equivalents and cash held as collateral were not insured by the Federal Deposit Insurance Corporation (FDIC) or similar entities outside of the United States of America (U.S.) as of October 31, 2015.

Cash Held as Collateral. In connection with the Fiscal 2015 Refinancing (as described below), the 2011 RBS Facility (as described below) and certain of the Company’s other facilities, as described in Note 11, “Borrowings”, were terminated in March 2014, and the Company provided cash collateral in the amount of $34,104 to secure the letters of credit and bank guarantees which were then and remain outstanding. The usage of such cash is restricted pursuant to the applicable agreements.

Fair Values of Financial Instruments. The estimated fair values of financial instruments have 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.

 

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The Company’s principal financial instruments are cash and cash equivalents, trade receivables, convertible preference shares, bank lines of credit, long-term deposits, short-term borrowings, trade payables and other accrued liabilities, long-term borrowings, forward contracts and other derivative instruments. 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.

Recent Accounting Pronouncements

Adoption of New Accounting Standards. None.

Standards Issued But Not Yet Effective. In August 2015, the FASB issued ASU 2015-15 to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements given the lack of guidance on this topic in ASU 2015-03. The SEC staff has announced that it would “not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement.” In April 2015, the FASB issued ASU 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs in the financial statements. Under the ASU, an entity should present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This new guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2015; early adoption is allowed for all entities for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods. The Company is currently evaluating the potential impact of adoption of this guidance on its consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606). ASU No. 2015-14 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This new guidance is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017; early adoption is permitted for annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the potential impact of the adoption of this guidance on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern,” which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if “conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

In June 2014, the FASB issued Accounting Standard Update (ASU) 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Allow a Performance Target to Be Achieved After the Requisite Service Period,” which requires that a performance target that could be achieved after the requisite service period be treated as a performance condition that affects the vesting of the award. The amendments in ASU 2014-12 are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in ASU 2014-12 either: (i) prospectively to all awards granted or modified after the effective date; or (ii) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. The Company is currently evaluating the potential impact of the adoption of this guidance on its consolidated financial statements.

 

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In April 2014, the FASB issued ASU 2014-08, which amends the definition of a discontinued operation in ASC 205-20 and requires entities to provide additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued-operations criteria. The only criterion that is valid when this ASU becomes effect is the component “has been disposed of or is classified as held for sale.” This ASU applies to all entities and is effective for annual periods ending after December 15, 2014 and early adoption is permitted.

Proposed Amendments to Current Accounting Standards. Updates to existing accounting standards and exposure drafts, 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 Company’s consolidated financial statements.

NOTE 2. Acquisitions

The Company did not complete any acquisitions during the three and nine months ended October 31, 2015. However, for information on the Merger, please refer to the section entitled “Merger Agreement” under Note 1, Presentation of Financial Statements.

NOTE 3. Earnings per Share

Loss per share is calculated as follows:

 

     Loss      Weighted
Average
Number of
Ordinary
Shares
     Per
Share
Amount
 

For the three months ended October 31, 2015:

        

Basic loss per share:

        

Net loss attributable to UTi Worldwide Inc. common shareholders

   $ (32,705      106,052,511      

Dividends in-kind on Convertible Preference Shares

     (3,398      —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of basic loss per share

   $ (36,103      106,052,511       $ (0.34
  

 

 

    

 

 

    

 

 

 

Diluted loss per share:

        

Loss attributable to UTi Worldwide Inc. common shareholders

   $ (36,103      106,052,511      

Effect of assumed exercise or conversion of dilutive securities:

        

Employee share-based awards

     —           —        

Convertible Preference Shares

     —           —        

2019 Notes

     —           —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of diluted loss per share

   $ (36,103      106,052,511       $ (0.34
  

 

 

    

 

 

    

 

 

 

Weighted-average anti-dilutive shares excluded from computation:

        

Employee share-based awards

        2,535,357      

Convertible Preference Shares

        14,004,699      

2019 Notes

        27,588,120      
     

 

 

    

Total weighted average anti-diluted shares excluded from computation

        44,128,176      
     

 

 

    

For the three months ended October 31, 2014:

        

Basic loss per share:

        

Net loss attributable to UTi Worldwide Inc. common shareholders

   $ (33,686      105,438,911      

Dividends in-kind on Convertible Preference Shares

     (3,169      —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of basic loss per share

   $ (36,855      105,438,911       $ (0.35
  

 

 

    

 

 

    

 

 

 

Diluted loss per share:

        

Loss attributable to UTi Worldwide Inc. common shareholders

   $ (36,855      105,438,911      

Effect of assumed exercise or conversion of dilutive securities:

        

Employee share-based awards

     —           —        

Convertible Preference Shares

     —           —        

2019 Notes

     —           —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of diluted loss per share

   $ (36,855      105,438,911       $ (0.35
  

 

 

    

 

 

    

 

 

 

Weighted-average anti-dilutive shares excluded from computation:

        

Employee share-based awards

        2,857,152      

Convertible Preference Shares

        13,060,551      

2019 Notes

        27,588,120      
     

 

 

    

Total weighted average anti-diluted shares excluded from computation

        43,505,823      
     

 

 

    

 

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Table of Contents
     Loss      Weighted
Average
Number of
Ordinary
Shares
     Per
Share
Amount
 

For the nine months ended October 31, 2015:

        

Basic loss per share:

        

Net loss attributable to UTi Worldwide Inc. common shareholders

   $ (136,725      105,901,067      

Dividends in-kind on Convertible Preference Shares

     (10,020      —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of basic loss per share

   $ (146,745      105,901,067       $ (1.39
  

 

 

    

 

 

    

 

 

 

Diluted loss per share:

        

Loss attributable to UTi Worldwide Inc. common shareholders

   $ (146,745      105,901,067      

Effect of assumed exercise or conversion of dilutive securities:

        

Employee share-based awards

     —           —        

Convertible Preference Shares

     —           —        

2019 Notes

     —           —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of diluted loss per share

   $ (146,745      105,901,067       $ (1.39
  

 

 

    

 

 

    

 

 

 

Weighted-average anti-dilutive shares excluded from computation:

        

Employee share-based awards

        2,090,014      

Convertible Preference Shares

        13,763,846      

2019 Notes

        27,588,120      
     

 

 

    

Total weighted average anti-diluted shares excluded from computation

        43,441,980      
     

 

 

    

For the nine months ended October 31, 2014:

        

Basic loss per share:

        

Net loss attributable to UTi Worldwide Inc. common shareholders

   $ (99,337      105,257,604      

Dividends in-kind on Convertible Preference Shares

     (8,229      —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of basic loss per share

   $ (107,566      105,257,604       $ (1.02
  

 

 

    

 

 

    

 

 

 

Diluted loss per share:

        

Loss attributable to UTi Worldwide Inc. common shareholders

   $ (107,566      105,257,604      

Effect of assumed exercise or conversion of dilutive securities:

        

Employee share-based awards

     —           —        

Convertible Preference Shares

     —           —        

2019 Notes

     —           —        
  

 

 

    

 

 

    

Loss attributable to UTi Worldwide Inc. common shareholders for calculation of diluted loss per share

   $ (107,566      105,257,604       $ (1.02
  

 

 

    

 

 

    

 

 

 

Weighted-average anti-dilutive shares excluded from computation:

        

Employee share-based awards

        3,168,680      

Convertible Preference Shares

        11,345,288      

2019 Notes

        24,306,262      
     

 

 

    

Total weighted average anti-diluted shares excluded from computation

        38,820,230      
     

 

 

    

 

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Weighted-average diluted shares outstanding excludes shares representing stock options that have exercise prices in excess of the average market price of the Company’s common stock during the relevant period or securities that do not result in incremental shares when applying the treasury stock method under ASC 260, Earnings Per Share. For the three and nine months ended October 31, 2015 and 2014, no incremental common shares are included in the computation of diluted loss per common share, as the Company had a net loss.

NOTE 4. Equity

UTi Worldwide Inc. Shareholders’ Equity. Certain information regarding changes in equity and non-controlling interests are as follows:

 

     UTi Worldwide Inc. Shareholders’ Equity  
     Common
Stock
    Retained
earnings/
(accumulated
deficit)
    Accumulated
other
comprehensive
loss
    Non-controlling
interests
    Total Equity  

Balance at February 1, 2015

   $ 575,164      $ 92,664      $ (179,423   $ 12,582      $ 500,987   

Net loss

     —          (136,725     —          (1,313     (138,038

Other comprehensive loss

     —          —          (47,948     (1,538     (49,486

Shared-based compensation costs

     7,159        —          —          —          7,159   

Net ordinary shares settled under share-based compensation plans

     (985     —          —          —          (985

Dividends in-kind on Convertible Preference Shares payable

     —          (10,020     —          —          (10,020

Non-controlling interests and other

     199        —          —          (874     (675
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 31, 2015

   $ 581,537      $ (54,081   $ (227,371   $ 8,857      $ 308,942   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at February 1, 2014

   $ 517,762      $ 307,338      $ (143,181   $ 13,788      $ 695,707   

Net (loss)/income

     —          (99,337     —          1,855        (97,482

Other comprehensive (loss)/income

     —          —          (3,709     178        (3,531

Shared-based compensation costs

     10,365        —          —          —          10,365   

Net ordinary shares settled under share-based compensation plans

     (1,799     —          —          —          (1,799

2019 Notes original issue discount

     47,690        —          —          —          47,690   

Allocation of debt issuance costs

     (1,814     —          —          —          (1,814

Dividends in-kind on Convertible Preference Shares payable

     —          (8,229     —          —          (8,229

Dividends

     —          —          —          —          —     

Non-controlling interests and other

     —          —          —          (1,416     (1,416
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at October 31, 2014

   $ 572,204      $ 199,772      $ (146,890   $ 14,405      $ 639,491   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated Other Comprehensive Loss. The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive loss (AOCI) before- and after-tax:

 

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Table of Contents
     Foreign Currency
Translation
     Defined Benefit
Pension Plans
     Total  

Balance at August 1, 2015

   $ (204,205    $ (5,368    $ (209,573

Other comprehensive loss before reclassifications

     (17,988      —           (17,988

Amounts reclassified from AOCI, before tax

     —           250         250   

Tax-effect

     —           (60      (60
  

 

 

    

 

 

    

 

 

 

Amounts reclassified from AOCI, after tax

     —           190         190   
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss)/income

     (17,988      190         (17,798
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2015

   $ (222,193    $ (5,178    $ (227,371
  

 

 

    

 

 

    

 

 

 

Balance at August 1, 2014

   $ (123,147    $ (4,617    $ (127,764

Other comprehensive loss before reclassifications

     (19,350      —           (19,350

Amounts reclassified from AOCI, before tax

     —           298         298   

Tax-effect

     —           (74      (74
  

 

 

    

 

 

    

 

 

 

Amounts reclassified from AOCI, after tax

     —           224         224   
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive income/(loss)

     (19,350      224         (19,126
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2014

   $ (142,497    $ (4,393    $ (146,890
  

 

 

    

 

 

    

 

 

 

 

     Foreign Currency
Translation
     Defined Benefit
Pension Plans
     Total  

Balance at February 1, 2015

   $ (173,862    $ (5,561    $ (179,423

Other comprehensive loss before reclassifications

     (48,331      —           (48,331

Amounts reclassified from AOCI, before tax

     —           519         519   

Tax-effect

     —           (136      (136
  

 

 

    

 

 

    

 

 

 

Amounts reclassified from AOCI, after tax

     —           383         383   
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss)/income

     (48,331      383         (47,948
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2015

   $ (222,193    $ (5,178    $ (227,371
  

 

 

    

 

 

    

 

 

 

Balance at February 1, 2014

   $ (138,554    $ (4,627    $ (143,181

Other comprehensive loss before reclassifications

     (3,943      —           (3,943

Amounts reclassified from AOCI, before tax

     —           311         311   

Tax-effect

     —           (77      (77
  

 

 

    

 

 

    

 

 

 

Amounts reclassified from AOCI, after tax

     —           234         234   
  

 

 

    

 

 

    

 

 

 

Net current-period other comprehensive (loss)/income

     (3,943      234         (3,709
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2014

   $ (142,497    $ (4,393    $ (146,890
  

 

 

    

 

 

    

 

 

 

The presentation of components of accumulated other comprehensive income and changes therein with respect to cumulative foreign currency translation losses previously presented a tax effect as well as the gross amounts before tax. The Company intends (and it intended in all previous periods) to reinvest any earnings of foreign subsidiaries indefinitely. Accordingly, the Company corrected amounts presented for prior periods by eliminating the gross amounts before income tax and the income tax amounts, with no change to the net cumulative foreign currency losses presented in accumulated other comprehensive income and changes therein.

 

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The effects on net loss of amounts reclassified out of each component of AOCI are summarized as follows:

 

          Three months ended October 31,     Nine months ended October 31,  
          2015     2014     2015     2014  

Details about AOCI components

   Affected line item on the
consolidated statements of
operations
   Amount
reclassified from
AOCI
    Amount
reclassified from
AOCI
    Amount
reclassified from
AOCI
    Amount
reclassified from
AOCI
 

Defined benefit plans:

           

Amortization of net actuarial gain

   Staff costs    $ 73      $ 43      $ 223      $ 131   

Amortization of net transition obligation

   Staff costs      —          —          —          —     

Amortization of prior service benefit

   Staff costs      (4     4        (12     13   

Foreign currency translation

   Staff costs      181        251        308        167   
     

 

 

   

 

 

   

 

 

   

 

 

 
   Pretax income      250        298        519        311   
   Benefit for income taxes      (60     (74     (136     (77
     

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassification for the period

   Net income    $ 190      $ 224      $ 383      $ 234   
     

 

 

   

 

 

   

 

 

   

 

 

 

Convertible Preference Shares. On March 4, 2014, the Company issued to an affiliate of its largest shareholder, P2 Capital, $175,000 of its Convertible Preference Shares. Included in temporary equity as of October 31, 2015, is $191,978, reflecting the issuance of $175,000, net of allocated issuance costs of $4,497, and the subsequent accrual of the dividends paid-in kind of $21,475. As of October 31, 2015, the total liquidation preference of the Convertible Preference Shares was $196,475. Dividends will continue to accrue until the Merger occurs. Pursuant to the terms of the Merger Agreement, upon consummation of the Merger, each issued and outstanding Convertible Preference Share will become the right receive $1,125.71 per share in cash, without interest, regardless of when the Merger is completed. The Convertible Preference Shares rank senior to the Company’s ordinary shares with respect to dividend rights and rights upon the Company’s liquidation, winding-up and dissolution. The Company expects that dividends on the Convertible Preference Shares will be paid in kind quarterly. Such dividends started to accrue on June 1, 2014 and will continue until March 1, 2017 or the earlier conversion of the Convertible Preference Shares. The dividend rate is 7.0% for paid-in-kind dividends and 8% for cash dividends paid in the limited circumstances provided by the terms of the Convertible Preference Shares. The Convertible Preference Shares became convertible at any time at the holder’s option into the Company’s ordinary shares (or a combination of ordinary shares and cash in certain circumstances) as of September 5, 2014 based on an initial conversion price of $13.8671. The Company may, at its option, cause a mandatory conversion of the Convertible Preference Shares if the Company’s ordinary shares equal or exceed a certain closing price threshold over a specified trading period at any time following March 1, 2017. In addition, if certain specified fundamental changes occur prior to March 1, 2017, the holders of the Convertible Preference Shares will have the right to convert their Convertible Preferred Shares and be entitled to a fundamental change dividend make-whole amount. Until March 1, 2017, the holders of the Convertible Preference Shares have pre-emptive rights with respect to certain of the company’s equity securities for so long as they own a number of Convertible Preference Shares convertible into at least 6,309,896 ordinary shares.

 

- 13 -


Table of Contents

NOTE 5. Segment Reporting

Certain information regarding the Company’s operations by segment is summarized as follows:

 

     Three months ended October 31, 2015  
     Freight
Forwarding
     Contract
Logistics and
Distribution
     Corporate      Total  

Revenues

   $ 536,018       $ 348,693       $ —         $ 884,711   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs

     407,072         149,448         —           556,520   

Staff costs

     88,565         101,951         8,655         199,171   

Depreciation

     3,152         7,185         1,947         12,284   

Amortization of intangible assets

     6,564         732         —           7,296   

Other operating expenses

     40,786         73,768         6,687         121,241   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     546,139         333,084         17,289         896,512   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss)/income

   $ (10,121    $ 15,609       $ (17,289      (11,801
  

 

 

    

 

 

    

 

 

    

Interest income

              2,212   

Interest expense

              (13,543

Other expense, net

              (1,712
           

 

 

 

Pretax loss

              (24,844

Provision for income taxes

              7,184   
           

 

 

 

Net loss

              (32,028

Net income attributable to non-controlling interests

              677   
           

 

 

 

Net loss attributable to UTi Worldwide Inc.

            $ (32,705
           

 

 

 

Capital expenditures for property, plant and equipment

   $ 2,347       $ 7,136       $ 70       $ 9,553   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures for internally developed software

   $ —         $ 257       $ 1,814       $ 2,071   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment assets

   $ 1,030,598       $ 587,808       $ 215,589       $ 1,833,995   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 14 -


Table of Contents
     Three months ended October 31, 2014  
     Freight
Forwarding
     Contract
Logistics and
Distribution
     Corporate      Total  

Revenues

   $ 689,807       $ 387,372       $ —         $ 1,077,179   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs

     521,509         173,319         —           694,828   

Staff costs

     104,892         104,842         9,371         219,105   

Depreciation

     4,245         8,546         1,416         14,207   

Amortization of intangible assets

     6,472         926         —           7,398   

Severance and other

     22,139         1,318         217         23,674   

Other operating expenses

     47,841         82,076         9,925         139,842   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     707,098         371,027         20,929         1,099,054   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss)/income

   $ (17,291    $ 16,345       $ (20,929      (21,875
  

 

 

    

 

 

    

 

 

    

Interest income

              6,332   

Interest expense

              (16,888

Other expense, net

              (205
           

 

 

 

Pretax loss

              (32,636

Provision for income taxes

              2,321   
           

 

 

 

Net loss

              (34,957

Net loss attributable to non-controlling interests

              (1,271
           

 

 

 

Net loss attributable to UTi Worldwide Inc.

            $ (33,686
           

 

 

 

Capital expenditures for property, plant and equipment

   $ 4,960       $ 7,695       $ 75       $ 12,730   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures for internally developed software

   $ —         $ 497       $ 2,780       $ 3,277   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment assets

   $ 1,284,987       $ 640,671       $ 247,962       $ 2,173,620   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 15 -


Table of Contents
     Nine months ended October 31, 2015  
     Freight
Forwarding
     Contract
Logistics and
Distribution
     Corporate      Total  

Revenues

   $ 1,723,616       $ 1,048,340       $ —         $ 2,771,956   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs

     1,316,575         459,189         —           1,775,764   

Staff costs

     277,057         304,317         24,537         605,911   

Depreciation

     10,975         22,503         4,731         38,209   

Amortization of intangible assets

     19,851         2,296         —           22,147   

Severance and other

     2,897         2,296         290         5,483   

Goodwill impairment

     50,000         —           —           50,000   

Other operating expenses

     127,377         216,684         22,255         366,316   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     1,804,732         1,007,285         51,813         2,863,830   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss)/income

   $ (81,116    $ 41,055       $ (51,813      (91,874
  

 

 

    

 

 

    

 

 

    

Interest income

              9,262   

Interest expense

              (42,729

Other expense, net

              (1,716
           

 

 

 

Pretax loss

              (127,057

Provision for income taxes

              10,981   
           

 

 

 

Net loss

              (138,038

Net loss attributable to non-controlling interests

              (1,313
           

 

 

 

Net loss attributable to UTi Worldwide Inc.

            $ (136,725
           

 

 

 

Capital expenditures for property, plant and equipment

   $ 10,175       $ 16,590       $ 342       $ 27,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures for internally developed software

   $ —         $ 607       $ 6,688       $ 7,295   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment assets

   $ 1,030,598       $ 587,808       $ 215,589       $ 1,833,995   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 16 -


Table of Contents
     Nine months ended October 31, 2014  
     Freight
Forwarding
     Contract
Logistics and
Distribution
     Corporate      Total  

Revenues

   $ 2,085,719       $ 1,129,493       $ —         $ 3,215,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs

     1,569,685         500,102         —           2,069,787   

Staff costs

     326,082         310,804         27,364         664,250   

Depreciation

     13,071         24,890         4,274         42,235   

Amortization of intangible assets

     18,586         2,831         —           21,417   

Severance and other

     23,650         1,578         737         25,965   

Other operating expenses

     144,418         243,677         27,649         415,744   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     2,095,492         1,083,882         60,024         3,239,398   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating (loss)/income

   $ (9,773    $ 45,611       $ (60,024      (24,186
  

 

 

    

 

 

    

 

 

    

Interest income

              17,624   

Interest expense

              (46,843

Loss on debt extinguishment

              (21,820

Other expense, net

              (1,202
           

 

 

 

Pretax loss

              (76,427

Provision for income taxes

              21,055   
           

 

 

 

Net loss

              (97,482

Net income attributable to non-controlling interests

              1,855   
           

 

 

 

Net loss attributable to UTi Worldwide Inc.

            $ (99,337
           

 

 

 

Capital expenditures for property, plant and equipment

   $ 12,563       $ 18,239       $ 81       $ 30,883   
  

 

 

    

 

 

    

 

 

    

 

 

 

Capital expenditures for internally developed software

   $ —         $ 1,123       $ 6,970       $ 8,093   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment assets

   $ 1,284,987       $ 640,671       $ 247,962       $ 2,173,620   
  

 

 

    

 

 

    

 

 

    

 

 

 

For reporting purposes by segment, 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 long-lived assets attributable to specific countries:

 

     October 31, 2015      January 31, 2015  

South Africa

   $ 59,390       $ 73,972   

United States

     49,391         50,700   

China

     13,574         14,758   

Israel

     3,538         3,765   

Spain

     3,535         4,518   

Germany

     1,672         1,961   

All others

     36,560         45,849   
  

 

 

    

 

 

 

Total

   $ 167,660       $ 195,523   
  

 

 

    

 

 

 

 

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The following table shows revenues attributable to specific countries:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

United States

   $ 270,635       $ 296,047       $ 819,063       $ 881,749   

South Africa

     122,847         151,970         372,527         462,359   

China

     95,037         129,662         309,780         361,444   

Israel

     34,507         38,466         107,863         118,300   

Germany

     35,616         44,099         107,729         134,016   

Spain

     24,508         23,928         76,695         81,649   

All others

     301,561         393,007         978,299         1,175,695   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 884,711       $ 1,077,179       $ 2,771,956       $ 3,215,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table shows revenues and purchased transportation costs attributable to the Company’s principal services:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Revenues:

           

Airfreight forwarding

   $ 243,162       $ 319,057       $ 790,255       $ 957,407   

Ocean freight forwarding

     208,145         264,265         680,621         809,758   

Customs brokerage

     41,914         55,854         130,239         162,680   

Contract logistics

     189,834         199,142         559,637         583,832   

Distribution

     144,949         163,504         436,523         467,261   

Other

     56,707         75,357         174,681         234,274   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 884,711       $ 1,077,179       $ 2,771,956       $ 3,215,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs:

           

Airfreight forwarding

   $ 189,454       $ 248,554       $ 614,120       $ 739,841   

Ocean freight forwarding

     181,553         216,283         587,799         675,155   

Customs brokerage

     11,144         9,965         36,639         32,912   

Contract logistics

     49,841         50,436         145,298         142,498   

Distribution

     99,795         114,436         304,808         328,871   

Other

     24,733         55,154         87,100         150,510   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 556,520       $ 694,828       $ 1,775,764       $ 2,069,787   
  

 

 

    

 

 

    

 

 

    

 

 

 

NOTE 6. Goodwill and Other Intangible Assets

Goodwill. The changes in the carrying amount of goodwill by reportable segment are as follows:

 

     Freight
Forwarding
     Contract
Logistics and
Distribution
     Total  

Balance at January 31, 2015

   $ 155,107       $ 127,465       $ 282,572   

Goodwill impairment

     (50,000      —           (50,000

Foreign currency translation adjustment

     (5,865      (7,067      (12,932
  

 

 

    

 

 

    

 

 

 

Balance at October 31, 2015

   $ 99,242       $ 120,398       $ 219,640   
  

 

 

    

 

 

    

 

 

 

 

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In accordance with ASC 350, Intangibles – Goodwill and Other, the Company reviews goodwill and other indefinite-lived 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.

The evaluation of goodwill impairment includes several assumptions and estimates. Among the estimates, the Company uses a discounted cash flow model which involves calculating the fair value of a reporting unit based on the present value of the estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions and the uncertainty related to the ability to achieve the projected cash flows. The discount rate used in the evaluation is based on the weighted-average cost of capital, plus adjustments for several factors, one of which includes the Company’s assessment of the relevant risk associated with the expected growth rates for revenue and profitability of the individual reporting units. The inputs used to determine fair value of the reporting units are classified by the Company as Level 3 (meaning the data largely reflects the Company’s own assumptions).

The July 31, 2015 goodwill impairment test (July 31, 2015 Test) was performed in August 2015. During the performance of the July 31, 2015 Test, management took into consideration factors which occurred in August 2015, subsequent to the July 31, 2015 measurement date but before the test was completed, which constituted evidence of a condition that existed as of the measurement date. Such factors included indicators of slowing global economic growth and the performance of the Company’s stock price during August 2015. Based on the results of the July 31, 2015 Test, the carrying value of the assets within the Company’s Freight Forwarding reporting unit (which is also the reportable segment), exceeded its fair value. Accordingly, the Company recorded a goodwill impairment charge of $50,000, before a related tax benefit of $9,000. After recording the impairment charge, the carrying value of the Company’s Freight Forwarding reporting unit approximated its fair value. The fair values of each of the Company’s other reporting units exceeded their carrying values by greater than 10%. The Company finalized the second step of the goodwill impairment test during the third quarter of fiscal 2016 and no additional adjustments were recorded.

The Company’s accumulated goodwill impairment charges since its adoption of ASC 350 is $243,502, of which $50,000 and $193,502 is included in the Company’s Freight Forwarding and Contract Logistics and Distribution segments, respectively.

Other Intangible Assets. Amortizable intangible assets at October 31, 2015 and January 31, 2015 relate primarily to software applications internally-developed by the Company for internal use and the estimated fair values of client relationships acquired with respect to certain acquisitions. The carrying values of amortizable intangible assets at October 31, 2015 and January 31, 2015 were as follows:

 

     Gross carrying
value
     Accumulated
amortization
     Net carrying
value
     Weighted
average life
(years)
 

Balance at October 31, 2015

           

Internally-developed software

   $ 177,939       $ (54,558    $ 123,381         6.8   

Client relationships

     73,587         (66,045      7,542         8.8   

Non-compete agreements

     150         (86      64         4.6   

Other

     3,308         (3,308      —           3.7   
  

 

 

    

 

 

    

 

 

    

Total

   $ 254,984       $ (123,997    $ 130,987      
  

 

 

    

 

 

    

 

 

    

Balance at January 31, 2015

           

Internally-developed software

   $ 171,307       $ (37,495    $ 133,812         6.8   

Client relationships

     74,186         (61,965      12,221         8.8   

Non-compete agreements

     150         (63      87         4.6   

Other

     3,442         (3,442      —           3.8   
  

 

 

    

 

 

    

 

 

    

Total

   $ 249,085       $ (102,965    $ 146,120      
  

 

 

    

 

 

    

 

 

    

 

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The following table shows the expected amortization expense for these intangible assets for each of the next five fiscal years and thereafter ended January 31:

 

2015 (remainder)

   $ 7,455   

2016

     29,477   

2017

     26,094   

2018

     24,025   

2019

     24,017   

2020 and thereafter

     19,919   

The Company had $891 and $898 of intangible assets not subject to amortization at October 31, 2015 and January 31, 2015, 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:

 

     Nine months ended October 31,  
     2015      2014  

Net cash paid for:

     

Interest

   $ 29,385       $ 37,692   

Make-whole payment

     —           20,830   

Income taxes

     10,695         23,519   

Withholding taxes

     721         —     

Non-cash activities:

     

Capital leases and other obligations to acquire assets

     9,790         9,890   

Net change to other obligations incurred to internally-developed software

     (1,130      (1,752

2019 Notes original issuance discount

     —           47,690   

Dividends in-kind on Convertible Preference Shares payable in arrears

     10,020         8,229   

Limitations on dividends. UTi is a holding company that relies on dividends, distributions and advances from its subsidiaries to pay dividends on its ordinary shares and meet its financial obligations. The ability of UTi’s subsidiaries to pay such amounts and UTi’s ability to pay dividends and distributions to its shareholders are subject to restrictions including, but not limited to, applicable local laws and limitations contained in the Company’s bank credit facilities and long-term borrowings. Additionally, in general, UTi’s subsidiaries cannot pay dividends in excess of their retained earnings. Such laws, restrictions, and effects could limit or impede intercompany dividends and distributions, or the making of intercompany advances.

Exchange control laws and regulations. Some of the Company’s subsidiaries may be subject from time to time to exchange control laws and regulations that may limit or restrict the payment of dividends or distributions or other transfers of funds by those subsidiaries to UTi. Total net assets which may not be transferred to UTi in the form of loans, advances, or cash dividends by the Company’s subsidiaries without the consent of a third party were less than 11% of the Company’s 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 material loss contingencies relating to the investigations and legal proceedings disclosed below because the Company believes that, although unfavorable outcomes in the investigations or proceedings may be reasonably possible, they are not considered by the Company’s management to be probable and reasonably estimable.

 

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From time to time, claims are made against the Company or the Company may make claims against others, including in the ordinary course of the Company’s 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 the Company from engaging in certain activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on the Company’s consolidated results of operations for that period or future periods. As of the date of these consolidated financial statements, the Company is not a party to any material litigation, except as described below.

Industry-Wide Anti-Trust Investigations. On March 28, 2012, the Company was notified by the European Commission (EC) that it had adopted a decision against the Company and two of its subsidiaries relating to alleged anti-competitive behavior in the market for freight forwarding services in the European Union/European Economic Area. The decision of the EC imposes a fine of euro 3,068 (or approximately $3,375 at October 31, 2015) against the Company. The Company believes that neither the Company nor its subsidiaries violated European competition rules. In June 2012, the Company lodged an appeal against the decision and the amount of the fine before the European Union’s General Court and oral arguments before the EU’s General Court in Luxembourg were heard in October 2014.

In May 2009, the Company 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, the Company 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 responded to this proceeding in May 2014. The Company filed a supplemental response in support of its defense in September 2014 after the Company was granted access to various documents seized by the Brazilian antitrust authority during raids of several other forwarders.

From time to time the Company may receive additional requests for information, documents and interviews from various governmental agencies with respect to these investigations, and the Company has provided, and may continue to provide in the future, further responses as a result of such requests.

The Company has incurred, and may in the future incur, significant legal fees and other costs in connection with these governmental investigations and lawsuits. If any regulatory body concludes that the Company or any of its subsidiaries have engaged in anti-competitive behavior, the Company could incur significant additional legal fees and other costs and penalties, which could include substantial fines, penalties and/or criminal sanctions against the Company and/or certain of the Company’s current or former officers, directors and employees, and the Company could be liable for damages. Any of these fees, costs, penalties, damages, sanctions or liabilities could have a material adverse effect on the Company and its financial results. As of the date of this filing, except for the decision and fine imposed by the EC, an estimate of any possible loss or range of loss cannot be made. In the case of the decision and fine imposed by the EC, the possible loss ranges from no loss, in the event of a successful appeal by the Company, to the full amount of the fine.

Matters Related to the Fiscal 2015 Financing. On March 17, 2014, a putative securities class action lawsuit was filed against the Company and certain of its executives in the United States District Court for the Central District of California. As amended, the complaint, which is captioned Michael J. Angley, individually and on behalf of himself and all others similarly situated v. UTi Worldwide Inc., Eric W. Kirchner, Richard G. Rodick, Edward G. Feitzinger and Jeffrey W. Misakian, No. 2:14-cv-02066, generally alleged that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by misstating or failing to disclose, in certain public statements made and in filings with the SEC between March 28, 2013 and February 26, 2014, material facts relating to the Company’s liquidity position, financial condition, financial covenants, financial systems and freight forwarding operating system. On November 12, 2015, the Court in this matter granted Defendants’ motion to dismiss and Plaintiff’s Second Amended Class Action Complaint was dismissed with prejudice.

 

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In July 2014, the Company received a subpoena from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the Fiscal 2015 Refinancing. In September 2014, the Company received a similar subpoena directed to the members of the Audit Committee of the Board of Directors. In April 2015, the Company received a subpoena from the SEC requesting certain documents related to the material weakness in internal control over financial reporting and the revisions to prior period financial statements that were disclosed in the Company’s Form 10-K for the period ending January 31, 2015. The Company has been cooperating and intends to continue to cooperate with the SEC in connection with its investigation.

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 employee’s final average salary on attainment of qualifying retirement age.

Net periodic benefit cost for the Company’s defined benefit plans consists of:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Service cost

   $ 586       $ 479       $ 1,762       $ 1,477   

Interest cost

     332         454         1,022         1,392   

Expected return on plan assets

     (568      (435      (1,724      (1,333

Amortization of net actuarial loss

     69         48         211         145   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 419       $ 546       $ 1,271       $ 1,681   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company contributed approximately $365 and $548, respectively, to its defined benefit plans for the three months ended October 31, 2015 and 2014. The Company contributed approximately $1,469 and $1,677, respectively, to its defined benefit plans for the nine months ended October 31, 2015 and 2014.

NOTE 10. Share-Based Compensation

On June 8, 2015, the Company’s shareholders approved the 2015 Long Term Incentive Plan (2015 LTIP). The plan provides for the issuance of a variety of awards, including stock options, share appreciation rights (sometimes referred to as SAR), restricted shares, restricted share units (RSU), unrestricted share units, deferred share units and performance share units (PSU). Officers, directors, employees, consultants and others are eligible to receive awards under the 2015 LTIP. A total of 6,000,000 shares were originally reserved for issuance under the 2015 LTIP, subject to increases and adjustments as provided for in the plan.

In addition to the 2015 LTIP, at October 31, 2015, the Company had share-based compensation awards outstanding under the following plans: the 2009 Long Term Incentive Plan (2009 LTIP), the 2004 Long Term Incentive Plan (2004 LTIP) and the 2000 Employee Share Purchase Plan (2000 ESPP). The Company generally grants stock awards during the first quarter of each fiscal year. Vesting of awards may occur over different periods, depending on the terms of the individual awards. PSUs will vest upon achievement of certain performance objectives at the end of the vesting period. Depending on the performance objectives achieved, each PSU may have a vesting rate up to 200% of target.

Since the adoption of the 2015 LTIP, no additional awards may be made pursuant to the 2009 LTIP or 2004 LTIP.

Under the 2000 ESPP, eligible employees may purchase shares of the Company’s stock at the end of an offering period through payroll deductions in an amount not to exceed 10% of an employee’s annual base compensation subject to an annual maximum of $25.

 

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Table of Contents
     Restricted Share Units  

2015 LTIP:

   Restricted
Share Units
     Weighted
Average
Grant Date
Fair Value
 

Balance at February 1, 2015

     —          $ —     

Granted

     489,856       $ 9.89   

Exercised / vested

     —          $ —     

Cancelled / forfeited

     (8,052    $ 10.16   
  

 

 

    

 

 

 

Balance at October 31, 2015

     481,804       $ 9.89   
  

 

 

    

 

 

 

 

     Stock Options      Performance Share Units      Restricted Share Units  
           Weighted            Weighted            Weighted  
     Shares     Average            Average            Average  
     Subject to     Exercise      Performance     Grant Date      Restricted     Grant Date  

2009 LTIP:

   Stock Options     Price      Share Units     Fair Value      Share Units     Fair Value  

Balance at February 1, 2015

     636,996      $ 16.33         143,812      $ 10.04         2,575,494      $ 12.78   

Granted

     —        $ —           408,856      $ 9.41         512,789      $ 9.41   

Exercised/vested

     —        $ —           —        $ —           (584,220   $ 14.13   

Cancelled/forfeited

     (378,729   $ 16.41         (92,568   $ 10.02         (682,471   $ 12.45   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance at October 31, 2015

     258,267      $ 16.21         460,100      $ 9.48         1,821,592      $ 11.52   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

     Stock Options  

2004 LTIP:

   Shares
Subject to
Stock
Options
     Weighted
Average
Exercise
Price
 

Balance at February 1, 2015

     788,031       $ 21.65   

Granted

     —          $ —     

Exercised/vested

     —          $ —     

Cancelled/forfeited

     (561,706    $ 19.86   
  

 

 

    

 

 

 

Balance at October 31, 2015

     226,325       $ 26.09   
  

 

 

    

 

 

 

 

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Table of Contents
     Restricted Share Units  

2004 Directors Incentive Plan:

   Restricted
Share Units
     Weighted
Average
Grant Date
Fair Value
 

Balance at February 1, 2015

     54,270       $ 9.95   

Granted

     —         $ —     

Vested

     (54,270    $ 9.95   

Cancelled

     —         $ —     
  

 

 

    

 

 

 

Balance at October 31, 2015

     —         $ —     
  

 

 

    

 

 

 

 

* This table excludes 11,893 shares which are subject to one director’s right to defer receipt of such shares pursuant to the 2004 Directors Incentive Plan.

In connection with its share-based compensation plans, the Company recorded approximately $2,700 and $3,438 of share-based compensation expense for the three months ended October 31, 2015 and 2014, respectively, and approximately $7,159 and $10,365 of share-based compensation expense for the nine months ended October 31, 2015 and 2014, respectively.

As of October 31, 2015, the Company had approximately $19,215 of unvested share-based compensation granted under all of the Company’s share-based compensation plans, which amounts will be expensed in full through April 2020.

NOTE 11. Borrowings

Bank Lines of Credit. The Company utilizes a number of financial institutions to provide it with borrowings and letters of credit, guarantee and working capital facilities. Certain of these credit facilities are used for working capital, for issuing letters of credit to support the working capital and operational needs of various subsidiaries, to support various customs bonds and guarantees, and for general corporate purposes. In other cases, customs bonds and guarantees are issued directly by various financial institutions. In some cases, the use of a particular credit facility is restricted to the country in which it originates. These particular credit facilities may restrict distributions by the subsidiary operating in such country.

Fiscal 2015 Refinancing. In March 2014, the Company completed a number of actions to address certain liquidity and covenant challenges (which actions are collectively referred to herein as the Fiscal 2015 Refinancing). These actions included, but were not limited to:

 

    The completion of a private offering of its $400,000 principal amount of convertible senior notes due 2019 (which we refer to as the 2019 Notes).

 

    The completion of a private offering of its Convertible Preference Shares to an affiliate of the Company’s largest shareholder, P2 Capital, in the aggregate principal amount of $175,000.

 

    Certain of the Company’s U.S. and Canadian subsidiaries entered into a credit agreement with Citibank, N.A., Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc. and Bank of the West for a new senior secured asset-based revolving credit facility (CitiBank Credit Facility) that provides commitments of up to $150,000.

 

    The Company (i) repaid all of the $200,000 aggregate principal amount of our private placement notes issued on January 25, 2013 (2013 Notes) and paid to the holders thereof a make-whole payment with respect to such prepayment in the amount of $20,830, (ii) refinanced indebtedness which was then outstanding under certain of our previously outstanding credit facilities and the Company terminated those credit facilities, and (iii) in connection with the termination of certain facilities, provided cash collateral of $34,104 for outstanding letters of credit and bank guarantees thereunder as of October 31, 2015.

 

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Loss on debt extinguishment for the nine months ended October 31, 2014, includes the make-whole payment of $20,830 paid to the holders of the 2013 Notes and a charge of $990 related to the acceleration of unamortized debt issuance costs related to the 2013 Notes and facilities extinguished as part of the Fiscal 2015 Refinancing.

The following table presents information about the Company’s borrowings under various bank lines of credit, letters of credit and other bank credit facilities as of October 31, 2015 (the table is in thousands). The table below does not include the Company’s outstanding indebtedness owed under its other short-term borrowings and its long-term borrowings. See “Other Short-Term Borrowings” and “Long-Term Borrowings” for additional information regarding such other indebtedness.

Bank Lines of Credit and Letters of Credit Facilities

 

     CitiBank
Credit
Facility(1)
     South
African
Facilities
Agreement(2)
     Other
Facilities(3)
     Total  

Credit facility limit

   $ 132,224       $ 49,126       $ 150,864       $ 332,214   
  

 

 

    

 

 

    

 

 

    

 

 

 

Facility usage for cash withdrawals(4)

     98,000         5,116         28,062         131,178   

Letters of credit and guarantees outstanding

     13,635         19,913         80,595         114,143   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total facility/usage

   $ 111,635       $ 25,029       $ 108,657       $ 245,321   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available, unused capacity

   $ 20,589       $ 24,097       $ 42,207       $ 86,893   

Available for cash withdrawals

   $ 20,589       $ 22,337       $ 37,177       $ 80,103   

 

(1) The CitiBank Credit Facility was entered into in March 2014 in connection with the Fiscal 2015 Refinancing. The amount of cash withdrawals available under the CitiBank Credit Facility is limited to the lesser of (i) $150,000 or (ii) (a) the borrowing base calculation for the period less (b) letters of credit or guarantees outstanding less (c) outstanding cash withdrawals and reimbursement obligations. The average outstanding cash borrowings during the nine months ended October 31, 2015 was $86,243 As of the date of the filing of this Form 10-Q, the credit facility limit was $126,085, the outstanding cash borrowings was $93,000 and the letters of credit and guarantees outstanding remained $13,635.
(2)  In September 2014 the Company amended and restated its credit facility for its operations in South Africa (South African Facilities Agreement), which currently provides for both: (i) a 680,000 ZAR revolving credit facility, which is comprised of a ZAR 380,000 working capital facility and a ZAR 300,000 letter of credit, guarantee, forward exchange contract and derivative instrument facility, and (ii) a ZAR 150,000 revolving asset-based finance facility, which consists of a capital lease line. Excluded from the table are amounts outstanding under the ZAR 150,000 revolving asset-based finance facility, which amounts are included under capital lease obligations on the Company’s consolidated balance sheet. The maturity date of this facility is July 9, 2016. Total facility usage on the South African Facilities Agreement is presented net of cash and cash equivalents of $45,818 and $74,272 for the period ended October 31, 2015 and January 31, 2015, respectively.
(3) Certain bank letters of credit and guarantees outstanding in this column are collateralized by the Company’s cash held as collateral. As of October 31, 2015, $34,104 of such cash collateral was outstanding and the usage of such cash is restricted pursuant to the applicable agreement.
(4) Amounts in this row reflect letters of credit and bank guarantees supporting outstanding cash borrowings by the Company’s subsidiaries.

CitiBank Credit Facility. In March 2014 the Company and certain of its U.S. and Canadian subsidiaries entered into the CitiBank Credit Facility, which facility is guaranteed by the Company and certain of its subsidiaries. The CitiBank Credit Facility provides up to $150,000 of commitments for a senior secured asset-based revolving line of credit, including a $20,000 sublimit for swingline loans, a $50,000 sublimit for the issuance of standby letters of credit and a $20,000 sublimit for loans in Canadian dollars. The maximum amount the Company is permitted to borrow under the

 

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CitiBank Credit Facility is subject to a borrowing base calculated by reference to its accounts receivable in the U.S. and Canada and certain eligibility criteria with respect to such receivables and other borrowing limitations. Amounts borrowed under the CitiBank Credit Facility bear interest (1) at a rate based on the London Interbank Offered Rate, or LIBOR, or the Canadian equivalent, plus a margin ranging from 2.00% to 2.50%, or (2) a rate based on the higher of (a) the base prime rate offered by CitiBank, (b) 1.00% plus the one-month LIBOR rate or (c) 0.50% plus the federal funds rate or in each case, the Canadian equivalent, plus a margin ranging from 1.00% to 1.50%. The CitiBank Credit Facility will terminate in March 2019, unless the 2019 Notes are not redeemed, refinanced or converted prior to September 2018, in which case the CitiBank Credit Facility will terminate in September 2018.

The CitiBank Credit Facility is secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on, and perfected security interest in substantially all of the Company’s U.S. and Canadian assets, including accounts receivable and a pledge of the equity in its U.S. and Canadian holding and operating companies. In addition, the CitiBank Credit Facility requires that the Company maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 if available credit under the CitiBank Facility is less than the greater of (i) 10% of the maximum credit thereunder and (ii) $15,000. The CitiBank Credit Facility contains customary representations and warranties and customary events of default, payment of customary fees and expenses, as well as certain affirmative and negative covenants, including restrictions on: indebtedness; liens; mergers, consolidations and acquisitions; sales of assets; engaging in business other than its current business; investments; dividends; redemptions and distributions; affiliate transactions; and other restrictions.

South African Facilities Agreement. The obligations of the Company’s subsidiaries subject to the South African Facilities Agreement are guaranteed by selected subsidiaries registered in South Africa. In addition, certain of the Company’s operating assets in South Africa, and the rights and interests of the South African branch of one of its 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. The South African Facilities Agreement terminates in July 2016.

The South African Facilities Agreement contains events of default and covenants, including, but not limited to, financial covenants, restrictions on certain types of activities and transactions, reporting covenants, cross defaults to other indebtedness and other terms, events of default and covenants typical of credit facilities. The South African Facilities Agreement also provides for an uncommitted seasonal customs facility which may be made available to the South African obligors at a later date if requested by the South African obligors. In addition, the South African Facilities Agreement provides the South African obligors with an option to request that Nedbank increase its commitments under the revolving credit facility and the revolving asset-based finance facility in an aggregate amount up to ZAR 400,000, subject to the approval of Nedbank and the satisfaction of certain conditions precedent. In May 2015, the South African Facilities Agreement was amended to exclude from the calculation of the Interest Cover Ratio covenant for the measurement period ending on October 31, 2015 the amount of ZAR 280,000 which relates to a previously disclosed impairment relating to an unpaid receivable owed by a client in South Africa that has entered into the South African equivalent of bankruptcy.

Other Additional Bank Facilities. In addition to the credit, letters of credit, and guarantee facilities provided under the CitiBank Credit Facility and the South African Facilities Agreement, the Company utilizes a number of banks and other financial institutions to provide the Company and its subsidiaries with additional credit, letters of credit and guarantee facilities. In some cases, the use of these particular letters of credits, guarantee and credit facilities may be restricted to the country in which they originated and may restrict distributions by the subsidiary operating in the country.

Other Limitations and Covenants. The CitiBank Credit Facility, the South African Facilities Agreement, and certain of the Company’s other credit, letters of credit and guarantee facilities also contain other limitations on the payment by the Company and/or by its various subsidiaries of dividends, distributions and share repurchases. In addition, if a “change in control” (as defined in the various agreements and facilities) should occur, then the outstanding indebtedness thereunder may become due and payable. Should the Company fail to comply with the covenants in the CitiBank Credit Facility, the South African Facilities Agreement, or certain of its other credit, letters of credit or other facilities, the Company would be required to seek to amend the covenants or to seek a waiver of such non-compliance as the Company was required to do in the past. If the Company is unable to obtain any necessary amendments or waivers, all or a portion

 

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of the indebtedness and obligations under its various agreements and facilities could become immediately due and payable and the various agreements and facilities could be terminated and the credit, letters of credit and guarantee facilities provided thereunder would no longer be available to the Company. Furthermore, the CitiBank Credit Facility, the South African Facilities Agreement, and certain of the Company’s other credit and debt facilities contain cross-default provisions with respect to other indebtedness, giving the lenders under such agreements and facilities the right to declare a default if the Company defaults under other indebtedness in certain circumstances. The Company believes it was in compliance with the covenants contained in the Citibank Credit Facility, the South African Facilities Agreement, and its other credit, letters of credit, and debt facilities as of October 31, 2015.

Other Short-term Borrowings. In addition to the Company’s lines of credit and letters of credit facilities from banks and other financial institutions, the Company also has a number of additional short-term borrowings issued by various parties not covered under the bank lines of credit described above. The total of such additional borrowings was $48,515 and $52,825, respectively, at October 31, 2015 and January 31, 2015.

In December 2014, the Company entered into a Parent Customer Agreement (Customer Agreement) with Greensill Capital (UK) Limited (Greensill) and a Re-invoicing Service Agreement (Re-invoicing Agreement) with Bramid Outsource Limited (an affiliate of Greensill and the Re-Invoicing Agent). The Service Agreement and the Re-invoicing Agreement are referred to herein collectively as the Greensill Financing Agreements. Pursuant to the Greensill Financing Agreements, the Company can submit written requests to the Re-Invoicing Agent pursuant to which the Company may receive an advance of funds to pay such invoices or to reimburse itself if the relevant invoice has already been paid. Currently, the Company’s internal authorization for borrowings under the Greensill Financing Agreements is set at $105,000, although the Greensill Financing Agreements do not contain a commitment by Greensill to make any additional advances to the Company. Greensill may elect, but has no obligation, to advance any funds to the Company as Greensill retains the right to evaluate each request submitted by the Company and may establish the terms of each advance (assuming an advance will be made) at the time a request is submitted. If the Re-Invoicing Agent and Greensill choose to enter into a transaction, the Re-Invoicing Agent shall charge the Company a fee based on an annual rate of Libor plus 9.5%. If any amount is not paid on the maturity date, the advance will continue to accrue interest at LIBOR plus 9.5%. The principal portion of such advance and the fee are due on the maturity of such advance which may vary by agreement between the parties, although the advances currently outstanding under the Greensill Financing Agreements must be repaid on the six month anniversary of the initial advancement of funds. In the third quarter of fiscal 2016, approximately $22,000 of advances under the Greensill Financing Agreements were repaid and the Company obtained approximately $15,000 in new advances thereunder. As of October 31, 2015, the Company had a total of approximately $50,000 outstanding under the Greensill Financing Agreements. As of the date of the filing of this Form 10-Q, the following amounts relating to borrowings under the Greensill Financing Agreements are due and payable in cash: $10,000 is payable in January 2016, $15,000 is payable in April 2016, $17,500 is payable in May 2016 and $7,500 is payable in June 2016. No assurances can be given that the Company will be able to obtain additional advances in the future under the Greensill Financing Agreements and the Company may not be able to extend or refinance the outstanding debt on acceptable terms, or at all.

Events of default under the Greensill Financing Agreements include the failure to make a payment within five business days after the applicable due date, an insolvency event and the default by the Company on certain other indebtedness. Upon an event of default, all advances outstanding under the Greensill Financing Agreements become due and payable. The Greensill Financing Agreements terminate in December 2017, subject to earlier termination as provided for therein.

 

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Long-term Borrowings. The following table presents information about the Company’s indebtedness pursuant to its outstanding 2019 Notes and other long-term borrowings as of October 31, 2015:

 

     2019
Notes(1)
    Other
Facilities
    Total  

Maturity date

     March 1, 2019       

Original principal

   $ 400,000       

Original issuance discount for fair value of conversion feature net of accreted value as of October 31, 2015

   $ 33,780       

Interest rate per annum

     4.50     3.69  

Discount rate

     7.40    

Balance at October 31, 2015:

      

Current portion of long-term borrowings

     —          7,080        7,080   

Long-term borrowings, excluding current portion

     366,220        2,581        368,801   
  

 

 

   

 

 

   

 

 

 

Total

   $ 366,220      $ 9,661      $ 375,881   
  

 

 

   

 

 

   

 

 

 

 

(1) Amounts included in long-term borrowings as of the issuance date of the 2019 Notes, were initially reflected net of an initial discount of $47,690 reflecting the fair value of the conversion feature. The fair value of the conversion feature of the 2019 Notes has been bifurcated and presented in equity under common stock in the Company’s consolidated financial statements beginning in April 30, 2014. The amount included in long-term borrowings is accreting to the $400,000 redemption value using a discount rate of approximately 7.4%, which approximated the Company’s fair-value incremental borrowing rate for a similar debt instrument (without the conversion feature) as of the date of issuance.

2019 Notes. On March 4, 2014, the Company completed a private offering of its 4.50% Convertible Senior Notes due 2019 ( 2019 Notes) in the aggregate principal amount of $400,000, and entered into an indenture (Indenture) with Wells Fargo Bank, National Association, as trustee, in connection therewith. After deducting fees and expenses, the Company received net proceeds from the offering of the 2019 Notes of $386,100. The Indenture governs the 2019 Notes and contains terms and conditions customary for similar transactions, including customary events of default such as cross-defaults and other provisions. The 2019 Notes bear interest at an annual rate of 4.50% payable in cash semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2014. The 2019 Notes will be due and payable by the Company when they mature on March 1, 2019, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. The Company may not redeem the 2019 Notes at its option prior to maturity unless certain tax related events occur. In addition, the Indenture provides that if the Company undergoes certain types of “fundamental changes” prior to the maturity date of the 2019 Notes, each 2019 Note holder has the option to require the Company to repurchase all or any of such holder’s 2019 Notes for cash. Pursuant to the terms of the Indenture, the 2019 Notes will be convertible into the Company’s ordinary shares at a conversion rate of 68.9703 ordinary shares per $1,000 principal amount of 2019 Notes (equivalent to an initial conversion price of approximately $14.50 per ordinary share), subject to adjustment, upon the occurrence of certain events prior to the close of business on the business day immediately preceding September 1, 2018, and, on or after September 1, 2018, by a holder’s surrender for conversion of any of its 2019 Notes at any time prior to the close of the business day immediately preceding the maturity date. Upon a conversion of the 2019 Notes, in accordance with the Indenture the Company has the option, to pay or deliver, as the case may be, cash, its ordinary shares or a combination of cash and ordinary shares, at its election.

The balance of the 2019 Notes are reflected net of a discount of approximately $47,690 reflecting the fair value of the conversion feature. The fair value has been bifurcated and presented in equity under common stock in the Company’s consolidated financial statements beginning April 30, 2014.

NOTE 12. 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:

 

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    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 Company’s own assumptions, where there is little or no market activity for the asset or liability.

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2015 and January 31, 2015 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value:

 

            Fair Value Measurement at Reporting Date Using:  

Balance at October 31, 2015

   Total      Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Assets:

           

Cash and cash equivalents

   $ 264,871       $ 264,871       $ —         $ —     

Forward exchange contracts

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 264,871       $ 264,871       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Forward exchange contracts

   $ 113       $ —         $ 113       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 113       $ —         $ 113       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance at January 31, 2015

                           

Assets:

           

Cash and cash equivalents

   $ 211,832       $ 211,832       $ —         $ —     

Forward exchange contracts

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 211,832       $ 211,832       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

           

Forward exchange contracts

   $ 291       $ —         $ 291       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 291       $ —         $ 291       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Forward Exchange Contracts. The Company’s 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.

NOTE 13. 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 Company’s principal markets. The Company does not enter into derivative contracts for speculative purposes.

 

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The Company had contracted to sell the following amounts under forward exchange contracts with maturities within 60 days of October 31, 2015 and 2014:

 

     October 31,  
     2015      2014  

Euro

   $ 2,488       $ 3,142   

U.S. Dollars

     11,630         6,581   

British Pound Sterling

     478         570   

All others

     932         1,092   
  

 

 

    

 

 

 

Total

   $ 15,528       $ 11,385   
  

 

 

    

 

 

 

Changes in the fair value of forward exchange contracts are recorded within purchased transportation costs in the consolidated statements of operations.

The Company does not designate foreign currency derivatives as hedges. Foreign currency derivative assets and liabilities are included in trade receivables and payables, respectively. The Company had the following balances for foreign currency derivative assets and liabilities at October 31, 2015 and January 31, 2015:

 

     October 31, 2015      January 31, 2015  

Foreign currency derivative liabilities

   $ 113       $ 291   

Net gains and losses on foreign currency derivatives as of October 31, 2015 and 2014 are as follows:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Net gains

   $ 80       $         $ —         $     

Net losses

   $ —         $ 199       $ 113       $ 114   

NOTE 14. Severance and Other

The following table shows a summary of severance and other charges:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Employee severance costs

   $ —         $ 3,395       $ 3,453       $ 5,686   

Facility exit costs and other

     —           685         2,030         685   

Installment receivable impairment

     —           19,594         —           19,594   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 23,674       $ 5,483       $ 25,965   
  

 

 

    

 

 

    

 

 

    

 

 

 

Employee severance costs. On January 21, 2015, the Company committed to a plan to simplify its leadership structure and to shift management of its freight forwarding business from four geographic regions to a global leadership structure managing 16 discrete geographic areas. We refer to these actions collectively as the January 2015 Reorganization. In connection with these actions, the Company reduced several leadership positions and eliminated various regional infrastructures. Following the January 2015 Reorganization, the Company continues to have two lines of businesses, Freight Forwarding and Contract Logistics and Distribution. The activities related to the January 2015 Reorganization were substantially completed as of the end of the second quarter of fiscal 2016.

 

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Facility exit costs and other. Facility exit costs and other for the nine months ended October 31, 2015, includes $2,030 related to the impairment of certain assets of a consolidated joint venture in the Company’s Contract Logistics and Distribution segment. The charge was incurred in the second quarter of fiscal 2016 and was primarily related to an impairment charge related to fixed assets of $1,165. Also included in the charge were impairments to accounts receivable and prepaid assets of $565 and $300, respectively. Total accounts receivable and accounts payable related to the consolidated joint venture as of October 31, 2015 are $14,329 and $2,071, respectively. During the three and nine months ended October 31, 2014, the company incurred facility exit costs in connection with the closure of certain underutilized contract logistics facilities, in the Americas region.

Installment receivable impairment. During the third quarter of fiscal 2015, the Company incurred an impairment charge of $19,594 in connection with an impairment of the South African Installment Receivable Agreement and other receivables. The Company has filed an insurance claim of ZAR 180,500 ($13,040 as of October 31, 2015) under the terms of an insurance policy covering the installment receivable agreement and other receivables. As of the date of the filing of this Form 10-Q, the Company’s insurance provider has denied the claim and the Company is pursuing the matter in the courts in South Africa. In accordance with accounting standards, the Company has not recognized the effects of any future insurance recovery and the Company will recognize the effects of any insurance recovery only when the amounts are known.

Employee severance and other costs by segment are as follows:

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Freight Forwarding

   $ —         $ 22,139       $ 2,897       $ 23,650   

Contract Logistics and Distribution

     —           1,318         2,296         1,578   

Corporate

     —           217         290         737   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ —         $ 23,674       $ 5,483       $ 25,965   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

 

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Item 2. Management’s 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

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). All statements, other than statements of historical facts, included or incorporated by reference in this Annual Report which address activities, events or developments that the company expects or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as “may,” “will,” “should,” “could,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” “projects,” or “continue” and other similar expressions or the negative of these terms or other comparable terms. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, including some which are not under the control of the company, and that actual results may differ materially from those projected in the forward-looking statements. Factors that might cause or contribute to a material difference include, but are not limited to, those set forth under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 filed with the SEC (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of our Annual Report on Form 10-K), those discussed elsewhere in this Quarterly Report, including in Part II., Item 1A below, those risks discussed in our definitive proxy statement filed with SEC on December 4, 2015 and the following: the company has incurred losses for each of the last three fiscal years and during the three and nine months ended October 31, 2015, and such losses are expected to continue; the company’s ability to maintain sufficient liquidity and capital resources to fund its business and to generate sufficient cash to service its debt and other obligations; the company’s ability to refinance its indebtedness when it comes due, including near term maturities; the company’s ability to accurately predict its future business results and liquidity; risks associated with the company’s clients, including delays or the inability by such clients to pay the company; the risk that the company may not be able to achieve improvements in its working capital; volatility with respect to global trade; global economic, political and market conditions and unrest, including those in Africa, Asia Pacific and Europe; volatile fuel costs; transportation capacity, pricing dynamics and the ability of the company to secure space on third party aircraft, ocean vessels and other modes of transportation; changes in interest and foreign exchange rates, particularly with respect to the South African rand and the euro; material interruptions in transportation services; risks of international operations; risks that the carrying values of the company’s assets might be impaired; risks associated with, and the potential for penalties, fines, costs and expenses the company may incur as a result of the investigation by the government of Brazil into the international air freight and air cargo transportation industry; risks associated with the pending investigation by the Securities and Exchange Commission (SEC); risks of adverse legal judgments or other liabilities not limited by contract or covered by insurance; the company’s ability to retain clients while facing increased competition; disruptions caused by epidemics, natural disasters, conflicts, strikes, wars and terrorism; the impact of changes in the company’s effective tax rates; the company’s ability to maintain effective disclosure controls and procedures and effective internal control over financial reporting; the other risks and uncertainties described herein and in the company’s other filings with the SEC; and other factors outside the company’s control. Other risks and uncertainties include the timing and likelihood of completion of the proposed merger between the company and DSV A/S, a Danish corporation, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed merger that could cause the parties to abandon the transaction; the possibility that the company will not receive the required ordinary shareholder approvals; disruption from the proposed merger making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the proposed merger does not close, including due to the failure to satisfy the closing conditions; as well as more specific risks and uncertainties. All forward-looking statements included in this Quarterly Report speak only as of the date of this Quarterly Report and investors should not place undue reliance on any forward-looking statement.

 

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All of the forward-looking statements made in this Quarterly Report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the company will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the company or its business or results of operations. The company does not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise except as may be required by law.

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. We serve our clients through a worldwide network of freight forwarding offices and contract logistics and distribution centers.

Recent Developments. On October 9, 2015, we entered into a Merger Agreement (Merger Agreement) with DSV A/S, a Danish corporation (DSV) and an indirect wholly-owned subsidiary of DSV (Merger Sub). Pursuant to the Merger Agreement and subject to its terms and conditions, Merger Sub will be merged with and into us (Merger), with our company surviving the Merger as an indirect wholly-owned subsidiary of DSV. At the effective time of the Merger, each ordinary share, no par value, of us (Ordinary Shares) issued and outstanding immediately prior to the effective time (other than Ordinary Shares owned by (1) DSV, Merger Sub, our subsidiaries or held by us as treasury shares or (2) shareholders who have properly exercised dissenter’s rights under the law of the British Virgin Islands) will be converted into the right to receive $7.10 per share in cash, without interest. At the effective time of the Merger, each of our Class A 7.0% Convertible Preference Shares, no par value (Convertible Preference Shares) issued and outstanding immediately prior to the effective time will become the right to receive $1,125.71 per share in cash, without interest. The completion of the Merger is subject to various closing conditions, including (a) the absence of any law or order preventing the consummation of the Merger, (b) the receipt of certain required antitrust and other regulatory approvals and (c) our obtaining the approval of the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement by the holders of the Ordinary Shares (including the holders of the Convertible Preference Shares voting on an as-converted basis) and the holders of our Ordinary Shares (excluding our largest shareholder and the Convertible Preference Shares). The Merger Agreement contains customary representations and warranties from both of us and DSV, and also contains customary pre-closing covenants. The Merger Agreement contains certain termination rights and provides that, upon termination of the Merger Agreement under specified circumstances, that we will pay DSV a termination fee of $34.0 million.

Freight Forwarding Segment. We do not own or operate aircraft or vessels and, consequently, contract with commercial carriers to arrange for the shipment of cargo. A majority of our freight forwarding business is conducted through non-committed space allocations with carriers. We arrange for, and in many cases provide, pick-up and delivery service between the carrier and the location of the shipper or recipient.

We provide airfreight forwarding services in two principal forms (i) as an indirect carrier and occasionally (ii) as an authorized agent for airlines. When we act as an indirect carrier with respect to shipments of freight, we typically issue a House Airway Bill (HAWB) upon instruction from our client (the shipper). The HAWB serves as the contract of carriage between us and the shipper. When we tender freight to the airline (the direct carrier), we receive a Master Airway Bill. The Master Airway Bill serves as the contract of carriage between us and the air carrier. Because we provide services across a broad range of clients on commonly traveled trade lanes, when we act as an indirect carrier we typically consolidate individual shipments into larger shipments, optimizing weight and volume combinations for lower-cost shipments on a consolidated basis. We typically act as an indirect carrier with respect to shipments tendered to the company by our clients; however, in certain circumstances, we occasionally act as an authorized agent for airlines. In such circumstances, we are not an indirect carrier and do not issue a HAWB, but rather we arrange for the transportation of individual shipments directly with the airline. In these instances, as compensation for arrangement for these shipments, the carriers pay us a management fee.

 

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We provide ocean freight forwarding services in two principal forms (i) as an indirect carrier, sometimes referred to as a Non-Vessel Operating Common Carrier (NVOCC), and (ii) as an ocean freight forwarder nominated by our client (ocean freight forwarding agent). When we act as an NVOCC with respect to shipments of freight, we typically issue a House Ocean Bill of Lading (HOBL) to our client (the shipper). The HOBL serves as the contract of carriage between us and the shipper. When we tender the freight to the ocean carrier (the direct carrier), we receive a contract of carriage known as a Master Ocean Bill of Lading. The Master Ocean Bill of Lading serves as the contract of carriage between us and the ocean carrier. When we act as an ocean freight forwarding agent, we typically do not issue a HOBL but rather we receive management fees for managing the transaction as an agent, including booking and documentation between our client and the underlying carrier (contracted by the client). Regardless of the forms through which we provide airfreight and ocean freight services, if we provide the client with ancillary services, such as the preparation of export documentation, we receive additional fees.

As part of our freight forwarding services, we provide customs brokerage services in the United States of America (U.S.) and most of the other countries in which we operate. Within each country, the rules and regulations vary, along with the levels of expertise required to perform the customs brokerage services. We provide customs brokerage services in connection with a majority of the shipments which we handle as both an air and ocean freight forwarder. We also provide customs brokerage services in connection with shipments forwarded by our competitors. In addition, other companies may provide customs brokerage services in connection with the shipments we forward.

As part of our customs brokerage services, we prepare and file formal documentation required for clearance through customs agencies, obtain customs bonds, facilitate the payment of import duties on behalf of the importer, arrange for payment of collect freight charges, assist with determining and obtaining the best commodity classifications for shipments and perform other related services. We determine our fees for our customs brokerage services based on the volume of business transactions for a particular client, and the type, number and complexity of services provided. Revenues from customs brokerage and related services are recognized upon completion of the services. Other revenue in our Freight Forwarding segment is primarily comprised of international road freight shipments.

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 than purchased transportation costs in the near term. Staff costs and other operating expenses in our Freight Forwarding segment are largely driven by total shipment counts rather than volumes stated in kilograms for airfreight, or containers for ocean freight, which are most commonly expressed as twenty-foot equivalent units (TEUs).

Contract Logistics and Distribution Segment. Our contract logistics services primarily relate to value-added warehousing and the 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, warehousing services, order management, and customized distribution and inventory management services. Our outsourced services include inspection services, quality centers and manufacturing support. Our inventory management services include materials sourcing services pursuant to contractual, formalized repackaging programs and materials sourcing agreements. Contract logistics revenues are recognized when the service has been completed in the ordinary course of business.

We also provide a range of distribution, consultation, outsourced management services, planning and optimization services and other supply chain management services. As part of our distribution services, we provide domestic ground transportation and road distribution services primarily in North America and South Africa. We receive fees for the other supply chain management services that we perform. Distribution and other contract logistics revenues are recognized when the service has been completed in the ordinary course of business.

 

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January 2015 Reorganization. In January 2015, we committed to a plan to simplify our leadership structure and to shift management of our freight forwarding business from four geographic regions to a global leadership structure managing 16 discrete geographic areas. We refer to this reorganization as the January 2015 Reorganization. In connection with the January 2015 Reorganization, we eliminated several leadership positions and no longer maintain regional infrastructures. Following the January 2015 Reorganization, we continue to have two lines of business, freight forwarding and contract logistics and distribution. We recorded total charges of $11.8 million in connection with the January 2015 Reorganization relating to one-time employee termination benefits, including severance benefits and other employee expenses. Of such charges, $3.0 million and $0.5 million were incurred during the first and second quarters of fiscal year 2016, respectively. The activities related to the January 2015 Reorganization were substantially completed as of the end of the second quarter of fiscal 2016.

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 is 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 occurs if these currencies appreciate against the U.S. dollar. Additionally, the assets and liabilities of our international operations are denominated in each country’s 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. These translation effects are included as a component of accumulated other comprehensive income or loss in shareholders’ equity. We have historically not attempted to hedge this equity risk and, except as provided above, we cannot predict the effects of foreign currency exchange rate fluctuations on our future operating results.

In order to enhance the ability of investors to analyze our performance over comparable periods, we have provided in certain instances comparative information and variances excluding the impact of these foreign currency fluctuations. This information is among the information we use as a basis for evaluating our performance on a comparable basis over time, in allocating resources and in planning and forecasting of future periods. This information, however, is not intended to be considered in isolation or as a substitute for, or superior to, the relevant measures prepared and presented in accordance with U.S. GAAP, which are also presented. We calculate the effects of foreign currency fluctuations by subtracting (i) our current-period financial results as reported in local currencies, translated at current-period foreign currency exchange rates, from (ii) our current-period financial results as reported in local currency, as translated at the prior-period foreign currency exchange rates.

Acquisitions. We did not complete any acquisitions during the three and nine months ended October 31, 2015 and 2014, respectively.

Seasonality. Our primary sources of liquidity include cash generated from operating activities and availability under our various credit facilities. We typically experience increased activity associated with our peak season, generally during the second and third fiscal quarters, requiring significant client disbursements which tend to consume available cash. Historically the fourth fiscal quarter tends to generate cash as cash collections usually exceed client cash disbursements during such period. 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. Our current near term cash generation and usage patterns may be different than those we experienced in prior periods.

Recent Losses and Outlook. For the three and nine months ended October 31, 2015, our revenue declined approximately 18% and 14%, respectively, when compared to the prior year comparable periods. Our operating losses for the three and nine months ended October 31, 2015 were approximately $11.8 million and $91.9 million, respectively, while our net losses attributable to UTi Worldwide Inc. for the three and nine months ended October 31, 2015 were approximately $32.7 million and $136.7 million, respectively. Included in such losses for the nine months ended October 31, 2015, is a charge of $50.0 million, before a related deferred tax benefit of $9.0 million, for impairment of goodwill in the company’s Freight Forwarding segment. In fiscal year 2015, the operating loss and net loss attributable to UTi Worldwide Inc. were $115.8 million and $203.2 million, respectively. We also incurred operating losses and net losses attributable to UTi Worldwide Inc. in fiscal years 2014 and 2013.

 

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We have substantial debt and, as a result, we have significant debt service obligations. As of October 31, 2015, our total outstanding short and long-term borrowings (not including capital leases) were approximately $424.4 million. We have a significant amount of indebtedness which becomes due within the near term as well as the next few years. As of the date of the filing of this Form 10-Q, we are required to make the following payments in cash with respect to our other short-term borrowings under our financing arrangements with Greensill (as defined below): $10.0 million is payable in January 2016, $15.0 million is payable in April 2016, $17.5 million is payable in May 2016 and $7.5 million is payable in June 2016. In addition, our South African Facilities Agreement (as defined below) terminates in July 2016. No assurances can be given that we will be able to refinance our indebtedness or obtain additional alternative sources of financing and liquidity on favorable terms or otherwise. Our ability to make scheduled payments on, or to refinance, our debt obligations or otherwise possibly extend the terms thereof depends on numerous factors, including then existing market conditions, lenders’ assessments of our creditworthiness and business prospects, as well as our ability to generate cash in the future and our financial condition and operating performance. For additional information regarding our outstanding indebtedness, see “Liquidity and Capital Resources—Credit Facilities; Other Short-Term Borrowings; Long-Term Borrowings” below.

We continued to experience weaker than anticipated freight forwarding volumes during the three and nine months ended October 31, 2015. As a result, our financial performance during such periods was weaker than we expected. Furthermore, based on our results of operations through the nine months ended October 31, 2015 and our current expectations for the remainder of fiscal 2016, particularly with respect to freight forwarding volumes, we anticipate that we will report losses through at least the end of our second quarter of fiscal 2017. Our future liquidity, financial condition and operating performance could be materially and adversely impacted by a number of factors, including if we are unable to increase our revenues and return to profitability and the other risks, uncertainties and factors described elsewhere in this Form 10-Q, in our definitive proxy statement filed with the SEC on December 4, 2015, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of our Annual Report on Form 10-K) and in our other filings with the SEC.

Discussion of Operating Results

The following discussion of our operating results explains material changes in our consolidated results of operations for the three and nine month periods ended October 31, 2015 compared to the three and nine month periods ended October 31, 2014. The discussion should be read in conjunction with the unaudited 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, 2015, which are included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015, on file with the SEC. Our unaudited 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 of America (U.S. GAAP).

Segment Operating Results. 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. The company’s 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.

We believe that for our Freight Forwarding segment, net revenues (a non-GAAP financial measure we use to describe revenues less purchased transportation costs) are a better measure of growth in our freight forwarding business than revenues because our revenues and our purchased transportation costs for our services as an indirect air and ocean carrier include the carriers’ charges to us for carriage of the shipment. Our revenues and purchased transportation costs are also impacted by changes in fuel and similar surcharges, which have little relation to the volume or value of our services provided. When we act as an indirect air and ocean carrier, our net revenues are determined by the differential between the rates charged to us by the carrier and the rates we charge our clients plus the fees we receive for our ancillary services. Revenues derived from freight forwarding generally are shared between the points of origin and destination, based on a standard formula. Our revenues in our other capacities include only management fees earned by us and are substantially similar to net revenues for the Freight Forwarding segment.

 

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For segment reporting purposes, by 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.

Three months ended October 31, 2015 compared to three months ended October 31, 2014

The following tables and discussion and analysis address the operating results attributable to our reportable segments for the three months ended October 31, 2015 compared to the three months ended October 31, 2014:

Freight Forwarding

 

     Freight Forwarding  
     Three months ended October 31,  
     2015     2014     Change
Amount
     Change
Percentage
 

Revenues:

         

Airfreight forwarding

   $ 243,162      $ 319,057      $ (75,895      (24 )% 

Ocean freight forwarding

     208,145        264,265        (56,120      (21

Customs brokerage

     41,914        55,854        (13,940      (25

Other

     42,797        50,631        (7,834      (15
  

 

 

   

 

 

   

 

 

    

Total revenues

     536,018        689,807        (153,789      (22
  

 

 

   

 

 

   

 

 

    

Purchased transportation costs:

         

Airfreight forwarding

     189,454        248,554        (59,100      (24

Ocean freight forwarding

     181,553        216,283        (34,730      (16

Customs brokerage

     11,144        9,965        1,179         12   

Other

     24,921        46,707        (21,786      (47
  

 

 

   

 

 

   

 

 

    

Total purchased transportations costs

     407,072        521,509        (114,437      (22
  

 

 

   

 

 

   

 

 

    

Net revenues:

         

Airfreight forwarding

     53,708        70,503        (16,795      (24

Ocean freight forwarding

     26,592        47,982        (21,390      (45

Customs brokerage

     30,770        45,889        (15,119      (33

Other

     17,876        3,924        13,952         356   
  

 

 

   

 

 

   

 

 

    

Total net revenues

     128,946        168,298        (39,352      (23
  

 

 

   

 

 

   

 

 

    

Yields:

         

Airfreight forwarding

     22.1     22.1     

Ocean freight forwarding

     12.8     18.2     

Staff costs

     88,565        104,892        (16,327      (16

Depreciation

     3,152        4,245        (1,093      (26

Amortization of intangible assets

     6,564        6,472        92         1   

Severance and other

     —          22,139        (22,139      (100

Other operating expenses

     40,786        47,841        (7,055      (15
  

 

 

   

 

 

   

 

 

    

Operating loss

   $ (10,121   $ (17,291   $ 7,170         (41 )% 
  

 

 

   

 

 

   

 

 

    

Airfreight Forwarding. Airfreight forwarding revenues decreased $75.9 million, or 24%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, airfreight forwarding revenues decreased $53.1 million, or 16%, compared to the corresponding prior year period. The results of the company’s segments when reported in U.S. dollars were adversely impacted by a strengthening of the U.S. dollar against the euro and South African rand, among other currencies, compared to the exchange rates in effect in the corresponding prior year period. When the effects of foreign currency fluctuations are excluded, (i) a decrease of $21.7 million was attributable to a decline of airfreight forwarding volumes (which we measure in terms of total kilograms), and (ii) a decrease of $31.4 million was caused by a decrease of our selling rates. Airfreight forwarding volumes decreased 10% for the three months ended October 31, 2015, compared to the corresponding prior year period. On a sequential basis, airfreight volumes increased 1% for the third quarter of fiscal 2016 compared to the second quarter of fiscal 2016.

Airfreight forwarding net revenues decreased $16.8 million, or 24%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, airfreight forwarding net revenues decreased $11.1 million, or 14%. Changes in net revenues are primarily a

 

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function of volume movements and the expansion or contraction in yields, which is the difference between our selling rates and the carrier rates incurred by us. The $11.1 million decrease in airfreight forwarding net revenues when calculated on a basis which excludes the effects of foreign currency fluctuations was caused by (i) a $6.9 million decrease attributable to a decrease in airfreight forwarding volumes and (ii) a $4.2 million net decrease attributable to a decrease both in our selling rates and carrier rates.

Airfreight yields of 22.1% for the three months ended October 31, 2015 were comparable to the corresponding prior year period. On a sequential basis, airfreight yields of 22.1% for the third quarter of fiscal 2016 were 120 basis points lower when compared to airfreight yields of 23.3% for the second quarter of fiscal 2016.

Ocean Freight Forwarding. Ocean freight forwarding revenues decreased $56.1 million, or 21%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, ocean freight forwarding revenues decreased $31.7 million, or 9%. When the effects of foreign currency fluctuations are excluded, a decrease of $31.7 million in ocean freight forwarding revenues was caused by (i) a decrease of $15.7 million caused by a decrease in ocean freight volumes, and (ii) a decrease of $16.0 million attributable to lower selling rates caused in part by lower carrier rates. Ocean freight volumes (which we measure in terms of TEUs) decreased 6% during the three months ended October 31, 2015 compared to the corresponding prior year period. On a sequential basis, ocean freight TEU’s decreased 3% for the third quarter of fiscal 2016 compared to the second quarter of fiscal 2016.

Ocean freight forwarding net revenues decreased $21.4 million, or 45%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, ocean freight forwarding net revenues decreased $19.3 million, or 35%. The $19.3 million decrease in ocean freight forwarding net revenues calculated on a basis which excludes the effects of foreign currency fluctuations was caused by a decrease of $2.0 million attributable to decreased ocean freight volumes and a decrease of $17.3 million caused by unfavorable buying and selling rates. Ocean freight yields for the three months ended October 31, 2015, decreased 540 basis points to 12.8% compared to 18.2% for the corresponding prior year period. On a sequential basis, ocean freight yields of 12.8% for the third quarter of fiscal 2016 were 340 basis points lower when compared to yields of 16.2% for the second quarter of fiscal 2016.

Customs Brokerage and Other. Customs brokerage revenues decreased $13.9 million, or 25%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, customs brokerage revenues decreased $7.1 million, or 19%. Other freight forwarding related revenues, which are primarily comprised of international road freight shipments and distribution, decreased $7.8 million, or 15%, for the three months ended October 31, 2015, compared to the corresponding prior year period. However, when the effects of foreign currency fluctuations are excluded, other freight forwarding related revenues decreased $1.7 million, or 7%.

Customs brokerage net revenues decreased $15.1 million, or 33%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, customs brokerage net revenues decreased $10.4 million, or 34%. Other freight forwarding related net revenues increased $14.0 million, or 356%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other freight forwarding net revenues increased $16.0 million, or 376%.

Staff Costs. Staff costs in our Freight Forwarding segment decreased $16.3 million, or 16%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, staff costs in our Freight Forwarding segment decreased $6.8 million, or 6%. As a percentage of our Freight Forwarding segment revenues, staff costs, including the effects of foreign currency were 17% for the three months ended October 31, 2015 compared to 15% in the corresponding prior year period. Movements of staff costs in our Freight Forwarding segment are typically driven more by changes in total shipment counts rather than changes in volumes.

 

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Amortization of intangible assets. Amortization of intangible assets for the three months ended October 31, 2015, was comparable to the corresponding prior year period.

Severance and Other. During the three months ended October 31, 2014, we incurred severance and other costs in the Freight Forwarding segment of $22.1 million, including an impairment charge of $19.6 million in connection with an impairment of a South African installment agreement and other receivables. There were no such charges incurred during the three months ended October 31, 2015.

Other Operating Expenses. Other operating expenses in the Freight Forwarding segment decreased $7.1 million, or 15%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other operating expenses decreased $1.7 million, or 4%, compared to the corresponding prior year period.

Contract Logistics and Distribution

 

     Contract Logistics and Distribution  
     Three months ended October 31,  
     2015      2014      Change
Amount
     Change
Percentage
 

Revenues:

           

Contract logistics

   $ 189,834       $ 199,142       $ (9,308      (5 )% 

Distribution

     144,949         163,504         (18,555      (11

Other

     13,910         24,726         (10,816      (44
  

 

 

    

 

 

    

 

 

    

Total revenues

     348,693         387,372         (38,679      (10
  

 

 

    

 

 

    

 

 

    

Purchased transportation costs:

           

Contract logistics

     49,841         50,436         (595      (1

Distribution

     99,795         114,436         (14,641      (13

Other

     (188      8,447         (8,635      (102
  

 

 

    

 

 

    

 

 

    

Total purchased transportations costs

     149,448         173,319         (23,871      (14
  

 

 

    

 

 

    

 

 

    

Staff costs

     101,951         104,842         (2,891      (3

Depreciation

     7,185         8,546         (1,361      (16

Amortization of intangible assets

     732         926         (194      (21

Severance and other

     —           1,318         (1,318      (100

Other operating expenses

     73,768         82,076         (8,308      (10
  

 

 

    

 

 

    

 

 

    

Operating income

   $ 15,609       $ 16,345       $ (736      (5 )% 
  

 

 

    

 

 

    

 

 

    

Contract Logistics. Contract logistics revenues decreased $9.3 million, or 5%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, contract logistics revenues increased $7.8 million, or 4%. The increase when the effects of foreign currency effects are excluded was due to increased logistics volumes in the Africa region over the comparative periods which was offset by decreased logistics volumes in the Americas region.

Contract logistics purchased transportation costs decreased $0.6 million, or 1%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, contract logistics purchased transportation costs increased $3.1 million, or 7%. In addition to purchased transportation costs related directly to the contract logistics operations, purchased transportation costs within our Contract Logistics and Distribution segment include materials sourcing costs which we incur pursuant to formalized repackaging programs and materials sourcing agreements.

Distribution. Distribution revenues decreased $18.6 million, or 11%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, distribution revenues decreased $11.6 million, or 7%.

 

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Distribution purchased transportation costs decreased $14.6 million, or 13%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, distribution purchased transportation costs decreased $12.3 million, or 11%.

Other. Other contract logistics and distribution revenues decreased $10.8 million, or 44%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other contract logistics and distribution revenues decreased $7.8 million, or 20%. Other contract logistics and distribution purchased transportation costs decreased $8.6 million, or 102%, for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other contract logistics and distribution purchased transportation costs decreased $8.6 million, or 48%. The Company exited a significant transportation management contract during the three months ended October 31, 2015 which resulted in decreased revenue and transportation costs of approximately $8.3 million, and $7.5 million, respectively, compared to the prior year comparable period.

Staff Costs. Staff costs in our Contract Logistics and Distribution segment decreased $2.9 million for the three months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, staff costs in our Contract Logistics and Distribution segment increased $6.1 million, or 6%.

Other Operating Expenses. Other operating expenses in our Contract Logistics and Distribution segment decreased $8.3 million, or 10%, compared to the corresponding period year period; however, when the effects of foreign currency fluctuations are excluded, other operating expenses in our Contract Logistics and Distribution segment increased $0.3 million.

Corporate

Staff Costs. Staff costs at corporate, both including and excluding the effects of foreign currency fluctuations, were comparable for the three months ended October 31, 2015, compared to the corresponding prior year period.

Other Operating Expenses. Other operating expenses at corporate decreased $3.2 million, or 33%, compared to the corresponding prior year period, however, when the effects of foreign currency fluctuations are excluded, other operating expenses at corporate decreased $3.7 million, or 38%.

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 and our outstanding notes. Interest income was $2.2 million and $6.3 million for the three months ended October 31, 2015 and 2014, respectively. Interest expense was $13.5 million and $16.9 million for the three months ended October 31, 2015 and 2014, respectively. The decrease in interest income and interest expense is due to our South African cash pool facility.

Other Income/(Expenses), Net. Other income and expenses primarily relate to foreign currency gains and losses on certain of our intercompany loans.

Provision for Income Taxes. Our tax provision for income taxes for the three months ended October 31, 2015 was $7.2 million on a pretax loss of $24.8 million resulting in an effective tax rate of negative 28.9%. Our tax provision for income taxes for the three months ended October 31, 2014 was $2.3 million on a pretax loss of $32.6 million resulting in an effective tax rate of negative 7.1%. The $4.9 million increase in the provision for income taxes in absolute dollars was generally attributable to an increase of profitability in tax paying jurisdictions.

Net (Loss) Income Attributable to Non-Controlling Interests. Net income attributable to non-controlling interests was $0.7 million for the three months ended October 31, 2015, compared to net loss attributable to non-controlling interests of $1.3 million for the corresponding prior year period.

 

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Net Loss Attributable to UTi Worldwide Inc. Net loss attributable to UTi Worldwide Inc. was $32.7 million for the three months ended October 31, 2015, compared to net income attributable to UTi Worldwide Inc. of $33.7 million for the corresponding prior year period.

Nine months ended October 31, 2015 compared to nine months ended October 31, 2014

The following tables and discussion and analysis address the operating results attributable to our reportable segments for the nine months ended October 31, 2015 compared to the nine months ended October 31, 2014:

Freight Forwarding

 

     Freight Forwarding  
     Nine months ended October 31,  
     2015     2014     Change
Amount
     Change
Percentage
 

Revenues:

         

Airfreight forwarding

   $ 790,255      $ 957,407      $ (167,152      (17 )% 

Ocean freight forwarding

     680,621        809,758        (129,137      (16

Customs brokerage

     130,239        162,680        (32,441      (20

Other

     122,501        155,874        (33,373      (21
  

 

 

   

 

 

   

 

 

    

Total revenues

     1,723,616        2,085,719        (362,103      (17
  

 

 

   

 

 

   

 

 

    

Purchased transportation costs:

         

Airfreight forwarding

     614,120        739,841        (125,721      (17

Ocean freight forwarding

     587,799        675,155        (87,356      (13

Customs brokerage

     36,639        32,912        3,727         11   

Other

     78,017        121,777        (43,760      (36
  

 

 

   

 

 

   

 

 

    

Total purchased transportations costs

     1,316,575        1,569,685        (253,110      (16
  

 

 

   

 

 

   

 

 

    

Net revenues:

         

Airfreight forwarding

     176,135        217,566        (41,431      (19

Ocean freight forwarding

     92,822        134,603        (41,781      (31

Customs brokerage

     93,600        129,768        (36,168      (28

Other

     44,484        34,097        10,387         30   
  

 

 

   

 

 

   

 

 

    

Total net revenues

     407,041        516,034        (108,993      (21
  

 

 

   

 

 

   

 

 

    

Yields:

         

Airfreight forwarding

     22.3     22.7     

Ocean freight forwarding

     13.6     16.6     

Staff costs

     277,057        326,082        (49,025      (15

Depreciation

     10,975        13,071        (2,096      (16

Amortization of intangible assets

     19,851        18,586        1,265         7   

Severance and other

     2,897        23,650        (20,753      (88

Goodwill impairment

     50,000        —          50,000         100   

Other operating expenses

     127,377        144,418        (17,041      (12
  

 

 

   

 

 

   

 

 

    

Operating loss

   $ (81,116   $ (9,773   $ (71,343      730
  

 

 

   

 

 

   

 

 

    

Airfreight Forwarding. Airfreight forwarding revenues decreased $167.2 million, or 17%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, airfreight forwarding revenues decreased $95.7 million, or 4%. When the effects of foreign currency fluctuations are excluded, the decrease in airfreight forwarding revenues of $95.7 million was caused by (i) a decrease of $47.7 million attributable to a decline of airfreight forwarding volumes, and (ii) a decrease of $48.0 million attributable to a decline of our selling rates, caused in part by lower carrier rates incurred by us. Airfreight forwarding volumes decreased 7% for the nine months ended October 31, 2015, compared to the corresponding prior year period.

Airfreight forwarding net revenues decreased $41.4 million, or 19%, for the nine months ended October 31, 2015, compared to the corresponding prior year period. Excluding the effects of foreign currency fluctuations, airfreight

 

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forwarding net revenues decreased $23.7 million, or 5%. The $23.7 million decrease in airfreight forwarding net revenues calculated on a basis excluding the effects of foreign currency was caused by (i) a $15.0 million decrease attributable to a decrease of airfreight forwarding volumes and (ii) a $8.7 million net decrease attributable to a decline in our carrier selling rates.

Airfreight yields for the nine months ended October 31, 2015 decreased approximately 40 basis points to 22.3% compared to 22.7% for the corresponding prior year period.

Ocean Freight Forwarding. Ocean freight forwarding revenues decreased $129.1 million, or 16%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, ocean freight forwarding revenues decreased $57.0 million, or 3%. When the effects of foreign currency fluctuations are excluded, the decrease of $57.0 million in ocean freight forwarding revenues was caused by (i) a decrease of $44.2 million due to reduced ocean freight volumes, and (ii) a decrease of $12.8 million caused by a decrease in our selling rates. Ocean freight volumes decreased 6% during the nine months ended October 31, 2015 compared to the corresponding prior year period.

Ocean freight forwarding net revenues decreased $41.8 million, or 31%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, ocean freight forwarding net revenues decreased $32.6 million, or 9%. The $32.6 million decrease in ocean freight forwarding net revenues calculated on a basis which excludes the effects of foreign currency fluctuations was caused by (i) a decrease of $26.6 million attributable to a decline of our selling rates, and (ii) a decrease of $6.0 million attributable to decreased ocean freight volumes. Ocean freight yields for the nine months ended October 31, 2015, decreased 300 basis points to 13.6% compared to 16.6% for the corresponding prior year period.

Customs Brokerage and Other. Customs brokerage revenues decreased $32.4 million, or 20%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, customs brokerage revenues decreased $14.6 million, or 6%. Other freight forwarding related revenues, which are primarily comprised of international road freight shipments and distribution, decreased $33.4 million, or 21%, for the nine months ended October 31, 2015, compared to the corresponding prior year period. However, when the effects of foreign currency fluctuations are excluded, other freight forwarding related revenues decreased $16.6 million, or 46%.

Customs brokerage net revenues decreased $36.2 million, or 28%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, customs brokerage net revenues decreased $23.6 million, or 11%. Other freight forwarding related net revenues increased $10.4 million, or 30%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other freight forwarding related net revenues increased $14.9 million, or 245%.

Staff Costs. Staff costs in our Freight Forwarding segment decreased $49.0 million, or 15%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, staff costs in our Freight Forwarding segment decreased $21.0 million, or 3%. As a percentage of our Freight Forwarding segment revenues, staff costs, including the effects of foreign currency were 16% for both periods. Movements of staff costs in our Freight Forwarding segment are typically driven more by changes in total shipment counts rather than changes in volumes.

Amortization of Intangible Assets. Amortization of intangible assets increased $1.3 million for the nine months ended October 31, 2015, compared to the corresponding prior year period, in part because of increased amortization due to the implementation of our new freight forwarding system, which we refer to as 1View.

 

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Severance and Other. During the nine months ended October 31, 2015 and 2014, we incurred severance and other costs in the Freight Forwarding segment of approximately $2.9 million and $23.7 million, respectively. The charges for the nine months ended October 31, 2015, were comprised primarily of severance charges and were primarily related to our January 2015 Reorganization. The charges for the nine months ended October 31, 2014, were primarily related to (i) an impairment charge of $19.6 million in connection with an impairment of a South African installment agreement and other receivables, and (ii) other charges of $5.7 million related primarily to our business transformation initiatives, which included redefining business processes, developing and implementing 1View and rationalizing business segments to a more common organizational structure on a worldwide basis.

Goodwill Impairment. In connection with the preparation of the company’s consolidated financial statements for the six months ended October 31, 2015, we recorded a charge of $50.0 million, before a related deferred tax benefit of $9.0 million, for impairment of goodwill in the company’s Freight Forwarding segment. This charge was recorded based on several factors, which included slowing macroeconomic growth and the performance of our stock price in the period immediately subsequent to July 31, 2015.

Other Operating Expenses. Other operating expenses in the Freight Forwarding segment decreased $17.0 million, or 12%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other operating expenses increased $0.3 million.

Contract Logistics and Distribution

 

     Contract Logistics and Distribution  
     Nine months ended October 31,  
     2015      2014      Change
Amount
     Change
Percentage
 

Revenues:

           

Contract logistics

   $ 559,637       $ 583,832       $ (24,195      (4 )% 

Distribution

     436,523         467,261         (30,738      (7

Other

     52,180         78,400         (26,220      (33
  

 

 

    

 

 

    

 

 

    

Total revenues

     1,048,340         1,129,493         (81,153      (7
  

 

 

    

 

 

    

 

 

    

Purchased transportation costs:

           

Contract logistics

     145,298         142,498         2,800         2   

Distribution

     304,808         328,871         (24,063      (7

Other

     9,083         28,733         (19,650      (68
  

 

 

    

 

 

    

 

 

    

Total purchased transportations costs

     459,189         500,102         (40,913      (8
  

 

 

    

 

 

    

 

 

    

Staff costs

     304,317         310,804         (6,487      (2

Depreciation

     22,503         24,890         (2,387      (10

Amortization of intangible assets

     2,296         2,831         (535      (19

Severance and other

     2,296         1,578         718         46   

Other operating expenses

     216,684         243,677         (26,993      (11
  

 

 

    

 

 

    

 

 

    

Operating income

   $ 41,055       $ 45,611       $ (4,556      (10 )% 
  

 

 

    

 

 

    

 

 

    

Contract Logistics. Contract logistics revenues decreased $24.2 million, or 4%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, contract logistics revenues increased $23.3 million, or 2%. The increase when the effects of foreign currency effects are excluded was due to increased logistics volumes in the Americas and Africa regions over the comparative periods.

 

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Contract logistics purchased transportation costs increased $2.8 million, or 2%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, purchased transportation costs in our contract logistics and distribution segment increased $13.4 million, or 4%. In addition to purchased transportation costs related directly to the contract logistics operations, purchased transportation costs within our Contract Logistics and Distribution segment include materials sourcing costs which we incur pursuant to formalized repackaging programs and materials sourcing agreements.

Distribution. Distribution revenues decreased $30.7 million, or 7%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, distribution revenues decreased $15.8 million, or 2%.

Distribution purchased transportation costs decreased $24.1 million, or 7%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, distribution purchased transportation costs decreased $18.8 million, or 3%.

Other. Other contract logistics and distribution revenues decreased $26.2 million, or 33%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other contract logistics and distribution revenues decreased $17.3 million, or 7%. Other purchased transportation costs decreased $19.7 million, or 68%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other purchased transportation costs decreased $17.6 million, or 18%. The Company exited a significant transportation management contract during the nine months ended October 31, 2015 which resulted in decreased revenue and transportation costs of approximately $18.6 million, and $16.9 million, respectively, compared to the prior year comparable period.

Staff Costs. Staff costs in our Contract Logistics and Distribution segment decreased $6.5 million, or 2%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, staff costs in our Contract Logistics and Distribution Segment increased $17.2 million, or 2%. The increase is primarily attributable to increased business in our America’s contract logistics business.

Other Operating Expenses. Other operating expenses in our Contract Logistics and Distribution segment decreased $27.0 million, or 11%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other operating expense in our Contract Logistics and Distribution Segment decreased $4.1 million, or 1%, due to the closure of several of our America’s contract logistics sites and a reduction of fuel prices in our America and Africa geographic locations.

Corporate

Staff Costs. Staff costs at corporate decreased $2.8 million, or 10%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, staff costs at corporate decreased $0.9 million, or 2%.

Other Operating Expenses. Other operating expenses in corporate decreased $5.4 million, or 20%, for the nine months ended October 31, 2015, compared to the corresponding prior year period; however, when the effects of foreign currency fluctuations are excluded, other operating expense in corporate decreased $7.7 million, or 14%.

Interest Expense, Net. Interest income typically relates primarily to interest earned on our cash deposits, while interest expense consists primarily of interest on our credit facilities and our outstanding notes. Interest income was $9.3 million and $17.6 million for the nine months ended October 31, 2015 and 2014, respectively. Interest expense was $42.7 million and $46.8 million for the nine months ended October 31, 2015 and 2014, respectively. The decrease in interest income and interest expense is due to our South African cash pool facility.

Loss on Debt Extinguishment. Included in loss on debt extinguishment for the nine months ended October 31, 2014, is (i) a make-whole payment of $20.8 million with respect to the prepayment of the 2014 Notes, and (ii) a charge of $1.0 million related to unamortized debt issuance costs related to the prepayment of the 2013 Notes and the termination of various credit facilities.

 

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Other Income/(Expenses), Net. Other income and expenses primarily relate to foreign currency gains and losses on certain of our intercompany loans.

Provision for Income Taxes. Our provision for income taxes for nine months ended October 31, 2015 was $11.0 million on a pretax loss of $127.1 million resulting in an effective tax rate of negative 8.6%. During the nine months ended October 31, 2014, we recorded a tax provision of $21.1 million on a pretax loss of $76.4 million resulting in an effective tax rate of negative 27.5%. The $10.1 million decrease in the provision for income taxes in absolute dollars was attributable to: (i) a decrease of profitability in tax paying jurisdictions which decreased the provision by $1.1 million, and (ii) a tax benefit of $9.0 million related to the goodwill impairment for tax paying jurisdictions and deferred taxes in the United States.

Net (Loss)/Income Attributable to Non-Controlling Interests. Net loss attributable to non-controlling interests was $1.3 million for the nine months ended October 31, 2015, compared to net income attributable to non-controlling interests of $1.9 million for the corresponding prior year period.

Net Loss Attributable to UTi Worldwide Inc. Net loss attributable to UTi Worldwide Inc. was $136.4 million for the nine months ended October 31, 2015, compared to net loss attributable to UTi Worldwide Inc. of $99.3 million for the corresponding prior year period.

 

     Three months ended October 31,      Nine months ended October 31,  
     2015      2014      2015      2014  

Revenues:

           

Airfreight forwarding

   $ 243,162       $ 319,057       $ 790,255       $ 957,407   

Ocean freight forwarding

     208,145         264,265         680,621         809,758   

Customs brokerage

     41,914         55,854         130,239         162,680   

Contract logistics

     189,834         199,142         559,637         583,832   

Distribution

     144,949         163,504         436,523         467,261   

Other

     56,707         75,357         174,681         234,274   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 884,711       $ 1,077,179       $ 2,771,956       $ 3,215,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Purchased transportation costs:

           

Airfreight forwarding

   $ 189,454       $ 248,554       $ 614,120       $ 739,841   

Ocean freight forwarding

     181,553         216,283         587,799         675,155   

Customs brokerage

     11,144         9,965         36,639         32,912   

Contract logistics

     49,841         50,436         145,298         142,498   

Distribution

     99,795         114,436         304,808         328,871   

Other

     24,733         55,154         87,100         150,510   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 556,520       $ 694,828       $ 1,775,764       $ 2,069,787   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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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 October 31,     Nine months ended October 31,  
     2015     2014     2015     2014  

Revenues:

        

Airfreight forwarding

     27     30     29     30

Ocean freight forwarding

     24        25        25        25   

Customs brokerage

     5        5        5        5   

Contract logistics

     21        18        20        18   

Distribution

     16        15        16        15   

Other

     7        7        5        7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     100        100        100        100   

Purchased transportation costs:

        

Airfreight forwarding

     21        23        22        23   

Ocean freight forwarding

     21        20        21        21   

Customs brokerage

     1        1        1        1   

Contract logistics

     6        5        5        4   

Distribution

     11        11        11        10   

Other

     3        5        3        5   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total purchased transportation costs

     63        65        63        64   

Staff costs

     23        20        22        21   

Depreciation

     1        1        1        1   

Amortization of intangible assets

     1        1        1        1   

Severance and other

     *        2        *        1   

Goodwill impairment

     *        *        2        *   

Other operating expenses

     14        13        13        13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     102        102        102        101   

Operating loss

     (2     (2     (2     (1

Interest income

     *        1        *        1   

Interest expense

     (2     (2     (2     (1

Loss on debt extinguishment

     *        *        *        (1

Other expense, net

     *        *        *        *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pretax loss

     (4     (3     (4     (2

Provision for income taxes

     1        *        *        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (5     (3     (4     (3

Net income/(loss) attributable to non-controlling interests

     *        *        *        *   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to UTi Worldwide Inc.

     (5 )%      (3 )%      (4 )%      (3 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

* Less than one percent.

 

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Liquidity and Capital Resources

For the three and nine months ended October 31, 2015, our revenue declined approximately 18% and 14%, respectively, when compared to the prior year comparable periods. Our operating losses for the three and nine months ended October 31, 2015 were approximately $11.8 million and $91.9 million, respectively, while our net losses attributable to UTi Worldwide Inc. for the three and nine months ended October 31, 2015 were approximately $32.7 million and $136.7 million, respectively. Furthermore, based on our results of operations through the nine months ended October 31, 2015 and our current expectations for the remainder of fiscal 2016, particularly with respect to freight forwarding volumes, we anticipate that we will report losses through at least the end of our second quarter of fiscal 2017. We believe that our cash and cash equivalents, anticipated cash flows from operations, and borrowings available under credit agreements and other facilities, together with strategic alternatives which we periodically evaluate, will provide sufficient liquidity to fund our working capital, capital expenditures and operations for the next 12 months. However, any projections of future cash flows and cash requirements are subject to substantial uncertainty and are based on numerous assumptions. If our business does not generate sufficient cash flow from operations to fund our working capital and planned capital expenditures, and our cash and cash equivalents and available borrowings are depleted, we may be required to take further actions such as reducing or delaying capital expenditures, engaging in asset sales, seeking further reductions in our operating costs, and seeking additional alternative sources of financing and liquidity. No assurances can be given that we will be able to refinance our indebtedness or obtain additional alternative sources of financing and liquidity on favorable terms or otherwise. Our liquidity, financial condition and operating performance could be materially and adversely impacted by a number of factors, including if we are unable to increase our revenues and return to profitability and the other risks, uncertainties and factors described elsewhere in this Form 10-Q, in our definitive proxy statement filed with the SEC on December 4, 2015, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of our Annual Report on Form 10-K) and in our other filings with the SEC. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Losses and Outlook” for additional information.

Limitations on dividends. We are a holding company that relies on dividends, distributions and advances from our subsidiaries to pay dividends on our ordinary shares and meet our financial obligations. The ability of our subsidiaries to pay such amounts to us and our ability to pay dividends and distributions to our shareholders is subject to restrictions including, but not limited to, applicable local laws and limitations contained in our bank credit facilities and long-term borrowings. Additionally, intercompany payments of dividends, distributions and advances can, in certain circumstances, result in adverse tax effects such as the requirement to pay withholding and corporate income taxes and distribution taxes on dividends and distributions, and can also require, in certain situations, that our subsidiaries make pro-rata payments to the minority interest holders in such entities. Additionally, in general, our subsidiaries cannot pay dividends in excess of their retained earnings. Such laws, restrictions, and effects could limit or impede intercompany dividends and distributions, or the making of intercompany advances. In addition, we currently expect that the cash and cash equivalents held by our non-U.S. subsidiaries will be used primarily to support our international operations, including paying debt service, making capital expenditures and meeting the cash needs of such operations.

Exchange control laws and regulations. Some of our subsidiaries may be subject from time to time to exchange control laws and regulations that may limit or restrict the payment of dividends or distributions or other transfers of funds by those subsidiaries to our parent holding company. We believe that as of October 31, 2015 total net assets which may not be transferred to us in the form of loans, advances, or cash dividends by our subsidiaries without the consent of a third party were approximately 11% of our consolidated total net assets as of the end of the most recent fiscal year.

Client agreements involving cash. We have entered into agreements with certain of our South African pharmaceutical distribution clients specifying the use of designated cash accounts for receivables collections from the end-recipients. In these circumstances, pursuant to the agreements with our clients and for a nominal fee, we manage our clients’ collections and cash application functions, under credit terms and conditions mandated by our clients. Under these arrangements, we bill the end-recipients of the products we distribute from our warehouses on behalf of our clients. We are not obligated to remit cash receipts to our clients until such billings are recovered by us and we typically remit such billings to our clients within two to seven days subsequent to our receipt of cash from the end recipients. Although the company is required under these contracts to use such cash accounts for cash activity related to these clients, the company has access and control over such balances in the normal course of its operations. Balances in such accounts totaled approximately $36.0 million and $34.9 million at October 31, 2015 and January 31, 2015, respectively, and are included in cash and cash equivalents, with corresponding liabilities included in accounts payable, in the accompanying consolidated balance sheets. These activities do not have a material impact on the company’s liquidity requirements.

 

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Operating cash advances and disbursements. When we act as a customs broker, we make significant cash advances on behalf of our clients to 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 our reimbursement from our clients. Accordingly, operating cash flows are typically stronger in periods of declining logistics activity and are comparably weaker in periods of volume growth as we must disburse cash in advance of collections from clients.

As of October 31, 2015, our cash and cash equivalents totaled $264.9 million, representing an increase of $53.0 million from January 31, 2015, the reasons for which are discussed below.

 

     Nine months ended October 31,  
     2015      2014  
     (Unaudited)  

Net cash flow provided by/(used in):

     

Operating activities

   $ 15,479         (105,090

Investing activities

     (30,453      (60,135

Financing activities

     86,931         142,246   

Effect of foreign exchange rate changes on cash and cash equivalents

     (18,918      10,464   

Net increase/(decrease) in cash and cash equivalents

     53,039         (12,515

Cash Provided By/(Used In) Operating Activities. Cash provided by operating activities for the nine months ended October 31, 2015 was $15.5 million as compared to the cash used in operating activities of $105.1 million for the corresponding prior year period. Cash provided by or used in operating activities is highly dependent on changes in operating assets and liabilities which are driven by timing differences in cash receipts and payments. As a result, we believe it is also useful to compare cash flows from operations, apart from these effects. Such comparison is as follows:

 

     Nine months ended October 31,  
     2015      2014  
     (Unaudited)  

Net cash provided by/(used in) operating activities:

     

Net loss

   $ (138,038    $ (97,482

Adjustments to reconcile net loss to net cash provided by/(used in) operating activities:

     

Make-whole payment

     —           20,830   

Goodwill impairment

     50,000         —     

Non-cash adjustments

     78,287         104,721   
  

 

 

    

 

 

 

Total

     128,287         125,551   
  

 

 

    

 

 

 

Total results of operations, after cash and non-cash adjustments to net loss

     (9,751      28,069   
  

 

 

    

 

 

 

Changes in operating assets and liabilities

     25,230         (133,159
  

 

 

    

 

 

 

Net cash provided by/(used in) operating activities

     15,479         (105,090
  

 

 

    

 

 

 

 

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Accounts receivable and accounts payable are impacted by items included in revenue and expenses, respectively, and also by billings and disbursements of pass-through items for customs duties and taxes, which are not included in revenue and expense on our consolidated statements of operations. Variances of customs duties and taxes are primarily attributable to variances in the number of clearances and the value of goods imported over the comparable periods. A roll forward schedule of such activity for the nine months of fiscal years ended 2016 and 2015, respectively, is below:

 

Trade Receivables

   Nine months ended October 31,  
     2015      2014  

Beginning balance

   $ 887,084       $ 972,177   
  

 

 

    

 

 

 

Billings:

     

Revenues

     2,771,956         3,215,212   

Billings for pass-through items

     2,388,728         3,019,966   
  

 

 

    

 

 

 

Gross billings

     5,160,684         6,235,178   

Amounts collected

     (5,189,116      (6,106,183
  

 

 

    

 

 

 

Net cash (inflow)/outflow from billings and collections

     (28,432      128,995   

Foreign currency translation and other

     (52,594      (38,834
  

 

 

    

 

 

 

Ending balance

   $ 806,058       $ 1,062,338   
  

 

 

    

 

 

 

Trade Payables

   Nine months ended October 31,  
     2015      2014  

Beginning balance

   $ 500,853       $ 562,095   
  

 

 

    

 

 

 

Purchased transportation costs:

     

Purchased transportation costs

     1,775,764         2,069,787   

Purchased transportation costs for pass-through items

     2,388,728         3,019,966   
  

 

 

    

 

 

 

Total accruals

     4,164,492         5,089,753   

Amounts disbursed

     (4,161,806      (5,098,165
  

 

 

    

 

 

 

Net cash inflow/(outflow) from accruals and payments

     2,686         (8,412

Foreign currency translation and other

     (36,735      (2,769
  

 

 

    

 

 

 

Ending balance

   $ 466,804       $ 550,914   
  

 

 

    

 

 

 

Cash Used in Investing Activities. Cash used in investing activities during the first nine months of fiscal years 2016 and 2015 was $30.5 million, and $60.1 million, respectively. During the first nine months of fiscal 2016, we used $8.4 million of cash for software development and $17.3 million for other capital expenditures, consisting primarily of computer hardware and furniture, fixtures and equipment. This compares to cash used for software development of $9.8 million and cash used for other capital expenditures of $21.0 million during the same period of fiscal 2015. During the normal course of operations, we have a need to acquire technology, office furniture and equipment to facilitate the handling of our client freight and logistics volumes. We currently expect to incur an aggregate of approximately $25.0 million to $35.0 million for cash capital expenditures during fiscal 2016, including amounts already spent as of October 31, 2015.

In connection with the Fiscal 2015 Refinancing, described below, during the nine months of fiscal 2015 certain facilities were terminated and we initially provided cash collateral in the amount of $50.0 million to secure the letters of credit and bank guarantees which were outstanding at that time. The usage of such cash is restricted pursuant to applicable agreements. For the nine months ended October 31, 2015, the required amount of cash collateral had a net increase of $5.0 million based on the letters of credit and bank guarantees that remain outstanding as of the end of such period.

 

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Cash Provided by Financing Activities. Cash provided by financing activities during the first nine months of fiscal 2016 and 2015 was $86.9 million, and $142.2 million, respectively. Our financing activities during the first nine months of fiscal 2016 included (i) borrowings from bank lines of credit of $219.0 million, (ii) net borrowings from other revolving lines of credit of $3.7 million, and (iii) proceeds from the issuance of financing agreements of $75.0 million. Such borrowings were partially offset by (i) repayments of bank lines of credit, financing agreements and long-term borrowings of $190.0 million; (ii) repayments of capital lease obligations of $9.4 million; (iii) a net decrease in other short-term borrowings of $9.4 million and (iv) other net usages of $2.0 million.

Our financing activities during the first nine months of fiscal 2015 included (i) proceeds from the issuance of long-term borrowings of $404.6 million and (ii) proceeds from the issuance of Convertible Preference Shares of $175.0 million. In connection with the Fiscal 2015 Refinancing, we completed a private offering of $400.0 million principal amount of our 4.50% convertible senior notes due 2019 (which we refer to as the 2019 Notes) and a private offering of our Convertible Preference Shares in the principal amount of $175.0 million. After deducting fees and allocated expenses, we received net cash proceeds of $556.6 million from the Fiscal 2015 Refinancing. Such borrowings were partially offset by (i) repayments of long-term borrowings of $203.5 million and (ii) combined debt and equity issuance costs of $25.8 million. As part of the Fiscal 2015 Refinancing, we repaid all of the $200.0 million aggregate principal amount of our previously outstanding notes and paid to the holders thereof a make-whole payment with respect to such prepayment in the amount of $20.8 million.

Other financing activities during the first nine months of fiscal 2015 included borrowings from bank lines of credit and a net increase in short-term borrowings of $186.0 million; offset by (i) net repayments of bank lines of credit of $356.4 million; (ii) net repayments under revolving lines of credit of $3.0 million; (iii) repayments of capital lease obligations of $10.8 million; and (iv) other net usages of $3.1 million.

Credit Facilities; Other Short-Term Borrowings; Long-Term Borrowings

Bank Lines of Credit. We utilize a number of banks and other financial institutions to provide us with borrowings and letters of credit, guarantee and working capital facilities. Certain of these credit facilities are used for working capital, for issuing letters of credit to support the working capital and operational needs of various subsidiaries, to support various customs bonds and guarantees, and for general corporate purposes. In other cases, customs bonds and guarantees are issued directly by various financial institutions. In some cases, the use of a particular credit facility is restricted to the country in which it originates. These particular credit facilities may restrict distributions by the subsidiary operating in such country.

Fiscal 2015 Refinancing. In March 2014 we undertook several steps to address the liquidity and covenant challenges which we were then experiencing (we refer to these steps collectively as the Fiscal 2015 Refinancing). These steps included completing the private placements of our 2019 Notes and of our Convertible Preference Shares, and entering into a credit agreement with Citibank, N.A., Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc. and Bank of the West for a new senior secured asset-based revolving credit facility (CitiBank Credit Facility). As previously disclosed, we also repaid our then outstanding notes and refinanced our indebtedness which was then outstanding under certain of our credit facilities.

In connection with the Fiscal 2015 Refinancing, certain of our credit facilities were terminated and we provided cash collateral to secure the letters of credit and bank guarantees which were outstanding thereunder and which remain outstanding as of October 31, 2015. As of October 31, 2015, $34.1 million of such cash collateral was outstanding and the usage of such cash is restricted pursuant to the applicable agreements. Continuing after the completion of the Fiscal 2015 Refinancing, we had, and we continue to maintain, our South African Facilities Agreement and various other bank lines of credit and letters of credit facilities. In addition to such bank lines of credit, in fiscal 2015 we started borrowing pursuant to short-term advances made under our uncommitted financing arrangements with Greensill Capital (UK) Limited (Greensill) to help us fund our short-term working capital requirements. See “Other Short Term Borrowings” below for a description of such arrangement.

Since implementing the Fiscal 2015 Refinancing, we have incurred additional losses. Our ability to make scheduled payments on, or to refinance, our debt obligations and to fund planned capital expenditures depends on market conditions, including lenders’ assessment of our creditworthiness and business prospects in future, as well as our ability to generate cash in the future and our financial condition and operating performance. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Losses and Outlook” above for additional information.

 

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Information about Borrowings. The following table presents information about our borrowings under various bank lines of credit, letters of credit and other bank credit facilities as of October 31, 2015 (the table is in thousands). The table below does not include our outstanding indebtedness owed under our other short-term borrowings and our long-term borrowings. See “Other Short-Term Borrowings” and “Long-Term Borrowings” for additional information regarding such other indebtedness.

Bank Lines of Credit and Letters of Credit Facilities

 

     CitiBank
Credit
Facility(1)
     South African
Facilities
Agreement (2)
     Other
Facilities(3)
     Total  

Credit facility limit

   $ 132,224       $ 49,126       $ 150,864       $ 332,214   
  

 

 

    

 

 

    

 

 

    

 

 

 

Facility usage for cash withdrawals(4)

     98,000         5,116         28,062         131,178   

Letters of credit and guarantees outstanding

     13,635         19,913         80,595         114,143   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total facility/usage

   $ 111,635       $ 25,029       $ 108,657       $ 245,321   
  

 

 

    

 

 

    

 

 

    

 

 

 

Available, unused capacity

   $ 20,589       $ 24,097       $ 42,207       $ 86,893   

Available for cash withdrawals

   $ 20,589       $ 22,337       $ 37,177       $ 80,103   

 

(1) The CitiBank Credit Facility was entered into in March 2014 in connection with the Fiscal 2015 Refinancing. The amount of cash withdrawals available under the CitiBank Credit Facility is limited to the lesser of (a) $150.0 million or (ii) (a) the borrowing base calculation for the period less (b) letters of credit or guarantees outstanding and (c) outstanding cash withdrawals and reimbursement obligations. The average outstanding cash borrowings during the nine months ended October 31, 2015 was $86.2 million. As of the date of the filing of this Form 10-Q, the credit facility limit was $126.1 million, the outstanding cash borrowings was $93.0 million and the letters of credit and guarantees outstanding remained $13.6 million.
(2)  In September 2014 we amended and restated our credit facility for our operations in South Africa (South African Facilities Agreement), which currently provides for both: (i) a 680.0 million ZAR revolving credit facility, which is comprised of a ZAR 380.0 million working capital facility and a ZAR 300.0 million letter of credit, guarantee, forward exchange contract and derivative instrument facility, and (ii) a ZAR 150.0 million revolving asset-based finance facility, which consists of a capital lease line. Excluded from the table are amounts outstanding under the ZAR 150.0 million revolving asset-based finance facility, which amounts are included under capital lease obligations on our consolidated balance sheet. The maturity date of this facility is July 9, 2016. Total facility usage on the South African Facilities Agreement is presented net of cash and cash equivalents of $45.8 million and $74.3 million for the period ended October 31, 2015 and January 31, 2015, respectively.
(3) Certain bank letters of credit and guarantees outstanding in this column are collateralized by our cash held as collateral. As of October 31, 2015, $34.1 million of such cash collateral was outstanding and the usage of such cash is restricted pursuant to the applicable agreement.
(4) Certain amounts in this row reflect letters of credit and bank guarantees supporting outstanding cash borrowings by the company’s subsidiaries.

CitiBank Credit Facility. In March 2014 certain of our U.S. and Canadian subsidiaries entered into the CitiBank Credit Facility, which facility is guaranteed by us and certain of our subsidiaries. The CitiBank Credit Facility provides up to $150.0 million of commitments for a senior secured asset-based revolving line of credit, including a $20.0 million sublimit for swingline loans, a $50.0 million sublimit for the issuance of standby letters of credit and a $20.0 million sublimit for loans in Canadian dollars. The maximum amount we are permitted to borrow under the CitiBank Credit Facility is subject to a borrowing base calculated by reference to our accounts receivable in the U.S. and Canada and certain eligibility criteria with respect to such receivables and other borrowing limitations. Amounts borrowed under the

 

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CitiBank Credit Facility bear interest (1) at a rate based on the London Interbank Offered Rate, or LIBOR or the Canadian equivalent, plus a margin ranging from 2.00% to 2.50%, or (2) a rate based on the higher of (a) the base prime rate offered by CitiBank, (b) 1.00% plus the one-month LIBOR rate or (c) 0.50% plus the federal funds rate or in each case, the Canadian equivalent, plus a margin ranging from 1.00% to 1.50%. The CitiBank Credit Facility will terminate in March 2019, unless the 2019 Notes are not redeemed, refinanced or converted prior to September 2018, in which case the CitiBank Credit Facility will terminate in September 2018.

The CitiBank Credit Facility is secured, subject to permitted liens and other agreed upon exceptions, by a first-priority lien on and perfected security interest in substantially all of our U.S. and Canadian assets, including accounts receivable and a pledge of the equity in our U.S. and Canadian holding and operating companies. In addition, the CitiBank Credit Facility requires that we maintain a fixed charge coverage ratio of not less than 1.00 to 1.00 if available credit under the CitiBank Credit Facility is less than the greater of (i) 10% of the maximum credit thereunder and (ii) $15.0 million. The CitiBank Credit Facility contains customary representations and warranties and customary events of default, payment of customary fees and expenses, as well as certain affirmative and negative covenants, including restrictions on: indebtedness; liens; mergers, consolidations and acquisitions; sales of assets; engaging in business other than our current business; investments; dividends; redemptions and distributions; affiliate transactions; and other restrictions.

South African Facilities Agreement. The obligations of our subsidiaries under the South African Facilities Agreement are guaranteed by selected subsidiaries registered in South Africa. In addition, certain of our 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. The South African Facilities Agreement terminates in July 2016.

The South African Facilities Agreement contains events of default and covenants, including, but not limited to, financial covenants, restrictions on certain types of activities and transactions, reporting covenants, cross defaults to other indebtedness and other terms, events of default and covenants typical of credit facilities. The South African Facilities Agreement also provides for an uncommitted seasonal customs facility which may be made available to the South African obligors at a later date if requested by the South African obligors. In addition, the South African Facilities Agreement provides the South African obligors with an option to request that Nedbank increase its commitments under the revolving credit facility and the revolving asset-based finance facility in an aggregate amount up to ZAR 400.0 million, subject to the approval of Nedbank and the satisfaction of certain conditions precedent. We obtained a waiver from the lender under our South African Facilities Agreement regarding a financial covenant in such agreement for the measurement period ended January 31, 2015 and in May 2015, the South African Facilities Agreement was amended to exclude from the calculation of the Interest Cover Ratio covenant for the measurement period ending on October 31, 2015, the amount of ZAR 280.0 million which relates to a previously disclosed impairment relating to an unpaid receivable owed by a client in South Africa that has entered into the South African equivalent of bankruptcy.

Overdrafts under the South African working capital facility bear interest at a rate per annum equal to Nedbank’s publicly quoted prime rate minus 1%. The per annum interest rate payable in respect of foreign currency accounts is generally the Intercontinental Exchange London Interbank Offered Rate (LIBOR), or with respect to a foreign currency account in euro, the Euro Interbank Offered Rate (EURIBOR), plus the lender’s 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 our subsidiaries party to the South African Facilities Agreement and Nedbank.

In addition to the South African Facilities Agreement described above, our South African subsidiaries 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 October 31, 2015, the value of these contingent liabilities was $20.9 million.

Cash Pooling Arrangements. A significant number of our subsidiaries participate in cash pooling arrangements administered by various banks and which we use to fund liquidity needs of our subsidiaries. The cash pooling arrangements have no stated maturity dates and yield and bear interest at varying rates. The facilities do not permit aggregate outstanding withdrawals by our subsidiaries under an arrangement to exceed the aggregate amount of cash deposits by our subsidiaries in the arrangement at any one time. Under these arrangements, cash withdrawals of $13.0 million were included in bank lines of credit on our balance sheet at October 31, 2015.

 

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Other Additional Bank Credit Facilities. In addition to the credit, letters of credit, and guarantee facilities provided under the CitiBank Credit Facility and the South African Facilities Agreement, we utilize a number of bank and other financial institutions to provide us and our subsidiaries with additional credit, letters of credit and guarantee facilities. In some cases, the use of these particular letters of credits, guarantee and credit facilities may be restricted to the country in which they originated and may restrict distributions by the subsidiary operating in the country.

Other Limitations and Covenants. The CitiBank Credit Facility, the South African Facilities Agreement, and certain of our other credit, letters of credit and guarantee facilities also contain other limitations on the payment by us and/or by our various subsidiaries of dividends, distributions and share repurchases. In addition, if a “change in control” (as defined in the various agreements and facilities) should occur, then the outstanding indebtedness thereunder may become due and payable. Should we fail to comply with the covenants in the CitiBank Credit Facility, the South African Facilities Agreement, or certain of our other credit, letters of credit or other facilities, we would be required to seek to amend the covenants or to seek a waiver of such non-compliance as we were required to do in the past. If we are unable to obtain any necessary amendments or waivers, all or a portion of the indebtedness and obligations under the various agreements and facilities could become immediately due and payable and our various agreements and facilities could be terminated and the credit, letters of credit and guarantee facilities provided thereunder would no longer be available to us. Furthermore, the CitiBank Credit Facility, the South African Facilities Agreement, and certain of our other credit and debt facilities contain cross-default provisions with respect to other indebtedness, giving the lenders under such agreements and facilities the right to declare a default if we default under other indebtedness in certain circumstances. We believe we were in compliance with the covenants contained in the Citibank Credit Facility, the South African Facilities Agreement, and our other credit, letters of credit, and debt facilities as of October 31, 2015.

The maximum and average borrowings against all of our bank lines of credit during the first nine months of fiscal 2016 were $206.5 million and $150.5 million, respectively. The maximum and average borrowings against all of our bank lines of credit during the first nine months of fiscal 2015 were $334.8 million and $213.7 million, respectively. Borrowings during our reporting periods may be materially different than the period-end amounts recorded in the financial statements due to requirements to fund customs duties and taxes, changes in accounts receivable and accounts payable, and other working capital requirements.

Other Short-term Borrowings. In addition to our lines of credit and letters of credit facilities from banks and other financial institutions, we also have a number of additional short-term borrowings issued by various parties not described above. The total of such additional borrowings at October 31, 2015 and January 31, 2015, was $48.5 million and $52.8 million, respectively.

On December 2014, we entered into a Parent Customer Agreement (Customer Agreement) with Greensill and a Re-invoicing Service Agreement (Re-invoicing Agreement) with Bramid Outsource Limited (an affiliate of Greensill and the Re-Invoicing Agent). The Service Agreement and the Re-invoicing Agreement are referred to herein collectively as the Greensill Financing Agreements. Pursuant to the Greensill Financing Agreements, we may submit written requests to the Re-Invoicing Agent pursuant to which we may receive an advance of funds to pay such invoices or to reimburse ourselves if the relevant invoice has already been paid. Currently, our internal authorization for borrowings under the Greensill Financing Agreements is set at $105.0 million, although the Greensill Financing Agreements do not contain a commitment by Greensill to make any additional advances to us. Greensill may elect, but has no obligation, to advance any funds to us as Greensill retains the right to evaluate each request submitted by us and may establish the terms of each advance (assuming an advance will be made) at the time a request is submitted. The Greensill Financing Agreements do not contain a commitment by Greensill as to any particular level of advances to be made to us. If the Re-Invoicing Agent and Greensill choose to enter into a transaction, the Re-Invoicing Agent shall charge us a fee based on an annual rate of Libor plus 9.5%. If any amount is not paid on the maturity date, the advance will continue to accrue interest at LIBOR plus 9.5%. The principal portion of such advance and the fee are due on the maturity of such advance which may vary by agreement between the parties, although all advances currently outstanding under the Greensill Financing Agreements must be repaid on the six month anniversary of the initial advancement of funds. In the third quarter of fiscal 2016, approximately $22.0 million of advances under the Greensill Financing Agreements were repaid and we obtained new advances aggregating approximately $15.0 million due April 2016. As of October 31, 2015, we had a

 

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total of approximately $50.0 million outstanding under the Greensill Financing Agreements. As of the date of the filing of this Form 10-Q, the following amounts are due and payable in cash: $10.0 million is payable in January 2016, $15.0 million is payable in April 2016, $17.5 million is payable in May 2016 and $7.5 million is payable in June 2016. No assurances can be given that we will be able to obtain additional advances in the future under the Greensill Financing Agreements and we may not be able to extend or refinance the outstanding debt on acceptable terms, or at all.

Events of default under the Greensill Financing Agreements include the failure to make a payment within five business days after the applicable due date, an insolvency event and the default by us on certain other indebtedness. Upon an event of default, all advances outstanding under the Greensill Financing Agreements become due and payable. The Greensill Financing Agreements terminate in December 2017, subject to earlier termination as provided for therein.

Long-term Borrowings. The following table presents information about the company’s indebtedness pursuant to its 2019 Notes and other long-term borrowings as of October 31, 2015:

 

     2019
Notes(1)
    Other Facilities     Total  

Maturity date

     March 1, 2019       

Original principal

   $ 400,000       

Original issuance discount for fair value of conversion feature net of accreted value as of October 31, 2015

   $ 33,780       

Interest rate per annum

     4.50     3.69  

Discount rate

     7.40    

Balance at October 31, 2015:

      

Current portion of long-term borrowings

     —          7,080        7,080   

Long-term borrowings, excluding current portion

     366,220        2,581        368,801   
  

 

 

   

 

 

   

 

 

 

Total

   $ 366,220      $ 9,661      $ 375,881   
  

 

 

   

 

 

   

 

 

 

 

(1) The fair value of the 2019 Notes has been bifurcated and presented in equity under common stock in the company’s consolidated financial statements beginning in April 30, 2014. The amount included in long-term borrowings is accreting to the $400.0 million redemption value using a discount rate of approximately 7.4%, which approximated the company’s fair-value incremental borrowing rate for a similar debt instrument (without the conversion feature) as of the date of issuance.

2019 Notes. On March 4, 2014, we completed a private offering of our 2019 Notes in the aggregate principal amount of $400.0 million, and entered into an indenture (Indenture) with Wells Fargo Bank, National Association, as trustee, in connection therewith. After deducting fees and expenses, we received net proceeds from the offering of $386.1 million. The Indenture governs the 2019 Notes and contains terms and conditions customary for transactions of this type, including customary events of default such as cross-defaults and other provisions. The 2019 Notes bear interest at an annual rate of 4.50% payable in cash semiannually in arrears on March 1 and September 1 of each year, beginning on September 1, 2014. The 2019 Notes will be due and payable by us when they mature on March 1, 2019, unless earlier converted, redeemed or repurchased in accordance with their terms prior to such date. We may not redeem the 2019 Notes at our option prior to maturity unless certain tax related events occur. In addition, the Indenture provides that if we undergo certain types of “fundamental changes” prior to the maturity date of the 2019 Notes, each 2019 Note holder has the option to require us to repurchase all or any of such holder’s 2019 Notes for cash. Pursuant to the terms of the Indenture, the 2019 Notes will be convertible into our ordinary shares at a conversion rate of 68.9703 ordinary shares per $1,000 principal amount of 2019 Notes (equivalent to an initial conversion price of approximately $14.50 per ordinary share), subject to adjustment, upon the occurrence of certain events prior to the close of business on the business day immediately preceding September 1, 2018, and, on or after September 1, 2018, by a holder’s surrender for conversion of any of its 2019 Notes at any time prior to the close of the business day immediately preceding the maturity date. Upon a conversion of the 2019 Notes, in accordance with the Indenture we have the option to pay or deliver, as the case may be, cash, our ordinary shares or a combination of cash and ordinary shares, at our election.

 

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Convertible Preference Shares. As previously disclosed, as part of our Fiscal 2015 Refinancing we completed a private offering of our Convertible Preference Shares to an affiliate of our largest shareholder, P2 Capital, in the aggregate principal amount of $175.0 million. For additional information regarding the terms of the Convertible Preference Shares, see Note 4 of the Notes to Financial Statements contained in Part I of this Form 10-Q.

Off-Balance Sheet Arrangements

Other than operating leases, we have no material off-balance sheet arrangements.

Critical Accounting Estimates

Our 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 our critical accounting estimates during the nine months of fiscal 2016. During the three months ended July 31, 2015, we recorded a charge of $50.0 million, before a related deferred tax benefit of $9.0 million, for impairment of goodwill in the company’s Freight Forwarding segment. See Note 6 of the Notes to Financial Statements contained in Part I of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As of October 31, 2015, there had been no material changes to our exposure to market risks since January 31, 2015, as described in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 on file with the SEC. For a discussion of our 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, 2015.

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 SEC’s 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 issuer’s 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, evaluated our disclosure controls and procedures as of October 31, 2015. In our Annual Report on Form 10-K for the year ended January 31, 2015, we concluded that our disclosure controls and procedures were ineffective as of January 31, 2015, solely due to a material weakness in internal control over financial reporting. This material weakness relates to our centralized process for certain activity recorded through our freight forwarding receivable and payable clearing accounts. As a result, underlying controls related to freight forwarding receivables, payables, revenues and purchased transportation cost accounts were not operating effectively. This material weakness is described more fully in our Management’s Report on Internal Controls Over Financial Reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) and the related Report of Independent Registered Public Accounting Firm, which are contained in Item 15 of Part IV of our Annual Report on Form 10-K for the fiscal year ended January 31, 2015. Furthermore based upon our evaluation (which evaluation included our Chief Executive Officer and Chief Financial Officer) as of October 31, 2015, our management (which included our Chief Executive Officer and Chief Financial Officer) concluded that our disclosure controls and procedures were ineffective as of October 31, 2015, due solely to the material weakness in our internal control over financial reporting described above and in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

 

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Management is in the process of taking further steps to improve and strengthen the internal controls related to the above matter, including (i) the creation of new sub-ledgers to segregate transactions by type, (ii) the modification of the form and format of certain monitoring activities, and (iii) moving some review functions regarding the collectability of these items to finance teams residing in various subsidiaries. Notwithstanding the above process, the identified material weakness in our internal control over financial reporting will not be considered remediated until the new controls are fully implemented, in operation for a sufficient period of time, tested and concluded by management to be designed and operating effectively. There have been no other changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

In connection with Financial Accounting Standards Board (FASB) Accounting Standards Codification (FASB Codification or ASC) Topic 450, Contingencies (ASC 450), we have not accrued for material loss contingencies relating to 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 and 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. 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 Annual Report on Form 10-K, we are not a party to any litigation that we believe will be material, except as described below.

Industry-Wide Anti-Trust Investigation. On March 28, 2012 we were notified by the EC that it had adopted a decision against us and two of our subsidiaries relating to alleged anti-competitive behavior in the market for freight forwarding services in the European Union/European Economic Area. The decision of the EC imposes a fine of euro 3.1 million (or approximately $3.4 million at October 31, 2015) against us. We believe that neither we nor our subsidiaries violated European competition rules. In June 2012, we appealed the decision and the amount of the fine before the European Union’s General Court and oral arguments were heard in October 2014.

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 responded to this proceeding in May 2014. We filed a supplemental response in support of our defense in September 2014 after we were granted access to various documents seized by the Brazilian antitrust authority during raids of several other forwarders.

 

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From time to time we may receive additional requests for information, documents and interviews from various governmental agencies with respect to these investigations, and we have provided, and may continue to provide in the future, further responses as a result of such requests.

We have incurred, and we may in the future incur, significant legal fees and other costs in connection with these governmental investigations and lawsuits. If any regulatory body concludes that we have engaged in anti-competitive behavior, we could incur significant additional legal fees and other costs and penalties, which could include substantial fines, penalties and/or criminal sanctions against us and/or certain of our current or former officers, directors and employees, and we could be liable for damages. Any of these fees, costs, penalties, damages, sanctions or liabilities could have a material adverse effect on us and our financial results.

Matters Related to the Fiscal 2015 Financing. On March 17, 2014, a putative securities class action lawsuit was filed against us and certain of our executives in the United States District Court for the Central District of California. As amended, the complaint, which is captioned Michael J. Angley, individually and on behalf of himself and all others similarly situated v. UTi Worldwide Inc., Eric W. Kirchner, Richard G. Rodick, Edward G. Feitzinger and Jeffrey W. Misakian, No. 2:14-cv-02066, generally alleged that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by misstating or failing to disclose, in certain public statements made and in filings with the SEC between March 28, 2013 and February 26, 2014, material facts relating to our liquidity position, financial condition, financial covenants, financial systems and freight forwarding operating system. On November 12, 2015, the Court in this matter granted our motion to dismiss and Plaintiff’s Second Amended Class Action Complaint was dismissed with prejudice.

In July 2014, we received a subpoena from the SEC requesting certain documents related to, among other things, the facts and circumstances surrounding the Fiscal 2015 Refinancing. In September 2014, we received a similar subpoena directed to the members of the Audit Committee of the Board of Directors. In April 2015, we received a subpoena from the SEC requesting certain documents related to the material weakness in internal control over financial reporting and the revisions to prior period financial statements that were disclosed in our Form 10-K for the period ending January 31, 2015. We have been cooperating and intend to continue to cooperate with the SEC’s investigation.

Item 1A. Risk Factors

Our business, financial condition and results of operations are subject to a number of factors, risks and uncertainties. There have been no material changes to the risk factors as disclosed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 filed with the SEC, except as contained in our Form 10-Q for the six months ended July 31, 2015 (filed on September 9, 2015) and as set forth below. Investors should read the information under Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Recent Losses and Outlook and – Liquidity and Capital Resources” for additional information about some of the near term risks we face. The disclosures in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 filed with the SEC (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of our Annual Report on Form 10-K), this Form 10-Q , in our definitive proxy statement filed with the SEC on December 4, 2015, and in our other reports and filings with the SEC are not necessarily a definitive list of all factors that may affect our business, financial condition and future results of operations.

 

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We continue to experience losses and we expect to incur further losses. We may not return to or sustain profitability in the future. In the nine months ended October 31, 2015, our operating loss and net loss attributable to UTi Worldwide Inc. increased to $91.9 million and $136.7 million, respectively, as a result of weaker than anticipated business conditions and operating results, particularly with respect to freight forwarding volumes. We also incurred operating losses and net losses attributable to UTi Worldwide Inc. in fiscal years 2015, 2014 and 2013. Furthermore, based on our results of operations through the nine months ended October 31, 2015 and our current expectations for the remainder of fiscal 2016, particularly with respect to freight forwarding volumes, we currently expect to report losses at least through the end of the second quarter of fiscal 2017. Our liquidity, financial condition and operating performance have been materially and adversely impacted by our weaker than anticipated financial results through the nine months ended October 31, 2015. We will likely not return to profitability prior to the completion of the Merger with DSV and, if the Merger is not completed, we may not return to profitability in future periods. Additionally, our revenues could further decline, or could grow more slowly than we expect and we may incur significant losses in the future due to a number of factors and reasons, including those related to the planned Merger with DSV described elsewhere in this Item 1.A. “Risk Factors”. Our future liquidity, financial condition and operating performance could be materially and adversely impacted by a number of factors, including the other risks, uncertainties and factors described elsewhere in this Form 10-Q, in our definitive proxy statement filed with the SEC on December 4, 2015, in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 filed with the SEC (together with any amendments thereto and additions and changes thereto contained in our filings with the SEC since the filing of our Annual Report on Form 10-K) and in our other filings with the SEC.

Failure to complete the Merger could negatively impact the price of our ordinary shares, as well as our future business and financial results. The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger. We cannot assure you that all of the conditions to the Merger will be so satisfied or waived. If the conditions to the Merger are not satisfied or waived, we may be unable to complete the Merger.

If the Merger is not completed, our ongoing business may be adversely affected as follows:

 

    we may experience negative reactions from the financial markets, including negative impacts on the market price of our ordinary shares;

 

    some of management’s attention will have been directed to the Merger instead of being directed to our own operations and the pursuit of other opportunities that could have been beneficial to us;

 

    the manner in which customers, suppliers and other third parties perceive us may continue to be negatively impacted, which in turn may continue to affect our ability to compete for business;

 

    we may experience negative reactions from employees;

 

    we will have expended time and resources that could otherwise have been spent on our existing business; and

 

    we may be required, in certain circumstances, to pay a termination fee of $34.0 million, as provided in the Merger Agreement.

Additionally, in approving the Merger Agreement, the Board considered a number of factors and potential benefits, including the fact that the Merger consideration to be received by holders of our ordinary shares represented a premium of approximately 50% over the closing price of our ordinary shares on October 8, 2015. If the Merger is not completed, neither the Company nor the holders of our ordinary shares will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related fees and costs and the loss of management time and resources.

The Merger is conditioned on, among other things, certain shareholder approvals, which we may not obtain. The special shareholders meeting for all our shareholders (including the holders of the Convertible Preference Shares voting on an as-converted basis) to consider and vote upon the Merger and related matters is scheduled for January 14, 2016. The special class meeting of the holders of our ordinary shares (excluding our largest ordinary shareholder and the Convertible Preference Shares) will also be held on January 14, 2016.

 

 

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A significant delay in consummating or a failure to consummate the Merger could have a material adverse effect on the price of our ordinary shares and our operating results. Because the Merger is subject to certain closing conditions, it is possible that the Merger may not be completed or may not be completed as quickly as expected. If the Merger is not completed, it could have a material adverse effect on the price of our ordinary shares. In addition, any significant delay in consummating the Merger could have a material adverse effect on our operating results and continue to adversely affect our relationships with customers and suppliers and would likely lead to a significant diversion of management and employee attention and potential employee attrition.

Expenses related to the proposed Merger are significant and will adversely affect our operating results. We have incurred and expect to continue to incur significant expenses in connection with the proposed Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not consummated, we may under certain circumstances be required to pay to DSV a termination fee of $34.0 million. Our financial position and results of operations would be adversely affected if we were required to pay the termination fee to DSV.

We are subject to business uncertainties and contractual restrictions while the Merger is pending, which have and may continue to adversely affect our business. The Merger Agreement requires us to act in the ordinary course of business and restricts us, without the consent of DSV, from taking certain specified actions until the proposed Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement.

Uncertainties associated with the Merger may cause a loss of management and other key employees and have disrupted our business relationships, which has and may continue to adversely affect our business. Uncertainty about the effect of the Merger on our employees, customers and suppliers has and may continue to have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger, as employees of the Company may experience uncertainty about their future roles with the Company. As we face additional uncertainties relating to the Merger, our business relationships have and may continue to be subject to disruption as customers, suppliers and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company. If key employees depart or if our existing business relationships suffer, our results of operations may continue to be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what DSV has agreed to pay. The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than DSV. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction, subject to limited exceptions. If we or DSV terminate the Merger Agreement and we agree to be or are subsequently acquired by another company, we may in some circumstances be required to pay to DSV a termination fee of $34.0 million. Further, our Board of Directors has agreed in the Merger Agreement, subject to limited exceptions, that it will not withdraw or modify in a manner adverse to DSV its recommendation that our shareholders approve the Merger.

These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the cash value proposed to be received in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Item 5. Other Information

None.

 

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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 company’s Current Report on Form 8-K, filed March 3, 2014)
    3.2    Amended and Restated Articles of Association of the company (incorporated by reference to Exhibit 3.2 to the company’s Current Report on Form 8-K, filed March 3, 2014)
  10.1    Merger Agreement, dated as of October 9, 2015, among UTi Worldwide Inc., DSV A/S and Louvre Acquisitionco, Inc. (incorporated by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K, filed October 09, 2015)
  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
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Indicates compensatory arrangement

 

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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: December 10, 2015   By:  

/s/ Edward G. Feitzinger

    Edward G. Feitzinger
    Chief Executive Officer
Date: December 10, 2015   By:  

/s/ Richard G. Rodick

    Richard G. Rodick
   

Executive Vice President – Finance and

Chief Financial Officer

Principal Financial Officer and

Principal Accounting Officer

 

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EXHIBIT INDEX

 

Exhibit    Description
    3.1    Amended and Restated Memorandum of Association of the company (incorporated by reference to Exhibit 3.1 to the company’s Current Report on Form 8-K, filed March 3, 2014)
    3.2    Amended and Restated Articles of Association of the company (incorporated by reference to Exhibit 3.2 to the company’s Current Report on Form 8-K, filed March 3, 2014)
  10.1    Merger Agreement, dated as of October 9, 2015, among UTi Worldwide Inc., DSV A/S and Louvre Acquisitionco, Inc. (incorporated by reference to Exhibit 2.1 to the company’s Current Report on Form 8-K, filed October 09, 2015)
  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
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Indicates compensatory arrangement

 

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