-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LoOZD2P/gDWcEt2eZEGtI4EyKP+fu5svLzACmRCcIY4aSwpm4JOlVOCE2gLdEMn/ b2Ym2sHZpWc7W1LvrKs9xA== 0000950129-00-002251.txt : 20000511 0000950129-00-002251.hdr.sgml : 20000511 ACCESSION NUMBER: 0000950129-00-002251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGL INC CENTRAL INDEX KEY: 0001001718 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 760094895 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27288 FILM NUMBER: 623671 BUSINESS ADDRESS: STREET 1: 15340 VICKERY DR CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 281-618-34 MAIL ADDRESS: STREET 1: 15350 VICKERY DR STREET 2: SUITE 510 CITY: HOUSTON STATE: TX ZIP: 77032 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE USA AIRFREIGHT INC DATE OF NAME CHANGE: 19951002 10-Q 1 EGL, INC. - PERIOD ENDED MARCH 31, 2000 1 ================================================================================ 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 MARCH 31, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ---- ----- COMMISSION FILE NUMBER 0-27288 EGL, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0094895 - -------------------------------------------------------------- --------------------------------------- (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
15350 VICKERY DRIVE, HOUSTON, TEXAS 77032 (281) 618-3100 ----------------------------------------------------------------- (Address of Principal Executive Offices, Including Registrant's Zip Code, and Telephone Number, Including Area Code) EAGLE USA AIRFREIGHT, INC. --------------------------------------------------- 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 --- --- The number of shares of the registrant's common stock as of May 8, 2000: 28,614,174 shares (net of 1,284,433 treasury shares). ================================================================================ 2 EGL, INC. INDEX TO FORM 10-Q
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet as of ........................................... 3 March 31, 2000 (unaudited) and September 30, 1999 (audited) Condensed Consolidated Statement of Income and Comprehensive Income for the Six Months ended March 31, 2000 and 1999 (unaudited) ................ 4 Condensed Consolidated Statement of Income and Comprehensive Income for the Three .... 5 Months ended March 31, 2000 and 1999 (unaudited) Condensed Consolidated Statement of Cash Flows for ................................... 6 the Six Months ended March 31, 2000 and 1999 (unaudited) Condensed Consolidated Statement of Shareholders' .................................... 7 Equity for the Six Months ended March 31, 2000 (unaudited) Notes to Condensed Consolidated Financial Statements (unaudited) ..................... 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...............................................................10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...........................17 PART II. OTHER INFORMATION ...................................................................18 SIGNATURES ...................................................................................21 INDEX TO EXHIBITS ............................................................................22
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EGL, INC. CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PAR VALUES)
March 31, September 30, 2000 1999 (unaudited) (audited) ------------- ------------- Assets Current assets: Cash and cash equivalents $ 30,916 $ 35,175 Short-term investments 17,213 Accounts receivable - trade, net 116,903 109,003 Prepaid expenses and other 5,683 3,712 Deferred income taxes 3,034 2,817 ------------- ------------- Total current assets 156,536 167,920 Property and equipment, net 35,751 28,184 Goodwill, net 36,816 11,072 Other assets 3,870 1,815 ------------- ------------- Total assets $ 232,973 $ 208,991 ============= ============= Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 20,426 $ 12,657 Accrued transportation costs 15,107 21,895 Accrued compensation and employee benefits 13,903 18,677 Other accrued liabilities 9,949 8,855 ------------- ------------- Total current liabilities 59,385 62,084 Other long-term liabilities 3,321 Deferred income taxes 3,078 3,097 ------------- ------------- Total liabilities 65,784 65,181 ------------- ------------- Minority interest 299 183 ------------- ------------- Shareholders' equity: Preferred stock, $0.001 par value, 10,000 shares authorized Common stock, $0.001 par value, 100,000 shares authorized, 29,884 and 29,453 shares issued 30 29 Additional paid-in capital 91,398 81,310 Unearned compensation (1,759) Retained earnings 92,867 77,629 Accumulated other comprehensive income (loss) 323 (771) Treasury stock, 1,067 shares, at cost (15,969) (14,570) ------------- ------------- 166,890 143,627 ------------- ------------- Commitments and contingencies (Note 7) ------------- ------------- Total liabilities and shareholders' equity $ 232,973 $ 208,991 ============= =============
See notes to unaudited condensed consolidated financial statements. 3 4 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended March 31, ------------------------- 2000 1999 ---------- ---------- Revenues $ 376,116 $ 278,598 Cost of transportation 220,888 157,322 ---------- ---------- Net revenues 155,228 121,276 ---------- ---------- Operating expenses: Personnel costs 82,774 61,943 Other selling, general and administrative expenses 48,606 38,802 ---------- ---------- 131,380 100,745 ---------- ---------- Operating income 23,848 20,531 Interest and other income 1,276 1,183 ---------- ---------- Income before provision for income taxes 25,124 21,714 Provision for income taxes 9,886 8,433 ---------- ---------- Net income 15,238 13,281 Other comprehensive income: Foreign currency translation 1,094 193 ---------- ---------- Comprehensive income $ 16,332 $ 13,474 ========== ========== Basic earnings per share $ 0.53 $ 0.47 ========== ========== Basic weighted-average common shares outstanding 28,691 28,128 ========== ========== Diluted earnings per share $ 0.51 $ 0.46 ========== ========== Diluted weighted-average common and common equivalent shares outstanding 29,979 28,779 ========== ==========
See notes to unaudited condensed consolidated financial statements. 4 5 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended March 31, ------------------------- 2000 1999 ---------- ---------- Revenues $ 188,751 $ 133,722 Cost of transportation 111,693 75,769 ---------- ---------- Net revenues 77,058 57,953 ---------- ---------- Operating expenses: Personnel costs 42,653 30,714 Other selling, general and administrative expenses 26,230 18,878 ---------- ---------- 68,883 49,592 ---------- ---------- Operating income 8,175 8,361 Interest and other income 621 651 ---------- ---------- Income before provision for income taxes 8,796 9,012 Provision for income taxes 3,518 3,479 ---------- ---------- Net income 5,278 5,533 Other comprehensive income: Foreign currency translation 910 90 ---------- ---------- Comprehensive income $ 6,188 $ 5,623 ========== ========== Basic earnings per share $ 0.18 $ 0.20 ========== ========== Basic weighted-average common shares outstanding 28,791 28,074 ========== ========== Diluted earnings per share $ 0.18 $ 0.19 ========== ========== Diluted weighted-average common and common equivalent shares outstanding 30,005 28,789 ========== ==========
See notes to unaudited condensed consolidated financial statements. 5 6 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended March 31, -------------------------- 2000 1999 ---------- ---------- Cash flows from operating activities $ 5,993 $ 14,912 ---------- ---------- Cash flows from investing activities: Acquisitions, net of cash (20,288) Purchase of investments (4,806) Maturity of investments 17,213 6,315 Acquisition of property and equipment, net (9,879) (5,779) Payment of contingent consideration for acquisition (1,250) (1,500) Other (136) ---------- ---------- Net cash used by investing activities (14,204) (5,906) ---------- ---------- Cash flows from financing activities: Issuance of common stock 294 51 Proceeds from exercise of stock options 4,259 777 Purchase of treasury stock (1,695) (9,266) ---------- ---------- Net cash provided (used) by financing activities 2,858 (8,438) ---------- ---------- Effect of foreign currency translation on cash 1,094 317 ---------- ---------- Net increase (decrease) in cash and cash equivalents (4,259) 885 Cash and cash equivalents, beginning of period 35,175 37,191 ---------- ---------- Cash and cash equivalents, end of period $ 30,916 $ 38,076 ========== ==========
See notes to unaudited condensed consolidated financial statements. 6 7 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL UNEARNED OTHER --------------- PAID-IN COMPEN- RETAINED COMPREHENSIVE TREASURY SHARES AMOUNT CAPITAL SATION EARNINGS INCOME(LOSS) STOCK TOTAL ------ ------- --------- --------- --------- -------------- ---------- --------- Balance at September 30, 1999 29,453 $ 29 $ 81,310 $ 77,629 $ (771) $ (14,570) $ 143,627 Shares issued under stock option 431 1 6,163 $ (1,905) 4,259 plans and restricted stock awards Purchase of treasury stock (1,695) (1,695) Issuance of shares under stock purchase plan (2) 296 294 Tax benefit from exercise of stock options 3,927 3,927 Amortization of unearned compensation 146 146 Net income 15,238 15,238 Foreign currency translation adjustments 1,094 1,094 ------ ------- --------- --------- --------- --------- ---------- --------- Balance at March 31, 2000 29,884 $ 30 $ 91,398 $ (1,759) $ 92,867 $ 323 $ (15,969) $ 166,890 ====== ======= ========= ========= ========= ========= ========== =========
See notes to unaudited condensed consolidated financial statements. 7 8 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited condensed consolidated financial statements have been prepared by EGL, Inc. (the Company) in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial statements and accordingly do not include all information and footnotes required under generally accepted accounting principles for complete financial statements. The financial statements have been prepared in conformity with the accounting principles and practices disclosed in, and should be read in conjunction with, the annual financial statements of the Company included in the Company's Annual Report on Form 10-K (File No. 0-27288). In the opinion of management, these interim financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position at March 31, 2000 and the results of its operations for the six and three months ended March 31, 2000 and 1999. Results of operations for the six and three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2000. NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES: On February 21, 2000, the Company's shareholders approved a proposal to change the Company's name to EGL, Inc. in recognition of the Company's increasing globalization, broader spectrum of services and long-term growth strategy. EGL, Inc. is a worldwide logistics company. The Company maintains operating facilities throughout the United States, Mexico, Canada, Hong Kong, the United Kingdom, Argentina, Brazil, Chile and Peru as well as a worldwide network of exclusive and nonexclusive agents. The Company operates in one principal industry segment. During the six and three months ended March 31, 2000 and 1999, no individual geographic segment outside the United States exceeded more than 10% of the revenues, net income or assets of the combined amounts for all geographic segments. On July 12, 1999, the Board of Directors declared a three-for-two stock split of the Company's common stock, effected in the form of a stock dividend. All shares and per-share amounts have been restated retroactively to reflect the stock split, which was distributed August 30, 1999 to shareholders of record on August 23, 1999. NOTE 2 - EARNINGS PER SHARE: Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share includes potential dilution that could occur if securities to issue common stock were exercised. Stock options are the only potentially dilutive share equivalents the Company has outstanding for the periods presented. Incremental shares of 1.3 million and 651,000 were used in the calculation of diluted earnings per share for the six months ended March 31, 2000 and 1999, respectively. Incremental shares of 1.2 million and 715,000 were used in the calculation of diluted earnings per share for the three months ended March 31, 2000 and 1999, respectively. NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for transactions entered into after January 1, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction. The ineffective portion of all hedges will be recognized in earnings. The Company does not believe the impact of adopting SFAS 133 will be material to its results of operations and financial position. 8 9 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition", to be effective the first quarter of fiscal 2001. The Company is currently evaluating its revenue recognition policies for compliance with SAB No. 101. NOTE 4 - ACQUISITIONS: On December 15, 1999, the Company completed the acquisition of Compass Cargo Limitada, a privately held air freight forwarder in Chile with annual net revenues of approximately $1.5 million for an aggregate purchase price of $1.2 million in cash at closing. On January 7, 2000, the Company completed the acquisition of two commonly-controlled freight forwarding companies operating in Canada for an aggregate purchase price of approximately $21.3 million in cash at closing and a total of approximately $4.9 million in cash payable in three equal, annual installments. The agreement also contemplates additional consideration not to exceed $7.8 million over the next three years payable in cash and Company common stock if certain earnings-based growth goals are achieved. Each of these acquisitions was accounted for as a purchase and the results of operations for the acquired businesses are included in the consolidated statement of income from the acquisition date forward. NOTE 5 - SHAREHOLDERS' EQUITY: In January 2000, the Company's Board of Directors authorized the repurchase of up to one million shares of its outstanding Common Stock. In April 2000, the Company's Board of Directors increased the authorization to three million shares. As of March 31, 2000, the Company had repurchased 57,500 shares for a total of $1.7 million under this authorization. The Company repurchased an additional 217,000 shares for $4.9 million subsequent to March 31, 2000. Unearned compensation relates to awards of restricted stock and is recorded at the date of award based on the market value of the shares and is amortized to expense over the vesting period of three years. NOTE 6 - REVOLVING CREDIT FACILITY: On January 13, 2000, the Company entered into an agreement (the Credit Agreement) with Bank of America, N.A. (the Bank) as administrative agent. The Credit Agreement provides a $50 million revolving line of credit and includes a $10 million sublimit for the issuance of letters of credit. The revolving line of credit matures on January 11, 2001. For each tranche of principal, the Company elects an interest rate calculation based on either LIBOR (a LIBOR Tranche) or either the prime rate announced by the Bank or the federal funds rate plus 50 basis points (a Prime Rate Tranche), plus an applicable margin based on a ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization). The interest for a LIBOR Tranche is due at periods of one, two, three or six months, as the Company may select at the time it requests the funds. The interest for a Prime Rate Tranche is due quarterly. The revolving line of credit includes unused commitment fees and letter of credit fees, each of which is calculated on the basis of a ratio of consolidated debt to consolidated EBITDA. The Company is subject to certain covenants under the terms of the Credit Agreement, including, but not limited to, maintenance at the end of any fiscal quarter of (a) minimum specified consolidated net worth, (b) a ratio of consolidated funded debt to total capitalization of no greater than .50 to 1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no greater than 2.50 to 1.00 and (d) a consolidated fixed charge coverage ratio of no less than 2.00 to 1.00. 9 10 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Credit Agreement also restricts dividends or distributions with respect to equity securities or interests in excess of 20% of consolidated net income for any four fiscal quarters period. The Credit Agreement also places restrictions on additional indebtedness, liens, investments, change of control and other matters. NOTE 7 - COMMITMENTS AND CONTINGENCIES: In the third quarter of fiscal 2000, the Company received a Letter of Determination and Conciliation Proposal from the Equal Employment Opportunity Commission relating to a Commissioner's Charge issued in the first quarter of fiscal 1998. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 1. Legal Proceedings." ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected certain aspects of the Company's financial position and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual financial statements included in the Company's Annual Report on Form 10-K (File No. 0-27288) and the accompanying unaudited condensed consolidated financial statements. OVERVIEW On February 21, 2000, the Company's shareholders approved a proposal to change the Company's name to EGL, Inc. in recognition of the Company's increasing globalization, broader spectrum of services and long-term growth strategy. The Company's revenues have increased to $595.2 million in fiscal 1999 from $291.8 million in fiscal 1997, and its operating income has increased to $45.0 million in fiscal 1999 from $25.7 million in fiscal 1997. Historically, the Company has grown primarily through internal expansion, including developing its terminal network, expanding its service offerings and sales force and increasing its customer base. The Company has also made acquisitions on a limited basis. Since October 1, 1996, the Company has added 45 terminals, increasing the total to 92 at March 31, 2000. The opening of a new terminal generally has an initial short-term negative impact on profitability due to operating losses of the new terminal. However, the opening of a new terminal generally does not require significant capital expenditures. Additionally, personnel costs are contained at the time of the opening of a new terminal because commissions are generally not paid until salesmen achieve minimum sales levels and until managers achieve terminal profitability. Although future new terminals may be opened in cities smaller than those in which the Company's more mature terminals are located, the Company believes the results of new terminals should benefit from a ready base of business provided by its existing customers. The Company intends to continue to expand its international freight forwarding business. International shipments typically generate higher gross revenues and net revenue per shipment than domestic shipments. The Company anticipates that the cost of transportation as a percentage of revenues will be higher for international freight than for domestic freight. However, the Company does not expect its operating expenses to increase in proportion to such revenues. In April 1998, the Company expanded its international operations through the acquisition of the operations of Eagle Transfer, Inc. and S. Boardman (Air Services Limited). The Company commenced operations in Hong Kong during September 1998, in Argentina, Brazil and Peru during the fourth quarter of fiscal 1999 and in Chile during the first quarter of fiscal 2000. 10 11 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On January 7, 2000, the Company completed the acquisition of Commercial Transport International (Canada) Ltd. (CTI) and Fastair Cargo Systems Ltd. (Fastair) for an aggregate purchase price of approximately $21.3 million in cash at closing and a total of approximately $4.9 million in cash payable in three equal annual installments. The acquisition agreement also contemplates additional consideration not to exceed $7.8 million over the next three years payable in cash and Company common stock if certain earnings-based growth goals are achieved. Fastair is a leading forwarder in the intra-Canada freight forwarding market. CTI, its sister company, primarily serves the international freight forwarding market with offices coast-to-coast throughout Canada. CTI and Fastair were privately-held, under common control and have eight locations in Canada. Both companies are based in Toronto, Canada. The acquisitions were accounted for as a purchase and the acquired operations were integrated with the Company's existing Canadian operations. As a result of recent industry consolidation, the Company plans to accelerate its international expansion efforts beginning in the third quarter of fiscal 2000 with the addition of seasoned international airfreight employees worldwide. The new staff and related infrastructure costs are expected to increase international operating expenses over the next two quarters by approximately $4.0 to $5.0 million, or $0.08 to $0.10 cents per diluted share (net of tax). The Company also intends to continue the growth of its local pickup and delivery operations. By providing local pickup and delivery services for its freight forwarding shipments, the Company has been able to increase its gross margin for these shipments because it captures margins that were previously paid to third parties. However, the Company's local pickup and delivery services provided to other non-forwarding customers generate a lower gross margin than the Company's domestic forwarding operations due to their higher transportation costs as a percentage of revenues. Historically, the Company's operating results have been subject, to a limited degree, to seasonal trends when measured on a quarterly basis. The second quarter has traditionally been the weakest and the fourth quarter has traditionally been the strongest. RESULTS OF OPERATIONS The following table presents certain statement of income data as a percentage of revenues and operating data for the periods indicated.
Six Months Ended March 31, Three Months Ended March 31, ---------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Revenues 100.0% 100.0% 100.0% 100.0% Cost of transportation 58.7 56.5 59.2 56.7 ----------- ----------- ----------- ----------- Net revenues 41.3 43.5 40.8 43.3 Personnel costs 22.0 22.2 22.6 23.0 Other selling, general and administrative expenses 12.9 13.9 13.9 14.1 ----------- ----------- ----------- ----------- Operating expenses 34.9 36.1 36.5 37.1 ----------- ----------- ----------- ----------- Operating income 6.4% 7.4% 4.3% 6.2% =========== =========== =========== =========== Net income 4.1% 4.8% 2.8% 4.1% ----------- ----------- ----------- ----------- Freight forwarding terminals at end of period 92 74 92 74 Local delivery locations at end of period 76 67 76 67 Freight forwarding shipments 1,027,536 643,763 589,033 324,399 Average weight (lbs.) per freight forwarding shipment 621 651 555 634
11 12 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999 Revenues increased 35.0% to $376.1 million in the first six months of fiscal 2000 from $278.6 million in the same period of fiscal 1999 primarily due to increases in the number of shipments and the total weight of cargo shipped. These increases resulted from an increase in the number of terminals open during such period, an increase in penetration in existing airfreight and pickup and delivery markets, the addition of significant national account customers and the effect of acquisitions completed after the second quarter of fiscal 1999. Domestic revenues for the second quarter of fiscal 2000 were adversely affected by a temporary shift from overnight air shipments to lower-margin economy ground shipments by the technology and manufacturing sectors as a result of the Year 2000 transition. This adjustment primarily impacted the seasonally weak months of January and February 2000, when the Company recorded a 19.0% domestic revenue growth rate over January and February 1999. The Company's domestic shipping mix normalized by March 2000, when it recorded a 46.0% domestic revenue growth rate over March 1999. For those freight forwarding terminals opened prior to the beginning of fiscal 1999 (71 terminals), revenues increased 33.6% to $336.3 million for the six months ended March 31, 2000 from $251.8 million for the six months ended March 31, 1999. Revenues for the six months ended March 31, 2000 were comprised of $350.5 million of forwarding revenues and $25.6 million of local pickup and delivery revenues, as compared to $254.8 million and $23.8 million, respectively, for the six months ended March 31, 1999. Of the Company's forwarding revenues for the six months ended March 31, 2000, $82.4 million were attributable to international shipments (defined as shipments that cross a national border) compared to $46.3 million for the six months ended March 31, 1999. The acquisitions completed in Canada and Chile, as described in Note 4, added approximately $16.7 million in international revenue during the six months ended March 31, 2000. The Company's total local pickup and delivery revenues for the six months ended March 31, 2000 were $94.6 million. This amount includes $69.0 million of intercompany sales that were eliminated upon consolidation and $25.6 million in services to third-party (non-forwarding) customers. Cost of transportation increased during the first six months of fiscal 2000 as a percentage of revenues to 58.7% from 56.5% in the comparable period in fiscal 1999. The increase was primarily attributable to increased international freight shipping volumes, which carry a higher cost of transportation per shipment than domestic freight. Cost of transportation increased in absolute terms by 40.4% to $220.9 million for the six months ended March 31, 2000 from $157.3 million in the same period in fiscal 1999 as a result of increases in freight shipped. Net revenue margin decreased to 41.3% in the first six months of fiscal 2000 from 43.5% in the same period in fiscal 1999. The primary reason for the margin decline was increased international freight shipping volumes which carry a higher cost of transportation per shipment than domestic freight and a temporary shift in January and February 2000 from overnight air shipments to lower-margin economy ground shipments by the technology and manufacturing sectors as a result of the Year 2000 transition. Net revenues increased 28.0% to $155.2 million in the first six months of fiscal 2000 from $121.3 million in the same period in fiscal 1999. Operating expenses decreased as a percentage of revenues to 34.9% in the first six months of fiscal 2000 from 36.1% for the same period in fiscal 1999. The $30.6 million increased costs in absolute terms was attributable primarily to continued growth in the level of operations from additional terminals and expansion of local delivery operations. Personnel costs decreased as a percentage of revenues to 22.0% in the first six months of fiscal 2000 from 22.2% in the same period in fiscal 1999 and increased in absolute terms by 33.6% to $82.8 million in the fiscal 2000 period from $61.9 million in the fiscal 1999 period. This increase was due to increased staffing needs associated with the opening of new terminals and local delivery locations, the effect of acquisitions, expanded operations at existing terminals and increased commissions resulting from higher revenues and expanded corporate infrastructure. Such personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. The Company has added personnel to build corporate infrastructure particularly in international operations, to keep pace with its 12 13 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) recent significant growth, to deepen the staff at its terminals and to prepare for expected growth during fiscal 2000. Other selling, general and administrative expenses decreased as a percentage of revenues to 12.9% in the first six months of fiscal 2000 from 13.9% in the first six months of fiscal 1999, and increased in absolute terms by 25.3% to $48.6 million in the fiscal 2000 period from $38.8 million in the fiscal 1999 period. In the first six months of fiscal 2000, selling expenses as a percentage of revenues decreased by 0.1% and other general and administrative expenses as a percentage of revenues decreased by 1.0% compared to the first six months of fiscal 1999. The absolute increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 2000 period, increased expenses attributable to the Company's acquisitions, the Company's headquarters facility and a $1.1 million non-recurring charge for legal fees recorded in the second quarter of fiscal 2000. Operating income increased 16.2% to $23.8 million in the first six months of fiscal 2000 from $20.5 million in the comparable period in fiscal 1999. Operating margin decreased to 6.4% for six months ended March 31, 2000 compared to 7.4% for the six months ended March 31, 1999. Interest and other income increased to $1.3 million from $1.2 million as a result of rental income of $353,000 from a sublease that began in May 1999, partially offset by a decline in interest income from decreased levels of investments during the six months ended March 31, 2000 compared to the six months ended March 31, 1999. Income before provision for income taxes increased 15.7% to $25.1 million in the first six months of fiscal 2000 from $21.7 million in the comparable period of fiscal 1999. Provision for income taxes increased 17.2% to $9.9 million for the six months ended March 31, 2000 from $8.4 million for the six months ended March 31, 1999. Net income increased 14.7% to $15.2 million in the first six months of fiscal 2000 from net income of $13.3 million in the same period in fiscal 1999. Diluted earnings per share increased 10.9% to $0.51 per share for the six months ended March 31, 2000 from $0.46 in the same period in fiscal 1999. THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 Revenues increased 41.2% to $188.8 million in the second quarter of fiscal 2000 from $133.7 million in the same period of fiscal 1999 primarily due to increases in the number of shipments and the total weight of cargo shipped. These increases resulted from an increase in the number of terminals open during such period, an increase in penetration in existing airfreight and pickup and delivery markets, the addition of significant national account customers and the effect of acquisitions completed after the second quarter of fiscal 1999. Domestic revenues for the second quarter of fiscal 2000 were adversely affected by a temporary shift from overnight air shipments to lower-margin economy ground shipments by the technology and manufacturing sectors as a result of the Year 2000 transition. This adjustment primarily impacted the seasonally weak months of January and February 2000, when the Company recorded a 19.0% domestic revenue growth rate over January and February 1999. The Company's domestic shipping mix normalized by March 2000, when it recorded a 46.0% domestic revenue growth rate over March 1999. For those freight forwarding terminals opened prior to the beginning of fiscal 1999 (71 terminals), revenues increased 35.0% to $163.5 million for the three months ended March 31, 2000 from $121.1 million for the three months ended March 31, 1999. Revenues for the three months ended March 31, 2000 were comprised of $176.4 million of forwarding revenues and $12.4 million of local pickup and delivery revenues, as compared to $121.5 million and $12.2 million, respectively, for the three months ended March 31, 1999. Of the Company's forwarding revenues for the second quarter of fiscal 2000, $46.6 million were attributable to international shipments (defined as shipments that cross a national border) compared to $20.5 million for the second quarter of fiscal 1999. The acquisitions completed in Canada and Chile, as described in Note 4, added approximately $16.7 million in international revenue during the second quarter of fiscal 2000. The Company's total local pickup and delivery revenues for the second quarter of fiscal 2000 were $45.5 million. This amount includes $33.1 million of intercompany sales that were eliminated upon consolidation and $12.4 million in services to third-party (non-forwarding) customers. 13 14 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Cost of transportation increased during the second quarter of fiscal 2000 as a percentage of revenues to 59.2% from 56.7% in the comparable period in fiscal 1999. The increase was primarily attributable to increased international freight shipping volumes, which carry a higher cost of transportation per shipment than domestic freight. Cost of transportation increased in absolute terms by 47.4% to $111.7 million in the second quarter of fiscal 2000 from $75.8 million in the second quarter of fiscal 1999 as a result of increases in freight shipped. Net revenue margin decreased to 40.8% in the second quarter of fiscal 2000 from 43.3% in the same period in fiscal 1999. The primary reason for the margin decline was increased international freight shipping volumes which carry a higher cost of transportation per shipment than domestic freight and a temporary shift in January and February 2000 from overnight air shipments to lower-margin economy ground shipments by the technology and manufacturing sectors as a result of the Year 2000 transition. Net revenues increased 33.0% to $77.1 million in the second quarter of fiscal 2000 from $58.0 million in the same period in fiscal 1999. Operating expenses decreased as a percentage of revenues to 36.5% in the second quarter of fiscal 2000 from 37.1% for the same period in fiscal 1999. The $19.3 million increased costs in absolute terms for the second quarter of fiscal 2000 was attributable primarily to continued growth in the level of operations from additional terminals and expansion of local delivery operations. Personnel costs decreased as a percentage of revenues to 22.6% in the second quarter of fiscal 2000 from 23.0% in the same period in fiscal 1999 and increased in absolute terms by 38.9% to $42.7 million. This increase was due to increased staffing needs associated with the opening of new terminals and local delivery locations, the effect of acquisitions, expanded operations at existing terminals and increased commissions resulting from higher revenues and expanded corporate infrastructure. Such personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. The Company has added personnel to build corporate infrastructure particularly in international operations, to keep pace with its recent significant growth, to deepen the staff at its terminals and to prepare for expected growth during fiscal 2000. Other selling, general and administrative expenses decreased as a percentage of revenues to 13.9% in the second quarter of fiscal 2000 from 14.1% in the second quarter of fiscal 1999, and increased in absolute terms by 38.9% to $26.2 million in the fiscal 2000 period from $18.9 million in the fiscal 1999 period. In the second quarter of fiscal 2000, selling expenses as a percentage of revenues remained constant at 1.3% and other general and administrative expenses as a percentage of revenues decreased by 0.3% compared to the second quarter of fiscal 1999. The absolute increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 2000 period, increased expenses attributable to the Company's acquisitions, the Company's headquarters facility and a $1.1 million non-recurring charge for legal fees recorded in the second quarter of fiscal 2000. Operating income decreased 2.2% to $8.2 million in the second quarter of fiscal 2000 from $8.4 million in the comparable period in fiscal 1999. Operating margin decreased to 4.3% for the quarter ended March 31, 2000 from 6.2% for the quarter ended March 31, 1999. Interest and other income decreased to $621,000 from $651,000 as a result of decreased levels of investments during the quarter ended March 31, 2000 compared to the quarter ended March 31, 1999 offset by rental income of $193,000 from a sublease that began in May 1999. Income before provision for income taxes decreased 2.4% to $8.8 million in the second quarter of fiscal 2000 from $9.0 million in the comparable period of fiscal 1999. Provision for income taxes remained constant at $3.5 million for the three months ended March 31, 2000 and 1999. Net income decreased 4.6% to $5.3 million in the second quarter of fiscal 2000 from net income of $5.5 million in the same period in fiscal 1999. Diluted earnings per share decreased 5.3% to $0.18 per share for the quarter ended March 31, 2000 from $0.19 in the same period in fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short-term investments decreased $21.5 million to $30.9 million at March 31, 2000 from $52.4 million at September 30, 1999. At March 31, 2000, the Company had working capital of $97.2 million and a current ratio of 2.64 compared to working capital of $105.8 million and a current ratio of 2.70 at September 30, 1999. The Company's working capital decreased during this period primarily as a result of cash used for business acquisitions. Capital expenditures for the six months ended March 31, 2000 were approximately $9.9 million. 14 15 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Other than its public offerings, the Company's cash generated from operations has been its primary source of liquidity, although it has from time to time made limited use of bank borrowing and lease or purchase arrangements. The Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. On January 7, 2000, the Company completed the acquisition of CTI and Fastair for an aggregate purchase price of approximately $21.3 million paid at closing from cash and cash equivalents on hand. Additionally, a total of approximately $4.9 million will be paid in cash over the next three years in annual installments. In January 2000, the Company's Board of Directors authorized the repurchase of up to one million shares of its outstanding Common Stock. In April 2000, the Company's Board of Directors increased the authorization to three million shares. As of March 31, 2000, the Company had repurchased 57,500 shares for a total of $1.7 million under this authorization. The Company purchased an additional 217,000 shares for $4.9 million subsequent to March 31, 2000. The Company's current intention is that future repurchases will help to offset increases in the number of shares outstanding resulting from previous and future stock option exercises. On January 13, 2000, the Company entered into the Credit Agreement with Bank of America, N.A. (the Bank), as administrative agent. The Credit Agreement provides a $50 million revolving line of credit and includes a $10 million sublimit for the issuance of letters of credit. The revolving line of credit matures on January 11, 2001. For each tranche of principal, the Company elects an interest rate calculation based on either LIBOR (a LIBOR Tranche) or either the prime rate announced by the Bank or the federal funds rate plus 50 basis points (a Prime Rate Tranche), plus an applicable margin based on a ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization). The interest for a LIBOR Tranche is due at periods of one, two, three or six months, as the Company may select at the time it requests the funds. The interest for a Prime Rate Tranche is due quarterly. The revolving line of credit includes unused commitment fees and letters of credit fees, each of which is calculated on the basis of a ratio of consolidated debt to consolidated EBITDA. The Company is subject to certain covenants under the terms of the Credit Agreement, including, but not limited to, maintenance at the end of any fiscal quarter of (a) minimum specified consolidated net worth, (b) a ratio of consolidated funded debt to total capitalization of no greater than .50 to 1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no greater than 2.50 to 1.00 and (d) a consolidated fixed charge coverage ratio of no less than 2.00 to 1.00. The Credit Agreement also restricts dividends or distributions with respect to equity securities or interests in excess of 20% of consolidated net income for any four fiscal quarters period. The Credit Agreement also places certain restrictions on additional indebtedness, liens, investments, change of control and other matters. The Company's subsidiaries in the United Kingdom, Hong Kong and Mexico maintain bank lines of credit for purposes of securing customs bonds and bank letters of credit for purposes of guaranteeing some transportation expenses. These credit lines and letters of credit are supported by standby letters of credit issued by a United States bank or guarantees issued by the Company to the foreign banks. At March 31, 2000, the Company was contingently liable for approximately $2.6 million under outstanding letters of credit and guarantees related to these obligations. As of March 31, 2000, the Company had outstanding non-qualified stock options to purchase an aggregate of 4,476,029 shares of common stock at exercise prices ranging from $0.83 to $32.69, which equaled the fair market value of the underlying common stock on the dates of grant. At the time a non-qualified stock option is exercised, the Company will generally be entitled to a deduction for federal and state income tax purposes equal to the difference between the fair market value of the common stock on the date of exercise and the option price. As a result of exercises for the six months ended March 31, 2000 of non-qualified stock options to purchase an aggregate of 431,082 shares of common stock, the Company is entitled to a federal income tax deduction of approximately $10 million. The Company has recognized a reduction of its federal and state income tax liability of approximately $3.9 million with respect to the six months ended March 31, 2000. 15 16 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Accordingly, the Company recorded an increase in additional paid-in capital and a reduction to current taxes payable pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes." Any exercises of non-qualified stock options in the future at exercise prices below the then fair market value of the common stock may also result in tax deductions equal to the difference between those amounts. There is uncertainty as to whether or not the exercises will occur, the amount of any deductions or the Company's ability to fully utilize any deductions. On January 10, 1997, the Company entered into a five-year operating lease agreement with two unrelated parties for financing the construction of its Houston terminal, warehouse and headquarters facility (the Houston Facility). The cost of the Houston Facility was approximately $8.5 million. Under the terms of the lease agreement, average monthly lease payments are approximately $59,000, which includes monthly interest costs based upon LIBOR rate plus 145 basis points, beginning on July 1, 1998 through October 2, 2002. A balloon payment equal to the outstanding lease balance, which was initially equal to the cost of the facility, is due on October 2, 2002. As of March 31, 2000, the lease balance was approximately $8.3 million. On April 3, 1998, the Company entered into a five-year $20 million master operating lease agreement with two unrelated parties for financing the construction of terminal and warehouse facilities throughout the United States designated by the Company. Under the terms of the master operating lease agreement, average monthly lease payments, including monthly interest costs based upon LIBOR rate plus 145 basis points, begin upon the completion of the construction of each financed facility. The monthly lease obligation will continue for a term of 52 months. A balloon payment equal to the outstanding lease balances, which were initially equal to the cost of each facility, is due at the end of each lease term. Construction began during fiscal 1999 on five terminal facilities. As of March 31, 2000, the aggregate lease balance was approximately $14.6 million under the master operating lease agreement. The operating lease agreements contain restrictive financial covenants requiring the maintenance of a fixed charge coverage ratio of at least 1.5 to 1.0 and specified amounts of consolidated net worth and consolidated tangible net worth. In addition, the master operating lease agreement restricts the Company from incurring debt in an amount greater than $10 million, except pursuant to a single credit facility involving a commitment of not more than $50 million. The Company has an option, exercisable at anytime during the lease term, and under particular circumstances may be obligated, to acquire the Houston terminal and each of its other financed facilities for an amount equal to the outstanding lease balance. If the Company does not exercise the purchase option, and does not otherwise meet its obligations, it is subject to a deficiency payment computed as the amount equal to the outstanding lease balance minus the then current fair market value of each financed facility within limits. The Company expects that the amount of any deficiency payment would be expensed. During fiscal 1999, the Company entered into commitments to construct warehouse and terminal facilities for an aggregate cost of approximately $9.0 million. Payment for the construction of the facilities is being made from cash balances. As of March 31, 2000, the Company had paid approximately $7.4 million of the commitments. Construction of the facilities is estimated to be completed during fiscal 2000. COMMISSIONER'S CHARGE As discussed in Part II, Item 1. Legal Proceedings, the Company has received a Letter of Determination and Conciliation Proposal from the EEOC relating to the Commissioner's Charge described in that section. In the second quarter of fiscal 2000, the Company accrued a $1.1 million charge ($700,000 after-tax) for its estimated future litigation expenses to defend this matter. There can be no assurance as to what will be the amount of time it will take to resolve the Commissioner's Charge and related issues or the degree of any adverse effect of these matters on the Company and its financial condition and results of operations. 16 17 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RELATED PARTY TRANSACTIONS In May 1999, the Company began subleasing a portion of its warehouse space in Houston, Texas and London, England to a customer pursuant to a five-year sublease. The customer is partially owned by James R. Crane, the Company's Chairman and President. Rental income was approximately $353,000 during the first six months of fiscal 2000 and $143,000 during fiscal 1999. In addition, the Company billed the customer approximately $1.0 million for freight forwarding services during the first six months of fiscal 2000 and $356,000 during fiscal 1999. The Company believes the rental rates set forth in the sublease agreement approximate market rates. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of March 31, 2000, Company did not have any outstanding short-term or long-term debt instruments. Accordingly, the Company does not have market risk related to interest rates. However, the Company's lease payments on certain financed facilities are tied to market interest rates. At March 31, 2000, a 10% rise in the base rate for these financing arrangements would not have a material impact on operating income for fiscal 2000. The Company's earnings are affected by fluctuations in the value of the U.S. dollar as it relates to the earnings of its United Kingdom, Canada, Mexico, Hong Kong and Latin America operations, as a result of transactions in foreign markets. At March 31, 2000, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which these operations are denominated would not have a material impact on operating income for fiscal 2000. The Company has not purchased any futures contracts nor has it purchased or held any derivative financial instruments for trading purposes during the second quarter of fiscal 2000. In the second quarter of fiscal 1999, the Company entered into contracts for the purpose of hedging the costs of a portion of anticipated jet fuel purchases for chartered aircraft during the following twelve months. These contracts matured during the second quarter of fiscal 2000 and resulted in a gain of $604,000 recorded as a reduction of costs of transportation. In May 2000, the Company entered into two additional contracts to hedge the cost of jet fuel purchases during the following twelve months. Such contracts are nominally insignificant. 17 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is a party to various legal claims and proceedings arising in the ordinary course of business. Except as described below, the Company is not currently a party to any material litigation and is not aware of any litigation threatened against it, which it believes would have a material adverse effect on its business. In December 1997, the U.S. Equal Employment Opportunity Commission (EEOC) issued a Commissioner's Charge against the Company and certain of its subsidiaries (the Commissioner's Charge) pursuant to Sections 706 and 707 of Title VII of the Civil Rights Act of 1964, as amended (Title VII). The Company continues to vigorously defend against allegations contained in the Commissioner's Charge. In the Commissioner's Charge, the EEOC charged the Company and certain of its subsidiaries with violations of Section 703 of Title VII, as amended, the Age Discrimination in Employment Act of 1967, and the Equal Pay Act of 1963, resulting from (i) engaging in unlawful discriminatory hiring, recruiting and promotion practices and maintaining a hostile work environment, based on one or more of race, national origin, age and gender, (ii) failures to investigate, (iii) failures to maintain proper records and (iv) failures to file accurate reports. The Commissioner's Charge states that the persons aggrieved include all African-Americans, Hispanics, Asians and females who are, have been or might be affected by the alleged unlawful practices. Shortly before the filing of this Form 10-Q, the Houston District Office of the EEOC provided to the Company its "Letter of Determination and Conciliation Proposal" with respect to the investigation pertaining to the Commissioner's Charge and made a final determination that there is a sufficient evidentiary basis to sustain all allegations in the Commissioner's Charge, except as to certain charges relating to Asian Americans. The Conciliation Proposal "invites [the Company] to actively engage in conciliation to resolve this matter," and proposes certain monetary and non-monetary remedies to "serve to facilitate confidential discussions which, hopefully, will eventuate in an appropriate settlement." That proposed relief includes, the following: (i) backpay and benefits for a class of minorities in the amount of $6,000,000 (this is a $950,000 reduction from the amount claimed under the preliminary assessment); (ii) compensation for certain incumbent minorities and women who were allegedly underpaid relative to white male counterparts in the amount of $5,000,000; (iii) compensation for certain minority and female employees who were allegedly not promoted at rates comparable to their respective employment rates in the amount of $2,950,000; and (iv) financial compensation for certain other employees as a result of alleged "disparate discipline" in the amount of $745,000, all exclusive of interest, compensatory and punitive damages and costs. The specific monetary relief as outlined above is $950,000 less than that amount proposed in its preliminary assessment. The Conciliation Proposal states, however, that "the EEOC agrees that this claim can be resolved for $20,000,000. The EEOC also seeks non-monetary relief, including hiring 244 minorities, certain upward adjustments to salaries, reinstatement of up to 15 employees and required promotion of 30 employees. The Houston District Office also seeks (a) reformation of the Company's policies and practices with respect to record keeping, recruiting, hiring and placement, reinstatement, promotion and transfer, and corporate governance, and (b) the institution of specified procedures and steps with respect to such matters. Certain individual employees have brought charges of this nature against the Company in the ordinary course of business. The Company anticipates that the claims of these individuals will have no material adverse impact on the Company's financial condition. The Company believes that the Houston District Office's preliminary assessment of systemic discrimination is wrong and is the result of agency bias against the Company and its Chief Executive Officer because of the Company's vigorous defense of this matter. The Company does intend, however, to respond to the EEOC's offer to conciliate this matter and intends to engage in good faith discussions with the EEOC in an effort to resolve this matter. If the Company is unable to effect what it considers to be a reasonable settlement of this matter during the conciliation process, the Company will continue its vigorous defense of this matter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 18 19 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS As described under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview," the Company agreed to issue shares of Company common stock as additional partial consideration for the acquisition of CTI and Fastair if certain earnings-based growth goals are achieved. Such transaction is exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof as a transaction not involving any public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES, NONE ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS (A) ANNUAL MEETING OF SHAREHOLDERS ON FEBRUARY 21, 2000 (B) ELECTION OF DIRECTORS
BROKER FOR AGAINST WITHHELD ABSTAIN NONVOTES --- ------- -------- ------- -------- James R. Crane 26,465,170 * 3,610 - * Elijio V. Serrano 26,462,995 * 5,785 - * William P. O'Connell 26,465,027 * 3,753 - * Neil E. Kelley 26,465,170 * 3,610 - * Frank J. Hevrdejs 26,465,170 * 3,610 - * Norwood W. Knight-Richardson 26,465,170 * 3,610 - * Rebecca A. McDonald 26,405,783 * 62,997 - *
(C) PROPOSALS Proposal to Change the Company's Name to EGL, Inc. 26,450,960 13,866 * 3,954 * Approval of Appointment of 26,463,621 3,698 * 1,461 * PricewaterhouseCoopers LLP as Independent Accountants *Not Applicable
ITEM 5. OTHER INFORMATION FORWARDING LOOKING STATEMENTS The statements contained in all parts of this document, including, but not limited to, those relating to the Company's plans for international air freight forwarding services; the future expansion and results of the Company's terminal network; plans for local delivery services; expected growth; future marketing; construction of new facilities; the results, timing, outcome or effect of matters relating to the Commissioner's Charge or other litigation; future operating expenses, including expected international operating expenses; any seasonality of the Company's business; future margins; future dividend plans; use of Revolver proceeds; fluctuations in currency valuations; fluctuations in interest rates; future acquisitions and any effects, benefits, results, terms or other aspects of such acquisitions; fluctuations in the price of jet fuel; ability to continue growth and implement growth and business strategy; the ability of expected sources of liquidity to support working capital and capital expenditure requirements; the tax benefit of any stock option exercises; and any other statements regarding future growth, cash needs, terminals, operations, business plans and financial results and any other statements which are not historical facts are forward-looking statements. When used in this document, the words "anticipate, " "estimate," "expect," "may," "plans," " project," and similar expressions are intended to be among the statements that identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to the Company's dependence on its ability to attract and retain skilled managers and other personnel, including the attraction of new international staff; the intense competition within the freight industry; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; the Company's dependence on the availability of cargo space to serve its customers; the potential for liabilities if certain independent owner/operators that serve the Company are determined to be employees; effects of regulation; results of litigation (including the results and outcome of the Commissioner's Charge); the Company's vulnerability to general economic conditions and dependence on its principal customers; the control by the Company's principal shareholder; the Company's potential exposure to claims involving its local pickup and delivery operations; risk of international operations; risks relating to acquisitions; the Company's future financial and operating results, cash needs and demand for its services; and the Company's ability to maintain and comply with permits and licenses; as well as other factors detailed in the Company's filings with the Securities and Exchange 19 20 Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. The Company undertakes no responsibility to update for changes related to these or any other factors that may occur subsequent to this filing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (A) EXHIBITS. 3(i) Second Amended and Restated Articles of Incorporation of the Company, as amended. *3(ii) Amended and Restated Bylaws of the Company, as amended (Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *10(i) Credit Agreement dated January 13, 2000 among the Company, the financial institutions named therein and Bank of America, N. A. (Exhibit 10(i) to the Company's Form 10-Q for the fiscal quarter ended December 31, 1999). 27 Financial Data Schedule.
- ---------------------- * Incorporated by reference as indicated. (B) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K dated January 7, 2000 related to the acquisitions of Commercial Transport International (Canada) Ltd. and Fastair Cargo Systems Ltd. 20 21 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EGL, INC. -------------------------- (Registrant) Date: May 10, 2000 BY: /s/ James R. Crane ------------------------------- -------------------------- James R. Crane President Date: May 10, 2000 BY: /s/ Elijio V. Serrano ------------------------------- -------------------------- Elijio V. Serrano Chief Financial Officer 21 22 INDEX TO EXHIBITS
EXHIBITS DESCRIPTION - -------- ----------- 3(i) Second Amended and Restated Articles of Incorporation of the Company, as amended. *3(ii) Amended and Restated Bylaws of the Company, as amended (Exhibit 3.2 to the Company's Registration Statement on Form S-1 (Registration No. 33-97606)). *10(i) Credit Agreement dated January 13, 2000 among the Company, the financial institutions named therein and Bank of America, N. A. (Exhibit 10(i) to the Company's Form 10-Q for the fiscal quarter ended December 31, 1999). 27 Financial Data Schedule
- -------------------- *Incorporated by reference as indicated. 22 EX-3.I 2 SECOND AMENDED & RESTATED ARTICLES OF INC. 1 EXHIBIT 3(i) SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF EAGLE USA AIR FREIGHT, INC. ARTICLE ONE Eagle USA Air Freight, Inc., a Texas corporation (the "Company"), pursuant to the provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts these Second Amended and Restated Articles of Incorporation, which accurately copy the Amended and Restated Articles of Incorporation of the Company in effect on the date hereof, as further amended by these Second Amended and Restated Articles of Incorporation as hereinafter set forth, and contain no other change in any provisions thereof. ARTICLE TWO The Amended and Restated Articles of Incorporation of the Company are amended by these Second Amended and Restated Articles of Incorporation as follows: The amendments made by these Second Amended and Restated Articles of Incorporation (the "Amendments") alter or change Articles One through Ten of the Amended and Restated Articles of Incorporation. The full text of each provision altered or added is as set forth in Article Five hereof. ARTICLE THREE The Amendments have been effected in conformity with the provisions of the Texas Business Corporation Act and the Second Amended and Restated Articles of Incorporation were duly adopted by all of the shareholders of the Company on September 29, 1995. ARTICLE FOUR On that date there were 6,000,000 shares of Common Stock, par value $0.001 per share (the "Common Stock"), of the Company outstanding, all of which were entitled to vote on the Amendments. All 6,000,000 shares of Common Stock were voted in favor of the Amendments. 1 2 ARTICLE FIVE The Amended and Restated Articles of Incorporation of the Company filed with the Secretary of State of the State of Texas on September 30, 1994 are hereby superseded by the following Second Amended and Restated Articles of Incorporation, which accurately copy the entire text thereof as amended hereby: SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF EAGLE USA AIRFREIGHT, INC. ARTICLE ONE The name of the corporation is Eagle USA Airfreight, Inc. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose or purposes for which the corporation is organized is the transaction of all lawful business for which a corporation may be incorporated under the corporation laws of the State of Texas. ARTICLE FOUR The aggregate number of shares that the corporation shall have the authority to issue is 40,000,000 shares, consisting of 30,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share. The descriptions of the different classes of capital stock of the corporation and the preferences, designations, relative rights, privileges and powers, and the restrictions, limitations and qualifications thereof, of said classes of stock are as follows: 2 3 Division A The shares of Preferred Stock may be divided into and issued in one or more series, the relative rights and preferences of which series may vary in any and all respects. The board of directors of the corporation is hereby vested with the authority to establish series of Preferred Stock by fixing and determining all the preferences, limitations and relative rights of the shares of any series so established, to the extent not provided for in these articles of incorporation or any amendment hereto, and with the authority to increase or decrease the number of shares within each such series; provided, however, that the board of directors may not decrease the number of shares within a series below the number of shares within such series that is then issued. The authority of the board of directors with respect to each such series shall include, but not be limited to, determination of the following: (1) the distinctive designation and number of shares of that series; (2) the rate of dividend (or the method of calculation thereof) payable with respect to shares of that series, the dates, terms and other conditions upon which such dividends shall be payable, and the relative rights of priority of such dividends to dividends payable on any other class or series of capital stock of the corporation; (3) the nature of the dividend payable with respect to shares of that series as cumulative, noncumulative or partially cumulative, and if cumulative or partially cumulative, from which date or dates and under what circumstances. (4) whether shares of that series shall be subject to redemption, and, if made subject to redemption, the times, prices, rates, adjustments and other terms and conditions of such redemption (including the manner of selecting shares of that series for redemption if fewer than all shares of such series are to be redeemed); (5) the rights of the holders of shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation (which rights may be different if such action is voluntary than if it is involuntary), including the relative rights of priority in such event as to the rights of the holders of any other class or series of capital stock of the corporation; (6) the terms, amounts and other conditions of any sinking or similar purchase or other fund provided for the purchase or redemption of shares of that series; (7) whether shares of that series shall be convertible into or exchangeable for shares of capital stock or other securities of the corporation or of any other corporation or entity, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange; 3 4 (8) the extent, if any, to which the holders of shares of that series shall be entitled (in addition to any voting rights provided by law) to vote as a class or otherwise with respect to the election of directors or otherwise; (9) the restrictions and conditions, if any, upon the issue or reissue of any additional Preferred Stock ranking on a parity with or prior to shares of that series as to dividends or upon liquidation, dissolution or winding up; (10) any other repurchase obligations of the corporation, subject to any limitations of applicable law; and (11) notwithstanding their failure to be included in (1) through (10) above, any other designations, preferences, limitations or relative rights of shares of that series. Any of the designations, preferences, limitations or relative rights (including the voting rights) of any series of Preferred Stock may be dependent on facts ascertainable outside these articles of incorporation. Shares of any series of Preferred Stock shall have no voting rights except as required by law or as provided in the preferences, limitations and relative rights of such series. Division B 1. Dividends. Dividends may be paid on the Common Stock out of any assets of the corporation available for such dividends subject to the rights of all outstanding shares of capital stock ranking senior to the Common Stock in respect of dividends. 2. Distribution of Assets. In the event of any liquidation, dissolution or winding up of the corporation, after there shall have been paid to or set aside for the holders of capital stock ranking senior to the Common Stock in respect of rights upon liquidation, dissolution or winding up the full preferential amounts to which they are respectively entitled, the holders of the Common Stock shall be entitled to receive, pro rata, all of the remaining assets of the corporation available for distribution to its shareholders. 3. Voting Rights. The holders of the Common Stock shall be entitled to one vote per share for all purposes upon which such holders are entitled to vote. Division C 1. No Preemptive Rights. No shareholder of the corporation shall by reason of his holding shares of any class have any preemptive or preferential right to acquire or subscribe for any additional, unissued or treasury shares of any class of the corporation now or hereafter to be 4 5 authorized, or any notes, debentures, bonds or other securities convertible into or carrying any right, option or warrant to subscribe to or acquire shares of any class now or hereafter to be authorized, whether or not the issuance of any such shares, or such notes, debentures, bonds or other securities, would adversely affect the dividends or voting or other rights of such shareholder, and the board of directors may issue or authorize the issuance of shares of any class, or any notes, debentures, bonds or other securities convertible into or carrying rights, options or warrants to subscribe to or acquire shares of any class, without offering any such shares of any class, either in whole or in part, to the existing shareholders of any class. 2. Share Dividends. Subject to any restrictions in favor of any series of Preferred Stock provided in the relative rights and preferences of such series, the corporation may pay a share dividend in shares of any class or series of capital stock of the corporation to the holders of shares of any class or series of capital stock of the corporation. 3. No Cumulative Voting. Cumulative voting for the election of directors is expressly prohibited as to all shares of any class or series. ARTICLE FIVE The corporation will not commence business until it has received for the issuance of its shares consideration of the value of One Thousand Dollars ($1,000.00). ARTICLE SIX The address of the corporation's registered office is 811 Dallas Avenue, Houston, Texas 77002 and the name of its registered agent at such address is CT Corporation System. ARTICLE SEVEN The number of directors of the corporation shall be fixed by, or in the manner provided in, the bylaws. The number of directors constituting the current board of directors is five, and the name and address of the person who is to serve as director until such director's successor is elected and qualified is: 5 6 Name Address James R. Crane 3214 Lodestar Road Houston, Texas 77032 Daniel S. Swannie 3214 Lodestar Road Houston, Texas 77032 Donald P. Roberts 3214 Lodestar Road Houston, Texas 77032 Douglas A. Seckel 3214 Lodestar Road Houston, Texas 77032 William P. O'Connell 3214 Lodestar Road Houston, Texas 77032 ARTICLE EIGHT A director of the corporation shall not be liable to the corporation or its shareholders for monetary damages for an act or omission in the director's capacity as a director, except that this article does not eliminate or limit the liability of a director for: (1) a breach of a director's duty of loyalty to the corporation or its shareholders; (2) an act or omission not in good faith that constitutes a breach of duty of that director to the corporation or an act or omission that involves intentional misconduct or a knowing violation of the law; (3) a transaction from which a director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; or (4) an act or omission for which the liability of a director is expressly provided for by an applicable statute. If the Texas Miscellaneous Corporation Laws Act or the Texas Business Corporation Act ("TBCA") is amended to authorize action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by such statutes, as so amended. Any repeal or modification of this article shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. ARTICLE NINE The vote of shareholders required for approval of (1) any plan of merger, consolidation, or exchange for which the TBCA requires a shareholder vote, (2) any disposition of assets for which the TBCA requires a shareholder vote, (3) any dissolution of the corporation for which the TBCA requires a shareholder vote, and (4) any amendment of the articles of incorporation of the corporation for which the TBCA requires a shareholder vote, shall be (in lieu of any greater vote required by the TBCA) the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon, unless any class or series of shares is entitled to vote as a class thereon, in which event the vote required shall be the affirmative vote of the holders of a majority of the outstanding shares within each class or series of shares entitled to vote thereon as a class and at least a majority of the outstanding shares otherwise entitled to vote thereon. 6 7 ARTICLE TEN Special meetings of shareholders may be called by the corporation's chairman of the board, the president or the board of directors. Subject to the provisions of the corporation's bylaws governing special meetings, holders of not less than 50% of the outstanding shares of stock entitled to vote at the proposed special meeting may also call a special meeting of shareholders by furnishing the corporation a written request which states the purpose or purposes of the proposed meeting in the manner set forth in the bylaws. EXECUTED AND EFFECTIVE this 29th day of September, 1995. EAGLE USA AIR FREIGHT, INC. By: /s/ JAMES R. CRANE ------------------------ James R. Crane President 7 8 ARTICLES OF AMENDMENT TO SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF EAGLE USA AIRFREIGHT, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following articles of amendment to its Second Amended and Restated Articles of Incorporation: 1. The name of the corporation is Eagle USA Airfreight, Inc. 2. The following amendment to the Second Amended and Restated Articles of Incorporation of the corporation increases the authorized shares of the corporation. The amendment alters the first sentence of Article Four of the Second Amended and Restated Articles of Incorporation to read, in full: "The aggregate number of shares that the corporation shall have the authority to issue is 110,000,000 shares, consisting of 100,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share." 3. The amendment made by these articles of amendment was duly adopted by the shareholders of the corporation at a meeting duly held on February 23, 1998. 4. The number of shares outstanding as of the date hereof is 18,764,180 shares of Common Stock, par value $0.001 per share; the number of shares outstanding as of the close of business on December 30, 1997, the record date for such meeting of shareholders, was 18,269,061 shares of Common Stock, par value $0.001 per share, and all of such 18,269,061 shares were entitled to vote on the amendment; the number of such shares voted for the amendment was 14,451,374; and the number of such shares voted against the amendment was 685,124. IN WITNESS WHEREOF, these articles of amendment have been executed on March 5, 1998. 8 9 EAGLE USA AIRFREIGHT, INC. By: /s/ Douglas A. Seckel ---------------------- Douglas A. Seckel Secretary 9 10 ARTICLES OF AMENDMENT TO SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION OF EAGLE USA AIRFREIGHT, INC. Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following articles of amendment to its Second Amended and Restated Articles of Incorporation: 1. The name of the corporation is Eagle USA Airfreight, Inc. 2. The following amendment to the Second Amended and Restated Articles of Incorporation of the corporation changes the name of the corporation from Eagle USA Airfreight, Inc. to EGL, Inc. The amendment alters Article One of the Second Amended and Restated Articles of Incorporation to read in full as follows: "The name of the corporation is EGL, Inc." 3. The amendment made by these articles of amendment was duly adopted by the shareholders of the corporation at a meeting duly held on February 21, 2000. 4. The number of shares outstanding as of the close of business on December 30, 1999, the record date for such meeting of shareholders, was 28,780,667 shares of Common Stock, par value $0.001 per share, and all of such 28,780,667 shares were entitled to vote on the amendment; the number of such shares voted for the amendment was 26,450,960; and the number of such shares voted against the amendment was 13,866. 10 11 IN WITNESS WHEREOF, these articles of amendment have been executed on February 21, 2000. EAGLE USA AIRFREIGHT, INC. By: /s/ James R. Crane --------------------------- James R. Crane Chief Executive Officer and Chairman of the Board 11 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF EGL, INC. FOR THE SIX MONTHS ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q. 1,000 6-MOS SEP-30-2000 OCT-01-1999 MAR-31-2000 30,916 0 119,385 2,482 0 156,536 52,966 17,215 232,973 59,385 0 0 0 30 166,860 232,973 376,116 376,116 0 220,888 131,380 0 0 25,124 9,886 0 0 0 0 15,238 0.53 0.51
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