-----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, DIq6WL9mLGdE+DaljcDX8M4I60MmCZD+zZLfi1yPRzZvZkALQXa35Vrl/oHWd9l0 DUueAdaBmaBHYy3agmHBzA== 0000912057-99-006200.txt : 19991117 0000912057-99-006200.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006200 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEOLOGISTICS CORP CENTRAL INDEX KEY: 0001015527 STANDARD INDUSTRIAL CLASSIFICATION: ARRANGEMENT OF TRANSPORTATION OF FREIGHT & CARGO [4731] IRS NUMBER: 223438013 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-42607 FILM NUMBER: 99756171 BUSINESS ADDRESS: STREET 1: 13952 DENVER WEST PARKWAY STREET 2: STE 200 CITY: GOLDEN STATE: CO ZIP: 80401 BUSINESS PHONE: 3037044400 MAIL ADDRESS: STREET 1: 13952 DENVER WEST PARKWAY STREET 2: STE 200 CITY: GOLDEN STATE: CO ZIP: 80401 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL LOGISTICS LTD DATE OF NAME CHANGE: 19971126 10-Q 1 10-Q 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 SEPTEMBER 30, 1999 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 333-42607 GEOLOGISTICS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 22-3438013 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13952 Denver West Parkway GOLDEN, COLORADO 80401 (Address of principal executive offices and Zip Code) Registrant's telephone number, including area code:(303) 704-4400 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 ---- On November 15, 1999, the registrant had 2,104,893 outstanding shares of common stock, par value $.001 per share. GEOLOGISTICS CORPORATION TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements: Condensed Consolidated Balance Sheets, September 30, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 1999 and 1998 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998 (unaudited) 6 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 ITEM 3. Information required for this item has been included in Management's Discussion and Analysis. PART II. OTHER INFORMATION ITEM 2. Changes in Securities 33 ITEM 6. Exhibits and Reports on Form 8-K 33
2 PART I. FINANCIAL INFORMATION GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 -------------- ---------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 13,719 $ 15,152 Accounts receivable: Trade, net 258,561 267,047 Other 18,540 11,046 Deferred income taxes 727 7,245 Prepaid expenses 24,613 20,708 -------- -------- Total current assets 316,160 321,198 ------- ------- Property and equipment, at cost 98,994 113,618 Accumulated depreciation (21,784) (18,364) -------- -------- Net property and equipment 77,210 95,254 Notes receivable, less current portion 1,682 1,711 Deferred income taxes 484 19,168 Goodwill, net 46,643 79,347 Intangible assets, net 9,220 11,927 Other assets 18,399 20,573 -------- -------- $469,798 $549,178 -------- -------- -------- --------
See accompanying notes to the condensed consolidated financial statements. 3 GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ----------- -------- (UNAUDITED) Current liabilities: Current portion of long-term debt $ 19,252 $ 12,549 Accounts payable 140,654 139,696 Accrued expenses 140,876 149,519 Income taxes payable 14,428 7,940 -------- --------- Total current liabilities 315,210 309,704 Long-term debt, less current portion 130,869 183,177 Other non-current liabilities 49,019 52,400 Minority interest 1,999 2,381 --------- --------- Total liabilities 497,097 547,662 Stockholders' (deficit) equity: Preferred stock 15,000 shares authorized, issued and outstanding 14,550 14,550 Common stock ($.001 par value 5,000,000 shares authorized, 2,118,393 and 2,128,893 shares issued and outstanding) 2 2 Additional paid-in-capital 56,199 55,371 Accumulated deficit (97,357) (67,898) Notes receivable from stockholders (191) (191) Cumulative translation adjustment (502) (318) ---------- ---------- Total stockholders' (deficit) equity (27,299) 1,516 --------- --------- $469,798 $549,178 ---------- ---------- ---------- ----------
See accompanying notes to the condensed consolidated financial statements. 4 GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE-MONTHS NINE-MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------------- ---------------------------- 1999 1998 1999 1998 -------- ------ ------ ----- Revenues $ 400,020 $ 387,968 $1,161,119 $ 1,124,843 Transportation and other direct costs 306,145 292,855 880,442 847,335 -------- ------- -------- ------- Net revenues 93,875 95,113 280,677 277,508 Selling, general and administrative expenses 94,693 91,020 284,970 265,650 Restructuring and other non-recurring charges 10,144 - 11,134 - Asset impairment charges 12,060 - 12,060 - Depreciation and amortization 5,128 3,847 14,829 11,560 --------- --------- -------- ---------- Operating income (loss) (28,150) 246 (42,316) 298 Interest expense, net (7,316) (4,761) (18,462) (12,098) Gain on disposition of business 69,760 - 69,760 - Other income (expense) (197) (32) (647) 114 --------- ----------- --------- --------- Income (loss) before income taxes and minority interest 34,097 (4,547) 8,335 (11,686) Income tax provision (benefit) 34,230 (2,267) 35,261 (4,503) -------- ----------- ------- -------- Loss before minority interest (133) (2,280) (26,926) (7,183) Minority interest (371) (213) (958) (586) ---------- ---------- -------- ---------- - Net loss $ (504) $ (2,493) $ (27,884) $ (7,769) Preferred stock dividend 525 438 1,575 438 ----------- ---------- ---------- ------------ Loss applicable to common stock $ (1,029) $ (2,931) $ (29,459) $ (8,207) ----------- ---------- ---------- ------------ ----------- ---------- ---------- ------------ Basic loss per common share $ (0.49) $ (1.38) $ (13.88) $ (3.88) ----------- ---------- ---------- ------------ ----------- ---------- ---------- ------------ Diluted loss per common share $ (0.49) $ (1.38) $ (13.88) $ (3.88) ----------- ---------- ---------- ------------ ----------- ---------- ---------- ------------ Weighted average number of common and common equivalent shares outstanding 2,118,768 2,128,893 2,121,843 2,117,806 ----------- ---------- ---------- ------------ ----------- ---------- ---------- ------------
See accompanying notes to the condensed consolidated financial statements. 5 GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE-MONTHS ENDED SEPTEMBER 30, ----------------------------- 1999 1998 ---------- -------- Cash flows from operating activities: Net loss $(27,884) $(7,769) Adjustments to reconcile net loss to net cash from operating activities: Cash used for restructuring activities (1,688) - Asset impairment charges 13,551 - Depreciation and amortization 14,829 11,560 Gain on disposition of business, net (69,760) - Amortization of deferred items 1,505 900 Deferred income taxes 25,202 (6,885) Changes in current assets and liabilities, net (7,112) (38,567) Other, net (2,074) (4,709) -------- ------- Net cash used in operating activities (53,431) (45,470) Cash flows from investing activities: Purchases of property, equipment and software, net (6,155) (22,885) Proceeds from disposition of business 102,988 - Business acquisitions, net of cash acquired - (26,299) -------- ------- Net cash provided by (used in) investing activities 96,833 (49,184) Cash flows from financing activities: (Payments)/Proceeds from revolving line of credit, net (47,288) 36,100 Proceeds from long-term debt 17,036 32,500 Payments on long-term debt (15,411) (14,934) Proceeds from issuance of preferred stock - 14,550 Proceeds from issuance of common stock 828 2,733 Other, net - 158 -------- -------- Net cash provided by (used in) financing activities (44,835) 71,107 -------- ------ Net decrease in cash and cash equivalents (1,433) (23,547) Cash and cash equivalents, beginning of period 15,152 37,909 -------- ------ Cash and cash equivalents, end of period $ 13,719 $14,362 -------- -------- -------- -------- Supplemental cash flow information: Interest paid during the period $ 13,143 $ 8,601 Income taxes paid during the period $ 2,161 $ 2,116 Non-cash warrant transactions $ 828 $ 1,080 New capital leases $ 804 $ 7,541
See accompanying notes to the condensed consolidated financial statements 6 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in GeoLogistics Corporation's ("Company") Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. The condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation in accordance with generally accepted accounting principles of the condensed consolidated financial statements for the periods shown. Certain amounts for the prior year have been reclassified to conform with the current year financial statement presentation. Significant accounting policies followed by the Company are included in Note 2 to the audited consolidated financial statements in the Company's Form 10-K. Results of operations for the nine months ended September 30, 1999 may not be indicative of the results to be expected for the full year. PRINCIPLES OF CONSOLIDATION: The accompanying condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. The Company records its investment in each unconsolidated affiliated company (20 to 50 percent ownership) using the equity method of accounting. Other investments (less than 20 percent ownership) are recorded at cost. Intercompany accounts and transactions have been eliminated. USE OF ESTIMATES: The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts based on informed estimates and judgments of management. Actual results could differ from those estimates. Accounts affected by significant estimates include accounts receivable and accruals for transportation and other direct costs, tax contingencies, insurance claims, cargo loss and damage claims. 7 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE Basic earnings per common share is computed using the weighted average number of shares outstanding. Diluted earnings per common share is computed under the treasury stock method using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding warrants to purchase common stock. Incremental shares were not used in the calculation of diluted loss per common share due to their antidilutive effect. NOTE 2. LONG-TERM DEBT In October 1997, the Company issued and sold $110.0 million in aggregate principal amount of its 9 3/4% senior notes (the "Notes") which are due October 15, 2007, and are general unsecured obligations of the Company. The Notes are fully and unconditionally guaranteed on a joint and several senior basis by all existing and future domestic Restricted Subsidiaries (as defined in the indenture relating to the Notes). Three of the Company's domestic subsidiaries hold as their sole assets all of the issued and outstanding equity interests of the Company's direct non-guarantor foreign subsidiaries. 8 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) NOTE 2. LONG-TERM DEBT (CONTINUED) The following is condensed combined financial information of guarantor and non-guarantor subsidiaries:
Balance Sheet as of September 30, 1999 ---------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined -------- ------------- ------------ ------------ ----------- Cash and cash equivalents................... $ 5,270 $ 292 $ 8,157 $ - $ 13,719 Accounts receivable, net.................... 113 97,176 196,689 (35,417) 258,561 Property, net............................... 2,561 19,741 54,908 - 77,210 Intangible assets, net...................... 6,164 46,384 4,279 (964) 55,863 Other assets................................ 79,873 7,369 39,631 (62,428) 64,445 ------ ------- ------- ------- ------ Total assets.............................. $ 93,981 $170,962 $303,664 $ (98,809) $469,798 -------- ------------- ------------ ------------ ----------- -------- ------------- ------------ ------------ ----------- Current liabilities......................... $ 6,844 $127,031 $220,285 $ (38,950) $315,210 Long-term debt, less current portion........ 123,637 1,168 6,064 - 130,869 Other non-current liabilities............... (73,364) 58,857 62,956 2,569 51,018 Stockholders' (deficit) equity.............. 36,864 (16,094) 14,359 (62,428) (27,299) ------- -------- ------- -------- -------- Total liabilities and stockholders' deficit $ 93,981 $170,962 $303,664 $ (98,809) $469,798 -------- ------------- ------------ ------------ ----------- -------- ------------- ------------ ------------ ----------- Statement of Operations for the Nine Months Ended September 30, 1999 -------------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined -------- ------------ ------------- ------------ -------- Revenues.................................... $ - $ 468,526 $ 802,114 $(109,521) $1,161,119 Transportation and other direct costs....... - 359,368 630,595 (109,521) 880,442 Operating expenses.......................... 10,359 120,015 169,425 - 299,799 Restructuring and other non-recurring charges 1,913 8,335 886 - 11,134 Asset impairment charges.................... 2,167 5,926 3,967 - 12,060 ------- --------- -------- ------------- ---------- Operating loss.............................. (14,439) (25,118) (2,759) - (42,316) Interest, net............................... (5,088) (11,120) (2,254) - (18,462) Other income (expense) net.................. 2,199 67,138 (224) - 69,113 Income tax provision ....................... 49 33,744 1,468 - 35,261 Minority interest........................... - - (958) - (958) ----------------------- ------- --------------- -------- Net loss.................................. $(17,377) $ (2,844) $ (7,663) $ - $ (27,884) -------- ------------- ------------ ------------ ----------- -------- ------------- ------------ ------------ -----------
9 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS)
Statement oF Cash Flows for the Nine Months Ended September 30, 1999 -------------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined --------- ------------ -------------- -------------- ----------- Cash flows (used in) provided by: Operating activities....................... $(22,418) $(22,939) $(6,294) $(1,780) $(53,431) Investing activities....................... 6,463 94,940 (4,570) - 96,833 Financing activities....................... 21,198 (74,243) 6,430 1,780 (44,835) -------- -------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents................................ 5,243 (2,242) (4,434) - (1,433) Cash and cash equivalents, beginning of period..................................... 27 2,534 12,591 - 15,152 ------- ------- ------- -------- ------- Cash and cash equivalents, end of period..... $ 5,270 $ 292 $ 8,157 $ - $ 13,719 ------- ------- ------- -------- ------- ------- ------- ------- -------- -------
As a result of the disposition of GeoLogistics Air Services, Inc. ("GLAS") (see note 6 to financial statements) the Company, together with its guarantor subsidiaries, entered into an amendment to the revolving credit agreement (the "September Amendment"). Among other changes, the amendment provides for (a) reductions in credit availability from $100.0 million to $50.5 million in the aggregate with a sublimit of $20.0 million in the United Kingdom, (b) reductions in the percentage of eligible accounts receivable that qualify for the U.S. and United Kingdom borrowing base which affect the Company's ability to incur debt under the revolving credit facility, (c) the elimination of the interest coverage ratio covenant, (d) the change in the maturity date to March 31, 2000, (e) the reduction of the Supplemental Commitment from $30.0 million to $15.0 million and (f) the amendment of the EBITDA covenant to provide that EBITDA for the three month period ended December 31, 1999 will not be less than a deficit of $500,000. Because the maturity date of the credit facility is March 31, 2000, borrowings under the revolving credit facility of $1.8 million have been classified as current liabilities in the September 30, 1999 balance sheet. NOTE 3. SEGMENT INFORMATION The Company operates in a single business segment providing worldwide logistics solutions to meet customers' specific requirements for transportation and related services by arranging and monitoring all aspects of material flow activities utilizing advanced information technology systems. 10 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) The Company manages its business primarily on a geographic basis. The Company's reportable geographic segments are comprised of North America, Europe and Asia/Pacific. Each geographic segment provides products and services previously described. Accounting policies for each geographic segment are the same as those described in "Summary of Significant Accounting Policies" in Note 2 of the Notes to the Consolidated Financial Statements included in the Form 10-K filed for the year ended December 31, 1998. The Company evaluates the performance of each geographic segment primarily based on operating income. Operating income represents earnings before interest and taxes. Corporate expenses are excluded from geographic segment operating income. Corporate expenses are comprised primarily of marketing costs, incremental information technology costs and other general and administrative expenses which are separately managed. Geographic segment assets exclude corporate assets. Corporate assets include cash and cash equivalents, certain capitalized software development costs and intangible assets. Information for 1998 has been restated to conform to the 1999 presentation of operating segment information. 11 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) Information regarding the Company's operations by geographic region is summarized below.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ------------------------- 1999 1998 1999 1998 -------- ------ ------ ------- North America: Total revenues $191,561 $196,599 $550,249 $557,294 Transactions between regions 14,567 16,212 42,271 43,933 Revenues from customers 176,994 180,387 507,978 513,361 Net revenues 40,939 44,629 122,274 125,028 Restructuring and other non-recurring charges 7,345 - 8,335 - Asset impairment charges 8,285 - 8,285 - Depreciation and amortization 3,676 2,455 10,481 8,065 Operating income/(loss) (19,477) 1,865 (26,856) 2,293 Interest expense, net (4,199) (2,306) (11,648) (6,498) Europe: Total revenues $173,621 $176,482 $524,105 $533,076 Transactions between regions 19,646 25,041 64,122 75,411 Revenues from customers 153,975 151,441 459,983 457,665 Net revenues 36,465 37,405 112,004 115,230 Restructuring and other non-recurring charges 886 - 886 - Asset impairment charges 1,608 - 1,608 - Depreciation and amortization 918 919 2,575 2,262 Operating income/(loss) (3,938) (398) (5,820) 2,751 Interest expense (121) (251) (301) (284) Asia/Pacific: Total revenues 91,049 72,965 $254,913 $201,153 Transactions between regions 21,998 16,825 61,755 47,336 Revenues from customers 69,051 56,140 193,158 153,817 Net revenues 16,471 13,079 46,399 37,250 Depreciation and amortization 443 328 1,317 846 Operating income 2,173 1,271 5,296 3,311 Interest expense, net (57) (83) (177) (90)
Information regarding the Company's long lived assets by geographic region is summarized below.
SEPTEMBER 30, DECEMBER 31, 1999 1998 ---- ---- Long lived assets: North America $23,614 $27,358 Europe 42,516 48,628 Asia/Pacific 6,506 6,244 Corporate 4,574 13,024 ------- ------- Consolidated $77,210 $95,254 ------- ------- ------- -------
12 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) A reconciliation of the Company's geographic segment revenues, net revenues, operating income and assets to the corresponding consolidated amounts as of and for the three and nine months ended September 30, 1999 and 1998 is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ------------------------------ 1999 1998 1999 1998 ------ ------ ------ ------ Revenues: North America $191,561 $196,599 $550,249 $557,294 Europe 173,621 176,482 524,105 533,076 Asia/Pacific 91,049 72,965 254,913 201,153 Eliminations (56,211) (58,078) (168,148) (166,680) -------- -------- --------- ---------- Consolidated $400,020 $387,968 $1,161,119 $1,124,843 -------- -------- --------- ---------- -------- -------- --------- ---------- Net revenues: North America $40,939 $44,629 $122,274 $125,028 Europe 36,465 37,405 112,004 115,230 Asia/Pacific 16,471 13,079 46,399 37,250 ------- ------ -------- -------- Consolidated $93,875 $95,113 $280,677 $277,508 -------- -------- --------- ---------- -------- -------- --------- ---------- Operating income (loss): North America $(19,477) $ 1,865 $(26,856) $ 2,293 Europe (3,938) (398) (5,820) 2,751 Asia/Pacific 2,173 1,271 5,296 3,311 Corporate (6,908) (2,492) (14,936) (8,057) -------- ------- -------- ------- Consolidated $(28,150) $ 246 $(42,316) $ 298 -------- -------- --------- ---------- -------- -------- --------- ---------- SEPTEMBER 30, DECEMBER 31, 1999 1998 ---- ---- Assets: North America $193,644 $260,694 Europe 247,009 263,481 Asia/Pacific 91,461 86,119 Corporate 410,073 482,429 Eliminations (472,389) (543,545) -------- -------- Consolidated $469,798 $549,178 -------- -------- -------- --------
13 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) Revenue from transfers between regions represents approximate amounts that would be charged if the service were provided by an unaffiliated company. Total regional revenue is reconciled with total consolidated revenue by eliminating inter-regional revenue. NOTE 4. OTHER COMPREHENSIVE INCOME Comprehensive income loss for the three and nine months ended September 30, 1999 and 1998 is as follows (in thousands):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, --------------------- ------------------------- 1999 1998 1999 1998 ------ ----- ------ ----- Net loss $ (504) $(2,493) $(27,884) $(7,769) Foreign currency translation adjustment 491 (1,369) (184) (719) ------ ------ --------- ------- Comprehensive loss $ (13) $(3,862) $(28,068) $(8,488) ------ ------ --------- ------- ------ ------ --------- -------
NOTE 5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES / ASSET IMPAIRMENT CHARGES On March 5, 1999 the Company announced its intended restructuring of its GeoLogistics Americas ("Americas") business as a result of a difficult domestic freight forwarding environment. In light of lower volumes in the European region, the Company initiated a process to reevaluate the operations of its other business units to determine what initiatives could be taken to reduce costs and streamline administrative operations. As part of this restructuring process a new management team was put in place in an effort to improve the global operating results. In connection with this effort, the Company (a) has exited the domestic freight forwarding portion of Americas business as of the end of the third quarter of 1999, (b) is rationalizing personnel such that their numbers and skill sets are suited to the ongoing services and volumes of the business, (c) closed, or will close, unnecessary facilities in the United States and Europe, (d) arranged for the settlement of remaining obligations to the selling shareholders of the project forwarding and international household goods relocation services business (GeoLogistics Services, Inc.) and integrated the project forwarding business into the GeoLogistics Americas business and the international household goods relocation services into the Bekins Van Lines business and (e) revalued certain assets and deferred costs to reflect net realizable values. The aggregate charge 14 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) for these actions is expected to be approximately $33.2 million of which $1.0 million was recorded in the first half of this year, $22.2 million has been recorded in the third quarter of 1999, $7.1 million is expected to be recorded in the fourth quarter of 1999, and the $2.9 million balance is expected to be recorded in the first two quarters of 2000. The restructuring charges include provisions for the termination of approximately 600 sales, administrative and warehouse employees globally at a cost of approximately $14.9 million. Of these costs $7.9, million, representing the termination of 350 employees, were recorded in the first nine months of 1999 and $7.0 million related to the termination of the remaining approximately 250 employees are expected to be recorded in the fourth quarter of 1999 and the first half of 2000. Accrued liabilities at September 30, 1999 include approximately $6.6 million of future severance payments related to employees terminated prior to September 30, 1999 and approximately $1.4 million related to future payments for the shutdown of facilities. The third quarter cash cost of $8.7 million and non cash costs of $13.5 million have been recorded in the accompanying financial statements as restructuring and other non-recurring charges. The non cash costs for asset impairment charges relate to goodwill, capitalized software and property as a result of exiting the domestic freight forwarding portion of Americas' business, a reevaluation of the capitalized software costs and the pending sale of certain property of its Italian subsidiary. In addition to actions for which immediate financial recognition is required, many additional actions have been taken including revised incentive plans for the sales and management staffs (including the employees who will continue to operate the international freight forwarding operations in the United States), expansion of logistics facilities in Thailand and expansion of facilities and logistics capabilities in China. NOTE 6. SALE OF BUSINESS On September 10, 1999 the Company sold substantially all of the assets of its GLAS business unit ("GLAS Assets") to a subsidiary of FDX Corporation, for aggregate cash consideration of approximately $116 million. The $70 million gain on this sale has been reflected in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1999. The proceeds of such disposition were applied by the Company to fund a $10 million escrow account in connection with certain warranties to the purchaser, pay fees and expenses associated with the transaction and reduce revolving debt that was secured by the GLAS Assets. 15 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) For the three and nine months ended September 30, 1999, revenues from the GLAS operations contributed approximately $18.6 million and $66.8 million, respectively, to the Company's revenues and $2.5 million and $10.5 million, respectively, of operating income to the Company's operating losses of $28.2 million and $42.3 million, respectively. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDED ELSEWHERE IN THIS REPORT. THIS QUARTERLY REPORT ON FORM 10-Q MAY CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH HEREIN, IN THE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS WELL AS WITHIN THIS QUARTERLY REPORT GENERALLY. ALSO, DOCUMENTS SUBSEQUENTLY FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION MAY CONTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE CHALLENGES AND UNCERTAINTIES INHERENT IN SUCCESSFULLY IMPLEMENTING THE CLOSURE OF THE COMPANY'S U.S. DOMESTIC FREIGHT FORWARDING BUSINESS, THE RESTRUCTURING OF THE COMPANY'S EUROPEAN AND OTHER BUSINESSES, OPERATING CHALLENGES FACING THE COMPANY'S REMAINING BUSINESSES, MEETING LIQUIDITY NEEDS FOR CONTINUED OPERATION, REFINANCING DEBT THAT MATURES IN MARCH 2000, IMPLEMENTING THE COMPANY'S BRANDING, INFORMATION TECHNOLOGY AND COST REDUCTION STRATEGIES AND THE OTHER RISK FACTORS AND MATTERS IDENTIFIED HEREIN OR IN OTHER PUBLIC FILINGS BY THE COMPANY, INCLUDING BUT NOT LIMITED TO THE COMPANY'S REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-42607), ANNUAL REPORT ON FORM 10-K (FILED ON MARCH 31, 1999) AND QUARTERLY REPORTS ON FORM 10-Q (FILED MAY 14, 1999 AND AUGUST 16, 1999), SUCH AS RISKS RELATING TO THE COMPANY'S LEVERAGE AND ABILITY TO SERVICE ITS DEBT OBLIGATIONS, CHALLENGES PRESENTED BY INTEGRATION OF RECENT ACQUISITIONS AND IN THE AMERICAS BUSINESS, RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS AND RISKS RELATED TO INFORMATION TECHNOLOGY IMPLEMENTATION AND INTEGRATION. GENERAL The Company commenced operations on May 2, 1996 in connection with its acquisition of The Bekins Company ("Bekins"). On October 31, 1996, the Company acquired GeoLogistics Americas ("Americas") and GeoLogistics Company ("Canada") and securities representing 33.3%, in the aggregate, of the common equity of LEP International Worldwide Limited ("LIW"). On November 7, 1996, the Company acquired GeoLogistics Services ("Services"). On September 30, 1997, the Company acquired an additional 41.9% of the common equity of LIW and on December 15, 1997, the Company completed the acquisition of all of the remaining equity securities of LIW. On July 13, 1998, the Company purchased substantially all of the 17 operating assets and assumed certain of the liabilities ("Air Services Acquisition") of Caribbean Air Services, Inc. and on September 10, 1999 the Company sold the assets purchased in the Air Services Acquisition and certain other assets. All acquisitions were accounted for by the purchase method of accounting, and accordingly, the book values of the assets and liabilities of the acquired companies were adjusted to reflect their fair values at the dates of acquisition. The portion of the Company's business that is focused on traditional transportation and logistics services normally experiences a higher percentage of its revenues and operating income in the fourth calendar quarter as volumes increase for the holiday season. Conversely, the Company's domestic household goods relocation business experiences approximately half of its revenue between June and September. In addition, Services has a significant project logistics business which is cyclical due to its dependence upon the timing of shipment volumes for large, one-time projects. On March 5, 1999 the Company announced its intended restructuring of its GeoLogistics Americas ("Americas") business as a result of a difficult domestic freight forwarding environment. In light of lower volumes in the European region, the Company initiated a process to reevaluate the operations of its other business units to determine what initiatives could be taken to reduce costs and streamline administrative operations. As part of this restructuring process a new management team was put in place in an effort to improve the global operating results. In connection with this effort, the Company (a) has exited the domestic freight forwarding portion of Americas business as of the end of the third quarter of 1999, (b) is rationalizing personnel such that their numbers and skill sets are suited to the ongoing services and volumes of the business, (c) closed, or will close, unnecessary facilities in the United States and Europe, (d) arranged for the settlement of remaining obligations to the selling shareholders of the project forwarding and international household goods relocation services business (GeoLogistics Services, Inc.) and integrated the project forwarding business into the GeoLogistics Americas business and the household goods relocation services into the Bekins Van Lines business and (e) revalued certain assets and deferred costs to reflect net realizable values. The aggregate charge for these actions is expected to be approximately $33.2 million of which $1.0 million was recorded in the first half of this year, $22.2 million has been recorded in the third quarter of 1999, $7.1 million is expected to be recorded in the fourth quarter of 1999, and the $2.9 million balance is expected to be recorded in the first two quarters of 2000. The restructuring charges include provisions for the termination of approximately 600 sales, 18 administrative and warehouse employees globally at a cost of approximately $14.9 million. Of these costs, $7.9 million, representing the termination of 350 employees, were recorded in the first nine months of 1999 and $7.0 million related to the termination of the remaining approximately 250 employees are expected to be recorded in the fourth quarter of 1999 and the first half of 2000. Accrued liabilities at September 30, 1999 include approximately $6.6 million of future severance payments related to employees terminated prior to September 30, 1999 and approximately $1.4 million related to future payments for the shutdown of facilities. The third quarter cash cost of $8.7 million and non cash costs of $13.5 million have been recorded in the accompanying financial statements as restructuring and other non-recurring charges. The non cash costs for asset impairment charges relate to goodwill, capitalized software and property as a result of exiting the domestic freight forwarding portion of Americas' business, a reevaluation of the capitalized software costs and the pending sale of certain property of its Italian subsidiary. In addition to actions for which immediate financial recognition is required, many additional actions have been taken including revised incentive plans for the sales and management staffs (including the employees who will continue to operate the international freight forwarding operations in the United States), expansion of logistics facilities in Thailand and expansion of facilities and logistics capabilities in China. On September 10, 1999 the Company sold substantially all of the assets of its GLAS business unit ("GLAS" Assets") to a subsidiary of FDX Corporation, for aggregate cash consideration of approximately $116 million. The $70 million gain on this sale has been reflected in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1999. The proceeds of such disposition were applied by the Company to fund a $10 million escrow account in connection with certain warranties to the purchaser, pay fees and expenses associated with the transaction and reduce revolving debt that was secured by the GLAS Assets. For the three and nine months ended September 30, 1999, revenues from the GLAS operations contributed approximately $18.6 million and $66.8 million, respectively, to the 19 Company's revenues and $2.5 million and $10.5 million, respectively, of operating income to the Company's operating losses of $28.2 million and $42.3 million, respectively. The following discussion and analysis relates to the results of operations for the Company as reported for the nine months ended September 30, 1999 and 1998, and should be read in conjunction with the consolidated financial statements of the Company included elsewhere in this Form 10-Q.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ ----------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues $400,020 $387,968 $1,161,119 $1,124,843 Net revenues 93,875 95,113 280,677 277,508 Selling, general and administrative expenses 94,693 91,020 284,970 265,650 Restructuring and other non-recurring charges 10,144 - 11,134 - Asset impairment charges 12,060 - 12,060 - Depreciation and amortization 5,128 3,847 14,829 11,560 Operating income (loss) (28,150) 246 (42,316) 298 Interest expense, net (7,316) (4,761) (18,462) (12,098) Gain on disposition of business 69,760 - 69,760 - Other income (expense), net (197) (32) (647) 114 Income tax provision (benefit) 34,230 (2,267) 35,261 (4,503) Minority interest (371) (213) (958) (586) Net loss $ (504) $(2,493) $(27,884) $(7,769)
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES. The Company's revenues increased approximately $12.0 million to $400.0 million for the three months ended September 30, 1999 from $388.0 million for the three months ended September 30, 1998. Asia/Pacific region revenues increased $18.1 million, due primarily to increased export volumes from new and existing customers. Also contributing additional revenue of $0.9 million in the period was Americas and Canada which contributed $0.4 million more revenue than the prior period. These increases were offset by a decline in the GLAS business unit of $3.6 million, due to the sale of this operating unit in mid-September 1999 and Europe as a result of diminished international forwarding volumes due to regional softness. GeoLogistics Network Solutions ("GNS") revenues declined $1.8 million primarily due to lower volumes as a result of customer industry consolidations. Services business unit revenues decreased $1.8 million, on lower volume in both international relocation and project cargo 20 product lines as a result of declining international relocations and softness in the oil and gas industries. NET REVENUES. Net revenues, which represent gross profit after deducting transportation and other direct costs, decreased by approximately $1.2 million, to $93.9 million for the three months ended September 30, 1999 from $95.1 million for the same period in 1998. Net revenues as a percentage of revenues decreased to 23.5% in 1999 from 24.5% for the same period in 1998. Asia/Pacific region contributed an increase of $3.4 million to net revenues on the strength of higher volumes. This increase was offset by declines in all other business units of the Company. The sale of GLAS in September 1999 resulted in a $1.5 million decrease in net revenues for the quarter relative to the same period of 1998 while the softness in Europe's economy contributed an additional $1.0 million to the decrease. GNS and Services net revenue decreased $0.7 million and $0.6 million, respectively, as a result of lower volumes, as previously discussed, and margin erosion. Bekins Household Goods ("Bekins HHG") and Americas also experienced lower net revenues of $0.3 million and $0.7 million, respectively, as a result of lower margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by approximately $3.7 million, to $94.7 million for the three months ended September 30, 1999 from $91.0 million for the three months ended September 30, 1998. These expenses as a percentage of net revenues increased to 100.9% in 1999 from 95.7% for the same period in 1998. The increase in selling, general and administrative expenses occurred partially as a result of higher expenses in Americas of approximately $1.1 million. Asia/Pacific operating expenses increased $2.6 million as well due to the growth in the business in this region which required additional support. Canada and Europe also experienced increases in expenses of $0.8 million each as a result of increased revenues related to new and existing customers. The increases were partially offset by lower expenses related to GLAS due to the sale, and Bekins HHG and Services as a result of cost control efforts initiated in the quarter. RESTRUCTURING, NON-RECURRING AND ASSET IMPAIRMENT CHARGES. As previously discussed, the Company has implemented its restructuring and reorganization plans in the third quarter which has resulted in recording $10.1 million of restructuring and non-recurring charges related to the shut down of the domestic freight forwarding business and the streamlining of other corporate and administrative functions. In addition, the Company has recorded asset impairment charges of approximately $12.1 million relating to goodwill, capitalized software and property as 21 a result of exiting the domestic freight forwarding portion of Americas business, a reevaluation of capitalized software costs and the pending sale of certain property of its Italian subsidiary. These charges have all been reflected in the results of operations of the Company for the three months ended September 30, 1999. No such items existed during the same period of the previous year. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $1.3 million for the three months ended September 30, 1999 compared to the prior year period primarily as the result of an increase in fixed assets related to information technology. OPERATING LOSS. The Company recorded a $28.2 million operating loss for the three months ended September 30, 1999 compared to $0.2 million of operating income for the three months ended September 30, 1998. The significant decrease in operating loss is due primarily to the restructuring, non-recurring and asset impairment charges of $22.2 million recorded in the third quarter of 1999, higher depreciation and amortization expense, and lower operating results in all operating units of the Company with the exception of Asia/Pacific (up $0.8 million) and Bekins HHG (up $0.1 million). INTEREST EXPENSE, NET. Interest expense, net, increased by approximately $2.5 million, to $7.3 million for the third quarter of 1999 from $4.8 million for the same period of 1998. The increase resulted from the write off of $1.5 million of deferred finance fees resulting from the amendment of the Company's revolving line of credit in September 1999, interest associated with borrowings incurred to finance the Air Services Acquisition in July 1998 and higher levels of working capital-related borrowings required as a result of lower operating results at GNS, Services and Americas. INCOME TAXES. The income tax provision for the three months ended September 30, 1999 increased $36.5 million to a $34.2 million provision versus a $2.3 million tax benefit for the same period of 1998 as a result of the sale of GLAS assets. MINORITY INTERESTS. Interests held by minority shareholders in the earnings of certain foreign subsidiaries were $0.4 million and $0.2 million for the three months ended September 30, 1999 and 1998, respectively. NET LOSS. Net loss decreased by $2.0 million to $0.5 million for the three months ended September 30, 1999 compared to $2.5 million for the same period of 1998. This decrease is due 22 primarily to the after tax gain attributable to the sale of the GLAS assets offset by restructuring and other non-recurring charges and operating losses attributable to the Americas, Europe and Services, as previously discussed and increased interest expense. NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES. The Company's revenues increased by approximately $36.3 million to $1,161.1 million for the nine months ended September 30, 1999 from $1,124.8 million for the nine months ended September 30, 1998. Contributing additional revenue of $24.2 million in the period was GLAS. In addition, the Asia/Pacific region revenues increased $53.8 million, due primarily to increased export volumes and new customers. These increases were offset by a decline in the Americas business unit of $18.1 million, due to lower volumes as a result of a difficult freight forwarding environment. GNS revenues declined $7.4 million primarily due to lower volumes resulting from customer industry consolidations. Europe's revenues declined $9.0 million primarily as a result of market softness in the region. Services' revenues decreased $8.5 million, on lower volume in both international relocation and project cargo product lines as a result of declining international relocations and continued delays in the commencement of several large overseas projects, particularly by companies engaged in the oil and gas industry. Had foreign exchange rates remained constant from 1998 to 1999, consolidated revenues would have been $2.4 million less than the actual 1999 results. NET REVENUES. Net revenues increased by approximately $3.2 million, to $280.7 million for the nine months ended September 30, 1999 from $277.5 million for the same period in 1998. Net revenues as a percentage of revenues decreased to 24.2% in 1999 from 24.7% for the same period in 1998. GLAS accounted for $6.7 million of the increase as a result of the acquisition of Caribbean Air Services in July 1998. The Asia/Pacific region contributed an increase of $9.1 million to net revenues on the strength of higher volumes. These increases were offset by declines in all other business units of the Company except Canada which increased $0.9 million. Americas posted a decrease in net revenues of $5.1 million from the previous year as a result of the competitive freight forwarding environment in the U.S. which has led to the planned exit from the domestic freight forwarding market by the Company during the third quarter of 1999. The softness in Europe's economy contributed $3.2 million to the decrease. GNS and Services net revenues decreased $2.8 million and $2.1 million, respectively, as a result of lower volumes as previously discussed, and margin 23 erosion. Bekins HHG also experienced lower net revenues of $0.3 million a result of lower margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by approximately $19.3 million, to $285.0 million for the nine months ended September 30, 1999 from $265.7 million for the nine months ended September 30, 1998. These expenses as a percentage of net revenues increased to 101.5% in 1999 from 95.7% for the same period in 1998. Selling, general and administrative expenses increased over the prior year period in all operating units of the Company. Asia/Pacific expenses increased $7.5 million due to higher warehousing and employee costs required to support the 26.7% increase in revenues. Selling, general and administrative expenses in Europe increased $4.6 million as a result of initiatives to increase revenue growth. Selling, general and administrative expenses in Canada increased $2.2 million due to additional warehousing costs required to support new business. Expenses also include an additional $1.7 million for eight and one half months of GLAS operations in 1999 versus two and one half months of operations in 1998 from the date of the Air Services Acquisition. Americas expenses increased by $1.4 million as cost control initiatives implemented in early 1999 began to take effect during the third quarter. All other operating units as a whole had a modest combined increase of $1.9 million from the previous year. RESTRUCTURING, NON-RECURRING AND ASSET IMPAIRMENT CHARGES. As previously discussed, the Company has implemented its restructuring and reorganization plans which has resulted in recording $11.1 million of restructuring and non-recurring charges related to the shut down of the domestic freight forwarding business and the streamlining of other corporate and administrative functions. In addition, the Company has recorded asset impairment charges of approximately $12.1 million relating to goodwill, capitalized software and property as a result of exiting the domestic freight forwarding portion of Americas business, a reevaluation of capitalized software costs and the pending sale of certain property of its Italian subsidiary. These charges have all been reflected in the results of operations of the Company for the nine months ended September 30, 1999. No such items existed during the same period of the previous year. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $3.2 million for the nine months ended September 30, 1999 compared to the prior year period primarily as the result of the Air Services Acquisition and an increase in fixed assets related to information technology. 24 OPERATING LOSS. The Company recorded a $42.3 million operating loss for the nine months ended September 30, 1999 compared to a $0.3 million operating profit for the nine months ended September 30, 1998. Increased profits in Asia/Pacific and GLAS were offset by restructuring charges and higher operating losses in all other operating units as previously discussed. INTEREST EXPENSE, NET. Interest expense, net, increased by approximately $6.4 million, to $18.5 million for the first nine months of 1999 from $12.1 million for the same period of 1998. The increase was associated with interest related to borrowings incurred to finance the Air Services Acquisition in July 1998, higher levels of working capital-related borrowings required as a result of the losses incurred at GNS, Services and the Americas operating units and the write off of $1.5 million of deferred financing fees related to the revolving credit agreement which was amended in September 1999. INCOME TAXES. The income tax provision for the nine months ended September 30, 1999 increased $39.8 million to a $35.3 million provision versus a $4.5 million tax benefit for the same period of 1998. The increase for 1999 relates primarily to gains associated with the sale of the GLAS assets. No income tax benefit has been recorded for business units incurring operating losses in 1999. MINORITY INTERESTS. Interests held by minority shareholders in the earnings of certain foreign subsidiaries were $1.0 million and $0.6 million for the nine months ended September 30, 1999 and 1998, respectively. NET LOSS. Net loss increased by $20.1 million to $27.9 million for the nine months ended September 30, 1999 compared to $7.8 million for the same period of 1998. This increase is due primarily to operating losses attributable to the Americas, GNS, Europe and Services, increased interest expense, income taxes and restructuring charges offset in part by the gain attributable to the sale of the GLAS assets and improved operating results in Asia/Pacific and Bekins HHG. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1999, net cash used by operating activities was $53.4 million versus $45.5 million in the first nine months of 1998. The increase was primarily due to a decrease in earnings. During the first nine months of 1999 cash provided by investing activities was $96.8 million while cash used in investing activities was $49.2 million in 25 the first nine months of 1998. This increase is primarily due to the sale of GLAS in 1999. Cash used in investing activities in 1998 included $26.3 million related to the purchase of Caribbean Air Services. During the first nine months of 1999 capital expenditures were $6.2 million as compared to $22.9 million in the same period of 1998. Cash used in financing activities in the first nine months of 1999 was $44.8 million while cash provided from financing activities in the first nine months of 1998 was $71.1 million, primarily as a result of repayment of revolving debt with the proceeds from the sale of GLAS. On February 26, 1999, the Company executed an amendment to its bank credit facility (the "February Amendment"). The February Amendment, among other things, (a) included covenants that were required due to pending results of the Company, (b) provided for an additional $30.5 million commitment ("Supplemental Commitment") by one of the Company's existing lenders, (c) required the obligors under the bank credit facility to grant a security interest in all of their personal property, including all trademarks and other intangibles, to the extent not already included in the collateral, and one item of real property to secure the loans under the bank credit facility and (d) increased the margins applicable to Eurodollar and base rate loans based on specified funded debt ratios. As a result of the disposition of GLAS (see note 6 to financial statements) the Company, together with its guarantor subsidiaries entered into an amendment to the revolving credit agreement. Among other changes, the amendment provides for (a) reductions in credit availability from $100.0 million to $50.5 million in the aggregate with a sublimit of $20.0 million in the United Kingdom, (b) reductions in the percentage of eligible accounts receivable that qualify for the U.S. and United Kingdom borrowing base which affect the Company's ability to incur debt under the revolving credit facility, (c) the elimination of the interest coverage ratio covenant, (d) the change in the maturity date to March 31, 2000, (e) the reduction of the Supplemental Commitment from $30.0 million to $15.0 million and (f) the amendment of the EBITDA covenant to provide that EBITDA for the three month period ended December 31, 1999 will not be less than a deficit of $500,000. Because the maturity date of the credit facility is March 31, 2000, borrowings under the revolving credit facility of $1.8 million have been classified as current liabilities in the September 30, 1999 balance sheet. Because of the restructuring of certain of the Company's businesses and uncertainties surrounding earnings performance the Company may have to seek additional amendments or waivers of covenants in the credit facility. 26 As a result of the change of the maturity date of the bank credit facility to March 31, 2000 the Company does not have sufficient cash on hand and will not generate sufficient cash from operations to repay amounts outstanding under the bank credit facility. Accordingly, the Company will be required to seek financing from alternative sources to repay amounts outstanding under the bank credit facility on March 31, 2000 and to finance working capital needs following maturity of the bank credit facility. The Company is currently engaged in discussions with lenders regarding alternative financing, but it has not received a commitment from any lender to provide such financing and there can be no assurances that the Company will be able to secure such financing on terms that are acceptable to the Company, if at all. Failure to obtain such financing would cause an event of default under the bank credit facility and would result in an event of default under the indenture governing the Notes. If the Company is unable to obtain such financing, it could be required to adopt one or more alternatives, such as selling or leasing assets or restructuring debt. There can be no assurances that the Company could effect these alternatives on satisfactory terms, if at all. In addition, if the Company defaults on the payment of amounts outstanding under the credit facility on maturity the lenders under the credit facility may initiate their remedies under the facility for such default, including foreclosure on the assets securing borrowings under the facility. Within North America, the Company has utilized borrowings under its credit facilities to meet working capital requirements and to fund capital expenditures principally related to information technology. At October 31, 1999, the Company had a working capital borrowing base under its bank credit facility of $50.5 million, $17.5 million of outstanding working capital related borrowings and $9.9 million of outstanding letter of credit commitments, leaving $23.1 of additional borrowing capacity. In addition, at October 31, 1999, the Company had borrowings outstanding of $15.0 million pursuant to the Supplemental Commitment. Total borrowings of foreign operations at September 30, 1999 were approximately $19.4 million, representing a combination of short and long-term borrowings and capital leases. The Company anticipates that it will pay approximately $12.3 million in cash for restructuring charges during the fourth quarter of 1999 and the first quarter of 2000. The Company expects that it will finance such cash payments with borrowings under its credit facility. The Company cannot, however, be certain that it will have sufficient availability under its existing facility to finance such restructuring costs and its working capital needs because of the limited borrowing capacity of such facility. The indenture relating to the Company's Notes generally provides that, subject to certain exceptions, the Company not incur indebtedness unless on the date of such incurrence the consolidated coverage ratio of the Company exceeds 2.25 to 1.0 and that the restricted 27 subsidiaries of the Company may not incur indebtedness unless on the date of such incurrence the consolidated coverage ratio of the Company exceeds 2.5 to 1.0. The indenture permits the Company to incur up to $115.0 million of total indebtedness (consisting of $100.0 million of bank debt and $15.0 million of other debt) notwithstanding the Company's inability to meet the consolidated coverage ratio test. As of October 31, 1999, the Company had incurred $32.5 million of indebtedness under its United States and United Kingdom bank credit facilities and, as of such date, the Company would have been able to incur an additional $23.1 million of indebtedness pursuant to the terms of such facilities. As of September 30, 1999, the Company had incurred $3.9 million of other debt and would have been able to incur an additional $11.1 million of other debt pursuant to the terms of the indenture. In addition, the indenture permits the Company to incur up to $30.0 million under its foreign credit facilities notwithstanding the Company's inability to meet the consolidated coverage ratio test. As of September 30, 1999, the Company had incurred $19.4 million of indebtedness under its foreign credit facilities and as of such date, would have been able to incur an additional $10.6 million of indebtedness under such facilities in compliance with the terms of the indenture. The Company is highly leveraged and has significant interest expense obligations under its bank credit facility and Notes. The Company's bank credit facility and the indenture related to the Notes contain certain restrictive covenants. These restrictive covenants include covenants related to the maintenance of EBITDA, limitations on indebtedness, limitations on restricted payments, limitations on sales of assets and subsidiary stock, limitations on transactions with affiliates, provisions relating to changes of control, limitations on liens, sale or issuance of capital stock of restricted subsidiaries, sale/leaseback transactions, and restrictions on mergers, consolidation and sales of assets. It is anticipated that any replacement financing for the Company's existing credit facility will include restrictive covenants, some or all of which may be substantially more restrictive than the covenants contained in the Company's existing bank credit facility. The ability of the Company to comply with such covenants will be dependent upon the Company's future performance, which is subject to financial, economic, competitive, regulatory and other factors affecting the Company and its subsidiaries, many of which are beyond their control. In addition, the Company has recently financed operations from borrowing under its credit facilities. The Company's ability to borrow additional funds is significantly restricted because the Company's borrowing capacity under its existing bank credit facility is limited to $16.0 million in North America and $7.1 million in the U.K. as of September 30, 1999. The Company's ability to borrow additional funds and finance its operations will be significantly affected by its ability to obtain refinancing for the existing bank credit facility and additional financing, which may be limited by the terms of the indenture and agreements governing the 28 refinancing indebtedness. There can be no assurances that the Company will be able to obtain any such financing on acceptable terms or at all. If the Company is unable to generate sufficient cash flow, or refinance the bank credit facility upon maturity, it could be required to adopt one or more alternatives, such as reducing or delaying planned expansions or capital expenditures, selling or leasing assets, restructuring debt or obtaining additional debt or equity capital. The Company will continue to investigate strategic alternatives to finance future operations, including the sale of other non-core assets. There can be no assurance that any of these alternatives could be effected on satisfactory terms or at all. In addition, if the Company defaults on the payment of amounts outstanding under the credit facility on maturity the lenders under the credit facility may initiate their remedies under the facility for such default, including foreclosure on the assets securing borrowings under the facility. YEAR 2000 The Company is currently engaged in a comprehensive project to upgrade its information technology including hardware and software that will consistently and properly recognize the Year 2000 ("Year 2000 Plan"). As a provider of global logistics and transportation services, the Company is reliant on its computer systems and applications to conduct its business. In addition to these systems, the Company is also reliant upon the system capabilities of its business partners. Many of the Company's systems include new hardware and packaged software recently purchased from large vendors who have represented that these systems are already Year 2000 compliant. As a result, a majority of the Company's financial systems are already in compliance with the Company's objectives and all key computing hardware of the Company is Year 2000 compliant. An extensive review has also been made of all remaining internal systems. All of the operational systems in Europe, Asia, and North America are in compliance. Financial systems in all of Asia, all of Europe, except Italy, and the United States are also in compliance. The financial systems for Italy and Canada are expected to be compliant by the end of November 1999. As part of this process the Company is also surveying embedded systems to ensure Year 2000 compliance with scheduled completion by December 1999. The Company has conducted a survey of its business partners most of whom have certified Year 2000 compliance. The Company, however, is still gathering information from the airlines. The Company is also working with major customers to gain Year 2000 certification with them in response to customer inquiries and surveys. 29 The Company estimates total costs of the compliance process to be approximately $2.0 million of which $1.9 million has been spent through October 31, 1999. This does not include the costs associated with the Company's strategic information plan much of which addresses the Year 2000 project as well as strategic initiatives. The Year 2000 Plan prepared by the Company has been designed to identify points of failure and corrective actions to avoid systems failures. Procedures have been designed and systems implemented to prevent invalid dates from customers and suppliers from impacting Company systems. The Company believes the risk of operational failure from internal systems is minimal. The Company also believes that there are sufficient transportation providers who can meet the Company's contractual commitments even if some carriers are impaired by the Year 2000 problem. For those parties for which the Company has identified to be non-Year 2000 compliant, the Company intends to secure the option of alternate carriers who are Year 2000 ready in order to continue to provide basic business services. The Company has already prepared manual operational procedures which are in place should disruption from a Company system or third party system occur. In addition, all system development will be stopped and all technical resources will be available if any unexpected system problems occur during the first quarter of 2000. CONVERSION TO THE EURO CURRENCY In January 1999 certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency ("Euro"). The Company conducts business in member countries. The transition period for the introduction of the Euro will be between January 1, 1999 and June 30, 2002. The Company is addressing the issues involved with the introduction of the Euro. The more important issues facing the Company include: converting information technology systems; reassessing currency risk; negotiating and amending contracts; and processing tax and accounting records. Based upon progress to date the Company believes that use of the Euro will not have a significant impact on the manner in which it conducts its business affairs and processes its business and accounting records. Accordingly, conversion to the Euro is not expected to have a material effect on the Company's financial condition or results of operations. 30 RISK MANAGEMENT AND MARKET RISK SENSITIVE INSTRUMENTS The Company is exposed to certain market risks, including changes in interest rates and currency exchange rates. In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in interest rates and fluctuations in the value of foreign currencies using a variety of financial instruments. In order to mitigate the impact on fluctuations in the general level of interest rates, the Company generally maintains a large portion of its debt as fixed rate in nature by borrowing on a long term basis. The Company's objectives in managing the exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign exchange rate changes and allow management to focus its attention on its core business issues and challenges. Accordingly, the Company enters into various contracts which change in value as foreign exchange rates change to minimize the impact of currency movements on certain existing commitments and anticipated foreign earnings. The Company may use a combination of financial instruments to manage these risks, including forward contact or option related instruments. It is the Company's policy to enter into foreign currency transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for speculative purposes. OTHER MATTERS In June 1998, the Financial Accounting Standards Board Issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which was originally required to be adopted in years beginning after June 15, 1999. This new accounting standard will require that all derivatives be recorded on the balance sheet at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Management is currently assessing the impact that the adoption of SFAS No. 133 will have on the Company's financial position, results of operations, and cash flows. 31 The FASB recently issued Statement No. 137 which delays the effective date of this Statement until fiscal years beginning after June 15, 2000. In addition, the Statement requires that all derivatives that are expected to be hedges must be designated as such on the first day of the period in which the statement becomes effective. The Company, which utilizes fundamental derivatives to hedge changes in interest rates and foreign currencies, expects to adopt SFAS No. 133 effective January 1, 2001. 32 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.5 Employment Agreement dated as of June 15, 1999 between the Company and Robert Arovas. 27 Financial Data Schedule (Filed electronically only). (b) Reports on Form 8-K On September 17, 1999 the Company filed a current report on Form 8-K disclosing the consummation of the sale of its GeoLogistics Air Services, Inc. business unit to FDX Global Logistics, Inc. On September 27, 1999 the Company filed a current report on Form 8-K/A disclosing the pro forma financial statements of the Company reflecting the disposition of its GeoLogistics Air Services, Inc. business. 33 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. GEOLOGISTICS CORPORATION Date: November 15, 1999 By: /s/ Robert Arovas ----------------- ------------------------------- Robert Arovas President, Chief Executive Officer Date: November 15, 1999 By: /s/ Janet D. Helvey ----------------- ------------------------------ Janet D. Helvey Senior Vice President, Finance Date: November 15, 1999 By: /s/ Kenneth R. Batko ----------------- ------------------------------- Kenneth R. Batko Chief Accounting Officer 34 EX-10.5 2 EXHIBIT 10.5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as of June 15, 1999, between Geologistics Corporation, a Delaware corporation (the "COMPANY"), and Robert Arovas (the "EXECUTIVE"). 1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the Executive hereby agrees to be employed by the Company, on the terms and conditions set forth herein. 2. TERM. The Executive's employment by the Company will commence on the date hereof and terminate at 12:01 a.m. on June 15, 2002 (the "EXPIRATION DATE)" unless sooner terminated or extended as hereinafter provided (such period, the "EMPLOYMENT PERIOD"); PROVIDED, HOWEVER, that the initial Employment Period, and the corresponding Expiration Date, shall automatically be extended for successive one (1) year terms if neither Party has advised the other in writing in accordance with Section 11 at least six (6) months prior to the end of the then current Employment Period that such Employment Period will not be extended for an additional one (1) year period. In the event that such notice is given, the Executive's employment will terminate on the last business day of the then current Employment Period. 3. POSITION, DUTIES AND RESPONSIBILITIES. (a) POSITION. The Executive hereby agrees to serve as Executive Vice President and Chief Operating Officer of the Company reporting to the Chief Executive Officer and the Board of Directors of the Company (the "BOARD"). In addition, the Executive shall serve as Acting Chief Financial Officer until such time as that position can be filled. The Executive shall devote his best efforts and his full business time and attentio nto the performance of services to the Company in his capacity as an officer thereof and as may reasonably be requested by the Board, except when taking time off for vacations, holidays, illness or such other reasons as permitted under this Agreement or in accordance with the Company's policies, practices and procedures, as long as such time off does not interfere with the performance of his duties. The Company shall retain full direction and control of the means and methods by which the Executive performs the above services. (b) PLACE OF EMPLOYMENT. Unless the parties agree otherwise in writing, during the term of this Agreement, the Executive shall perform the services required by this Agreement at the Company's principal offices in either Chicago, Illinois or Atlanta, Georgia; PROVIDED, HOWEVER, that the Company may from time to time reasonably require the Executive to travel temporarily to other locations on the Company's business at the Company's expense. (c) OTHER ACTIVITIES. Except with the prior written approval of the Board (which the Board may grant or withhold in its sole discretion), the Executive, during the Employment Period, will not (i) accept any other employment, (ii) serve on the board of directors or similar body of any other business entity, or (iii) engage, directly or indirectly, in any other business activity (whether or not pursued for pecuniary advantage) that is or may be competitive with, or that might place him in a conflicting position with, that of the Company or any of its subsidiaries; PROVIDED, HOWEVER, that the Executive's receipt of severance payments and benefits from any prior employer, which are not in exchange for any services to be rendered to or on behalf of such employer during the Employment Period, shall not be a violation of this Section 3(c). 4. COMPENSATION AND RELATED MATTERS. (a) SALARY. During the Employment Period, the Company shall pay the Executive an annual base salary ("SALARY") of not less than $300,000, to be paid consistent with the standard payroll practices of the Company but in any event in installments no less frequently than monthly. (b) BUSINESS EXPENSES. The Company shall promptly reimburse the Executive for reasonable business expenses incurred in connection with the conduct of the Company's business upon presentation of sufficient evidence of such expenditures consistent with the Company's policies as may be in place from time to time. (c) CASH INCENTIVE COMPENSATION. The Executive shall be eligible to receive additional performance-based cash bonus compensation (the "CASH INCENTIVE COMPENSATION") of up to seventy percent (70%) of the Executive's Salary for each fiscal year upon his satisfaction of certain financial targets and other clearly defined management objectives (the "CASH INCENTIVE OBJECTIVES") to be established annually by the Compensation Committee of the Board. For the Company's 1999 fiscal year, the Cash Incentive Objectives shall be established within sixty (60) days of the date hereof and shall be based on the plan for reorganization submitted to the Company by the Executive on or about August 13, 1999, as the same may be reviewed and revised by the Company and the Executive, and, for each subsequent fiscal year, the Cash Incentive Objectives shall be established no later than sixty (60) days following the commencement of such fiscal year. The Executive's Cash Incentive Compensation for the Company's 1999 fiscal year shall be payable on a prorated basis by multiplying such amount by a fraction, the numerator being the number of days in the Employment Period during such year and the denominator being 365. (d) AUTOMOBILE ALLOWANCE. The Company will provide the Executive with the use of a Company-leased automobile in accordance with applicable Company policy. (e) PAID TIME OFF. The Executive will be entitled to paid time off in each calendar year in accordance with the Company's policies, practices and procedures applicable to executives, which shall include, but not be limited to, four weeks of vacation, all holidays observed by the Company, personal days and sick days; PROVIDED, HOWEVER, that the Company will permit the Executive to carry over up to two weeks of accrued but unused vacation days for use in the following calendar year or will pay the Executive for such vacation days, at the Company's option. 2 (f) HOUSING ALLOWANCE/RELOCATION REIMBURSEMENT. The Company will provide the Executive with the use of a Company-leased apartment in the Atlanta, Georgia metropolitan area; PROVIDED, HOWEVER, that if, during the first six (6) months of his employment with the Company, the Executive, in his sole discretion, elects to relocate his primary residence from California to Georgia or agrees to any subsequent relocation thereafter at the request of the Company, the Company will reimburse the Executive for the reasonable costs associated with such relocation(s), and said housing allowance thereafter will be discontinued. (g) PERSONAL TRAVEL ALLOWANCE. The Company will pay the Executive's costs for up to three round-trip airline tickets per month, at the most cost-effective rate, to his home in California. (h) RESTRICTED STOCK GRANT. The Company shall provide the Executive with 25,000 shares of restricted Company stock, subject to the terms and provisions of the Geologistics Corporation 1999 Long-Term Incentive Plan and the Restricted Share Award Agreement executed thereunder, which agreement is attached as Exhibit A hereto. (i) LETTER OF CREDIT. Within thirty (30) days after the execution of this Agreement, the Executive shall receive an irrevocable bank letter of credit (the "LETTER OF CREDIT") in the amount of $500,000, subject to adjustment as provided below, payable to the Executive (or his heirs, successors or assigns) in the event of the Company's failure to pay to the Executive any amounts due and owing, or benefits due, pursuant to Section 4(a) or Section 6(d) of this Agreement, as a result of the Company's bankruptcy or insolvency or any other reason. Commencing on the date sixteen (16) months after the date of this Agreement, the amount of the Letter of Credit shall be reduced by $25,000 per month for each month remaining in the Employment Period. (j) OTHER BENEFITS. The Executive shall be entitled to participate in or receive group health and long-term disability insurance, bonus plan, 401(k) plan, non-qualified plan and similar benefits as the Company provides generally from time to time to its executives and life insurance coverage in an aggregate amount of $750,000 through individual and/or group policies. The Executive may elect, in lieu of participation in the Company's group health plan, to obtain private health coverage, the cost of which shall be reimbursed to the Executive by the Company in an amount of up to $700 per month. 5. TERMINATION. The Executive's employment hereunder shall or may be terminated under the following circumstances: (a) DEATH. The Executive's employment hereunder shall terminate upon his death. (b) DISABILITY. The Executive's employment hereunder shall terminate upon the Executive's "DISABILITY." Disability shall mean any physical or mental disability or infirmity which renders the Executive unable to perform his duties under this Agreement for more than ninety (90) consecutive days during any 180-day period, as determined (i) in accordance with any long-term disability plan provided by the Company of which the Executive is a participant, or (ii) by the following procedure: The Executive agrees to submit to medical examinations by a licensed healthcare professional selected by the Company, in its sole discretion, to determine 3 whether a Disability exists. In addition, the Executive may submit to the Company documentation of a Disability, or lack thereof, from a licensed healthcare professional of his choice. Following a determination of a Disability or lack of Disability by the Company's or the Executive's licensed healthcare professional, the other party may submit subsequent documentation relating to the existence of a Disability from a licensed healthcare professional selected by such other party. In the event that the medical opinions of such licensed healthcare professionals conflict, such licensed healthcare professionals shall appoint a third licensed healthcare professional to examine the Executive, and the opinion of such third licensed healthcare professional shall be dispositive. (c) FOR CAUSE. The Company may terminate the Executive's employment hereunder for "CAUSE" by delivery of written notice to the Executive specifying the factual basis for the termination and the provision(s) of this Section 5(c) believed to be applicable thereto. Cause shall mean (i) Executive's material breach of this Agreement, (ii) his being formally charged with any felony or any crime involving moral turpitude under the laws of any state, the District of Columbia or of the United States, (iii) his gross misconduct in the performance of his duties hereunder, including without limitation, his willful failure or refusal to carry out any proper direction by the Board with respect to the services to be rendered by him hereunder, or his habitual neglect of his duties as an officer of the Company (other than as a result of a disability), which misconduct or neglect shall continue for thirty (30) days after receipt of written notice from the Company, (iv) his engaging in any material misconduct, dishonesty, misappropriation of the assets of the Company, its equity holders or any of its or their affiliates, or any acts of gross negligence, in each case, detrimental in any material respect to any of the foregoing or (v) his engaging in any venture presented to him by virtue of his position with the Company wherein the profits of such venture are not made available to the Company, without having received the prior written consent of the Company. (d) WITHOUT CAUSE. The Company may terminate the Executive's employment for any reason upon written Notice of Termination, given in accordance with Section 5(g), and subject to the payments provided for in Section 6(d). (e) VOLUNTARY RESIGNATION. The Executive may voluntarily resign his position and terminate his employment with the Company without Good Reason at any time by delivery of a written Notice of Resignation to the Company, as provided for in Section 5(g), below. (f) RESIGNATION FOR GOOD REASON. The Executive may terminate his employment for "GOOD REASON" by delivery of a Notice of Resignation as described in Section 5(g) below, specifying the factual basis for the termination and the provision(s) of this Section 5(f) believed to be applicable thereto. Good Reason shall mean (i) a change in the Executive's title of Chief Operating Officer, (ii) a substantial diminution in the Executive's duties and responsibilities with the Company since the date of this Agreement, (iii) a reduction in the Executive's Salary, bonus opportunity or benefits provided pursuant to Section 4(b), Sections (4)(d) through (g) and Section 4(j) of this Agreement or (iv) any material breach of this Agreement; PROVIDED, HOWEVER, that the sale of any division or business of the Company not related to the Company's international freight forwarding business shall not in any event constitute a diminution in the Executive's duties and responsibilities. 4 (g) NOTICE OF TERMINATION OR RESIGNATION. Any termination of the Executive's employment by the Company shall be communicated by written "NOTICE OF TERMINATION" to the Executive, and any resignation by the Executive shall be communicated by written "NOTICE OF RESIGNATION" to the Company, each of which shall set forth the date such termination or resignation shall become effective, which date shall, in any event, be no less than thirty (30) days from the date the notice is given, unless otherwise provided for in Section 5(h), below. A Notice of Termination or a Notice of Resignation shall also indicate the specific termination provision in this Agreement relied upon. (h) DATE OF TERMINATION. The Date of Termination shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated by reason of his Disability, the date of the final determination of a Disability as provided in Section 5(b), (iii) if the Executive's employment is terminated pursuant to Section 5(c) or (d) above, the date specified in the Notice of Termination, and (iv) if the Executive resigns pursuant to Section 5(e) or (f), the Date of Resignation; PROVIDED, HOWEVER, that in no event shall the Date of Termination be earlier than the date of any Notice of Termination. (i) TERMINATION OBLIGATIONS OF EXECUTIVE. Upon termination of the Employment Period, (i) the Executive shall be deemed to have resigned from all offices and directorships then held with the Company or any affiliate, (ii) the Executive will be required to return all property and Confidential Information as provided for in Section 8, and the representations and warranties contained herein and the Executive's obligations under Sections 8, 9, 10 and 19 shall survive termination of the Employment Period and the expiration of this Agreement. 6. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) DEATH. If the Executive's employment is terminated by reason of his death, the Company shall pay the Executive's estate his Salary through the end of the month in which the Date of Termination occurs, and the Executive's beneficiaries shall be entitled to receive any benefits due to them as a result of any life insurance policy the Executive receives pursuant to Section 4(j) of this Agreement. In the event that the Cash Incentive Objectives are met at the end of the fiscal year in which the Executive's death occurs, the Company shall also pay to the Executive's estate, within thirty (30) days after receipt by the Company of the audited financial statements for such fiscal year and confirmation that the Cash Incentive Objectives have been met, a proportionate share of the Cash Incentive Compensation due to the Executive for such fiscal year based upon the number of days in the fiscal year that the Executive worked for the Company prior to such termination. In addition, for a period of twelve (12) months from the Date of Termination, the Company shall keep in force the Executive's existing health insurance coverage on the same basis as in effect at the Date of Termination by (i) continuing the coverage of the Executive's dependents under the Company's group health plan, subject to the Company's right to amend, modify or terminate any such plan, or (ii) continuing to make the payments for the Executive's private health insurance for his eligible dependents, in accordance with the Executive's election pursuant to Section 4(j). 5 (b) DISABILITY. During any period that the Executive is unable to perform his duties hereunder due to physical or mental illness, in the opinion of a physician selected or approved by the Board or as determined by any short-term disability plan provided by the Company, the Executive shall continue to receive the Salary payable to the Executive pursuant to and in accordance with the terms of Section 4(a) hereof until his employment is terminated pursuant to Section 5(b) hereof, provided that any payments so made to the Executive shall be reduced by any amounts paid to the Executive under any disability benefit plan maintained by the Company. If the Executive's employment is terminated by reason of a Disability, he shall be paid his Salary through the Date of Termination. In the event that the Cash Incentive Objectives are met at the end of the fiscal year in which the Executive is terminated pursuant to Section 5(b), the Company shall also pay to the Executive, within thirty (30) days after receipt by the Company of the audited financial statements for such fiscal year and confirmation that the Cash Incentive Objectives have been met, a proportionate share of the Cash Incentive Compensation that may otherwise have been due to the Executive for such fiscal year based upon the number of days in the fiscal year that the Executive worked for the Company prior to such termination. In addition, for a period of twelve (12) months from the Date of Termination, the Company shall keep in force the Executive's existing health insurance coverage on the same basis as in effect at the Date of Termination by (i) continuing the Executive's coverage under the Company's group health plan, subject to the Company's right to amend, modify or terminate any such plan, or (ii) continuing to make the payments for the Executive's private health insurance for the Executive and his eligible dependents, in accordance with the Executive's election pursuant to Section 4(j). (c) CAUSE. If the Executive's employment is terminated for Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive his Salary through the Date of Termination, and no other payments will be due and owing. (d) OTHER TERMINATIONS BY THE COMPANY. If the Company terminates the Executive's employment without Cause pursuant to Section 5(d) or if the Executive resigns for Good Reason pursuant to Section 5(f), the Company shall pay the Executive the Salary payable pursuant to and in accordance with Section 4(a) for the greater of (i) the period beginning on the Date of Termination and ending on the Expiration Date or (ii) a period of twelve (12) months from the Date of Termination (either period referred to herein as the "SEVERANCE PERIOD"). In the event that the Cash Incentive Objectives are met at the end of the fiscal year in which the Executive is terminated by the Company without Cause pursuant to Section 5(d) or the Executive resigns for Good Reason pursuant to Section 5(f), the Company shall also pay to the Executive, within thirty (30) days after receipt by the Company of the audited financial statements for such fiscal year and confirmation that the Cash Incentive Objectives have been met, a proportionate share of the Cash Incentive Compensation that may otherwise have been due to the Executive for the fiscal year in which the Date of Termination has occurred based upon the number of days in the fiscal year that the Executive worked for the Company prior to such termination. In addition, for a period of twelve (12) months from the Date of Termination, the Company shall keep in force the Executive's existing health insurance coverage on the same basis as in effect at the Date of Termination by (i) continuing the Executive's coverage under the Company's group health plan, subject to the Company's right to amend, modify or terminate any such plan, or (ii) continuing to make the payments for the Executive's private health insurance for the Executive and his eligible dependents, in accordance with the Executive's election pursuant to 6 Section 4(j). Notwithstanding anything to the contrary in this Agreement, no payments to be made or benefits to be provided to the Executive upon the termination of his employment pursuant to this Section 6(d) shall be made or provided unless and until the Executive executes a general release releasing the Company and its affiliates from all rights and claims arising under this Agreement or otherwise relating to his employment or the termination thereof and such general release becomes effective pursuant to its terms. (e) VOLUNTARY RESIGNATION. If the Executive terminates his employment with the Company pursuant to Section 5(e) hereof, the Company shall pay the Executive's Salary through the Date of Resignation, and no other payments shall be due and owing. 7. CHANGE OF CONTROL. In the event that the Executive's employment is terminated (a) without Cause at any time during the Employment Period after a "CHANGE OF CONTROL" or (b) with Cause within six (6) months following a Change of Control, the Executive shall be entitled to the compensation and benefits provided for in Section 6(d) or Section 6(c), as applicable, plus, in each case, the compensation and benefits set forth in Section 6(d) for an additional period of six (6) months (the payment of which shall also be deemed to be a part of the Severance Period), subject to the same conditions contained in Section 6. A Change of Control shall be deemed to have occurred in the event that the "PERMITTED HOLDERS", individually or together, cease for any reason to beneficially own at least thirty percent (30%) of the Company's then outstanding shares of common stock or the combined voting power of the then outstanding voting securities of the Company. As used herein, Permitted Holders means holders of common stock of the Company on August 12, 1999 and each other entity or person to which Oaktree Capital Management, LLC or William E. Simons & Sons LLC, or their respective affiliates, provides management or investment advisory services. 8. CONFIDENTIALITY, COMPANY PROPERTY AND NON-SOLICITATION COVENANTS. (a) CONFIDENTIALITY. The Executive will not, during the Employment Period or any period thereafter, directly or indirectly, disclose or make available to any person, firm, corporation, association or other entity, any "CONFIDENTIAL INFORMATION," for any reason or purpose whatsoever, except as necessary in the course of performing his duties under this Agreement and unless otherwise required by court order, subpoena or other government or legal process. "CONFIDENTIAL INFORMATION" means: information disclosed to the Executive or known by the Executive as a consequence of or through his relationship with the Company, about the customers, employees, business methods, public relations methods, organization, procedures or finances, including, without limitation, information of or relating to customer lists, of the Company and its affiliates; PROVIDED, HOWEVER, that Confidential Information shall not include any information that (i) was publicly known at the time of disclosure to the Executive, (ii) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to the Company by any person or entity or (iii) is lawfully disclosed to the Executive by a third party. Upon termination of the Executive's employment with the Company, regardless of the reason, all Confidential Information in his possession (together with all copies or duplicates thereof, including computer files) shall be returned to the Company and shall not be retained by the Executive or furnished to any third party; PROVIDED, HOWEVER, that the Executive may retain personal diaries, documents relating to his compensation and benefits, and this Agreement. 7 (b) COMPANY PROPERTY. All personal property and equipment furnished to or prepared by the Executive in the course of or incident to his employment belong to the Company and shall be promptly returned to the Company upon termination of the Employment Period or at such other time as the Company may request. Personal property includes, without limitation, all books, manuals, records, reports, notes, contracts, lists, blueprints, and other documents, or materials, or copies thereof (including computer files), and all other proprietary information relating to the business of the Company. Following termination, the Executive will not retain any written or other tangible material containing any proprietary information of the Company. (c) NON-SOLICITATION. At all times during the Employment Period and for the longer of any Severance Period or nine (9) months after the termination of the Executive's employment by the Company for Cause or by the Executive without Good Reason, the Executive will not, directly or indirectly, either on his own account or jointly with or as a manager, agent, officer, employee, consultant, partner, joint venturer, owner or shareholder or otherwise on behalf of any other person, firm or corporation, (i) carry on or be engaged or interested in, or solicit, the sale of physical logistics services to any person, firm or corporation which at any time during the Employment Period has been or is a customer of the Company, (ii) endeavor to canvas or solicit in competition with the Company or to interfere with the supply of orders for goods or services from or by any person, firm or corporation which during the Employment Period has been or is a supplier of goods or services to the Company, or (iii) solicit or attempt to solicit away from the Company any of its officers or employees or offer employment to any person who, during the six (6) months immediately preceding the date of such solicitation or offer, is or was an officer or employee of the Company. 9. COVENANT NOT TO COMPETE. At all times during the Employment Period and for the longer of any Severance Period or twelve (12) months after termination if the Executive's employment is terminated by the Company for Cause or by the Executive without Good Reason, the Executive will not, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant or otherwise with, any profit or non-profit business or organization which, directly or indirectly, competes with, or in any way interferes with, the business of providing physical logistics services similar to that provided by the Company or any of its affiliates, in any part of North America. Notwithstanding the foregoing, nothing in this Section 9 shall prohibit the Executive from working for or providing services to any customer or supplier or former customer or supplier of the Company or any other person or entity that is not engaged in the business of providing physical logistics services or from owning less than one percent (1%) of the issued and outstanding shares of a corporation the shares of which are traded on a public stock exchange. 8 10. INJUNCTIVE RELIEF AND ENFORCEMENT. In the event of any breach by the Executive of the terms of Sections 5(i), 8 or 9, the Company shall be entitled to institute legal proceedings to obtain damages for any such breach and to enforce the specific performance of this Agreement by the Executive and to enjoin the Executive from any further violation of Sections 5(i), 8 or 9 and to exercise such remedies cumulatively or in conjunction with all other rights and remedies provided by law. The Executive acknowledges, however, that the remedies at law for any breach by him of the provisions of Sections 5(i), 8 or 9 may be inadequate. In addition, in the event any provision of Sections 5(i), 8 or 9 is determined by any court of competent jurisdiction to be unenforceable by reason of extending for too great a period of time or too great a geographical area or by reason of being too extensive in any other respect, each such provision shall be interpreted to extend to the maximum extent for which it may be enforceable, and enforced as so interpreted, all as determined by such court in such action. 11. NOTICES. All notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered, when transmitted by telecopy with receipt confirmed, or one day after delivery to an overnight air courier guaranteeing next day delivery, addressed as follows: If to the Executive: Robert Arovas 2746 Buchanan Street San Francisco, CA. 94123 With a copy to: Brian T. Foley Brian Foley and Co., Inc. One North Broadway White Plains, New York 10604 If to the Company: Geologistics Corporation 13952 Denver West Parkway Suite 150 Golden, Colorado 80401 Attention: General Counsel With a copy to: Milbank, Tweed, Hadley & McCloy LLP 601 South Figueroa Street 30th Floor Los Angeles, CA 90017 Attention: Eric H. Schunk or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9 12. ARBITRATION. Notwithstanding anything herein to the contrary, in the event of a dispute between the parties arising out of or relating to this Agreement, or the breach hereof, the parties agree that such dispute shall be resolved by final and binding arbitration in Atlanta, Georgia, administered by the American Arbitration Association ("AAA"), in accordance with AAA's Commercial Arbitration Rules then in effect. Discovery may be obtained during such arbitration proceedings to the extent authorized by the arbitrator. Any award issued as a result of such arbitration shall be final and binding between the parties thereto, and shall be enforceable by any court having jurisdiction over the party against whom enforcement is sought. The fees and expenses of such arbitration (including reasonable attorneys' fees) or any action to enforce an arbitration award shall be paid by the party incurring them, except that the arbitrator may determine that the party that does not prevail in such arbitration may be required to pay a portion of the prevailing party's fees and expenses. 13. LEGAL FEES. The Company will reimburse the Executive for fees and expenses, up to a maximum amount of $7,500.00, incurred in connection with having this Agreement reviewed by legal counsel of his own choosing prior to execution, upon his submission of a statement for such fees and expenses from legal counsel. 14. INDEMNIFICATION. The Company agrees to indemnify the Executive to the fullest extent provided for in the Indemnification Agreement that is annexed hereto as Exhibit B. 15. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect; provided, however, that if any one or more of the terms contained in Sections 8 or 9 hereto is for any reason held to be excessively broad with regard to time, duration, geographic scope or activity, that term shall not be deleted but shall be reformed and construed in a manner to enable it to be enforced to the extent compatible with applicable law. 16. ASSIGNMENT. This Agreement may not be assigned by the Executive, but may be assigned by the Company to any successor to its business and will inure to the benefit and be binding upon any such successor. 17. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but both of which together will constitute one and the same instrument. 18. HEADINGS. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 19. CHOICE OF LAW. This Agreement shall be construed, interpreted and the rights of the parties determined in accordance with the laws of the State of New York (without reference to the choice of law provisions of New York law), except with respect to matters of law concerning the internal corporate affairs of the Company, and as to those matters the law of the State of Delaware shall govern. 10 20. LIMITATIONS ON LIABILITY. (a) If the Executive is awarded any damages for any breach of this Agreement, a breach of any covenant contained in this Agreement (whether express or implied by either law or fact), or any other cause of action based in whole or in part on his employment with the Company, such damages shall be limited to contractual damages and shall exclude (i) punitive damages, and (ii) consequential and/or incidental damages (E.G., lost profits and other indirect or speculative damages). The maximum amount of damages that the Executive may recover for any reason shall be the amount equal to all amounts owed (but not yet paid) to the Executive pursuant to this Agreement through its natural term or through any Severance Period. (b) Any damages which the Company may be awarded because of the Executive's breach of this Agreement shall not include indirect or speculative damages or punitive damages. 21. ENTIRE AGREEMENT. This Agreement, together with Exhibits A and B hereto, contains the entire agreement and understanding between the Company and the Executive with respect to the employment of the Executive by the Company as contemplated hereby, and this Agreement supersedes all prior agreements, understandings, representations, promises, negotiations and discussions, whether written or oral. This Agreement may not be changed unless in writing and signed by both the Executive and a member of the Board. 22. THE EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges (a) that he has consulted with or has had the opportunity to consult with independent counsel of his own choice concerning this Agreement and has been advised to do so by the Company, and (b) that he has read and understands the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own judgment. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. GEOLOGISTICS CORPORATION /s/ Ron Jackson ----------------------------------- Name: Ron Jackson ------------------------------ Title: VP & General Counsel ------------------------------ ROBERT AROVAS /s/ Robert Arovas ----------------------------------- 11 EX-27 3 EXHIBIT 27/FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUND ON PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10 Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 13,719 0 277,101 20,280 0 316,160 98,994 21,784 469,798 315,210 0 0 0 2 (27,301) 469,798 1,161,119 1,161,119 880,442 922,758 0 0 18,462 7,377 35,261 (27,884) 0 0 0 (27,884) (13.88) (13.88)
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