-----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, VVTRQ3LlLLm4zOS1YeU6CDbxxlv19W2ltMGVRtHkKZDCSYUa6HZIsDE8TQ2Xw7Zo tYcwzjaTxWxuS70t0z0guA== 0001047469-99-020651.txt : 19990517 0001047469-99-020651.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020651 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99624119 BUSINESS ADDRESS: STREET 1: 13952 DENVER WEST PARKWAY CITY: GOLDEN STATE: CO ZIP: 80401 BUSINESS PHONE: 3037044400 MAIL ADDRESS: STREET 1: 13952 DENVER WEST PARKWAY CITY: GOLDEN STATE: CO ZIP: 80401 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL LOGISTICS LTD DATE OF NAME CHANGE: 19971126 10-Q 1 FORM 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 MARCH 31, 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 May 14, 1999, the registrant had 2,118,893 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, March 31, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 (unaudited) 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 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 15 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 26 ITEM 6. Exhibits and Reports on Form 8-K 26
2 PART I. FINANCIAL INFORMATION GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1998 -------------- ---------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 13,404 $ 15,152 Accounts receivable: Trade, net 247,678 267,047 Other 9,451 11,046 Deferred income taxes 7,247 7,245 Prepaid expenses 19,588 20,708 -------- -------- Total current assets 297,368 321,198 -------- -------- Property and equipment, at cost 108,432 113,618 Accumulated depreciation (18,007) (18,364) -------- -------- Net property and equipment 90,425 95,254 Notes receivable, less current portion 1,662 1,711 Deferred income taxes 19,337 19,168 Goodwill, net 78,767 79,347 Intangible assets, net 11,300 11,927 Other assets 19,968 20,573 -------- -------- $518,827 $549,178 -------- -------- -------- --------
See accompanying notes to the condensed consolidated financial statements. 3 GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1999 1998 ----------- -------- Current liabilities: Accounts payable $133,668 $139,696 Accrued expenses 128,298 149,519 Income taxes payable 9,327 7,940 Current portion of long term debt 15,644 12,549 -------- -------- Total current liabilities 286,937 309,704 Long-term debt, less current portion 194,066 183,177 Other noncurrent liabilities 48,950 52,400 Minority interest 2,444 2,381 --------- --------- Total liabilities 532,397 547,662 Stockholders' equity: Preferred stock 15,000 shares authorized, issued and outstanding 14,550 14,550 Common stock ($.001 par value 5,000,000 shares authorized, 2,118,893 and 2,128,893 shares issued and outstanding) 2 2 Additional paid-in-capital 55,731 55,371 Accumulated deficit (83,411) (67,898) Notes receivable from stockholders (191) (191) Cumulative translation adjustment (251) (318) --------- --------- Total stockholders' equity (13,570) 1,516 --------- --------- $518,827 $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-MONTH PERIODS ENDED ---------------------------- MARCH 31, MARCH 31, 1999 1998 ----------- ----------- Revenues $ 365,329 $ 365,664 Transportation and other direct costs 273,293 276,626 ----------- ----------- Net revenues 92,036 89,038 Selling, general and administrative expenses 94,708 87,905 Depreciation and amortization 4,642 3,813 ----------- ----------- Operating loss (7,314) (2,680) Interest expense, net (5,574) (3,434) Other expense, net (145) (13) ----------- ----------- Loss before income taxes and minority interest (13,033) (6,127) Income tax provision (benefit) 1,800 (1,957) ----------- ----------- Loss before minority interest (14,833) (4,170) Minority interest (155) (158) ----------- ----------- Net loss (14,988) (4,328) Preferred stock dividend (525) -- ----------- ----------- Loss applicable to common stock $ (15,513) $ (4,328) ----------- ----------- ----------- ----------- Basic loss per common share $ (7.30) $ (2.06) ----------- ----------- ----------- ----------- Diluted loss per common share $ (7.30) $ (2.06) ----------- ----------- ----------- ----------- Weighted average number of common and common equivalent shares outstanding 2,126,393 2,101,026 ----------- ----------- ----------- -----------
See accompanying notes to the condensed consolidated financial statements. 5 GEOLOGISTICS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE-MONTH PERIODS ENDED -------------------------- MARCH 31, MARCH 31, 1999 1998 ---------- --------- Cash flows from operating activities: Net loss $ (14,988) $ (4,328) Adjustments to reconcile net loss to net cash from operating activities: Depreciation and amortization 4,642 3,813 Amortization of deferred items 589 297 Deferred income taxes (170) (1,898) Changes in current assets and liabilities, net (3,408) (5,436) Other, net (227) (735) ---------- --------- Net cash from operating activities (13,562) (8,287) Cash flows from investing activities: Purchases of property, equipment and software, net (2,530) (3,607) Other -- (633) ---------- --------- Net cash from investing activities (2,530) (4,240) Cash flows from financing activities: Proceeds from revolving line of credit, net 5,607 8,800 Proceeds from long-term debt 9,332 1,799 Payments on long-term debt (955) (838) Proceeds from issuance of common stock 360 2,018 Other, net -- 124 ---------- --------- Net cash from financing activities 14,344 11,903 ---------- --------- Net decrease in cash and cash equivalents (1,748) (624) Cash and cash equivalents, beginning of period 15,152 37,909 ---------- --------- Cash and cash equivalents, end of period $ 13,404 $ 37,285 ---------- --------- ---------- --------- Supplemental cash flow information: Interest paid during the period $ 2,086 $ 891 Income taxes paid during the period $ 492 $ 646 Noncash warrant transactions $ 360 $ 360 New capital leases $ 20 $ 1,884
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 three months ended March 31, 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) 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 March 31, 1999 --------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined ------- ------------ ------------- ------------ -------- Cash and cash equivalents................... $ 911 $ 950 $ 11,543 $ - $ 13,404 Accounts receivable--trade, net............. - 96,752 183,460 (32,534) 247,678 Property, net............................... 8,808 23,372 58,245 - 90,425 Intangible assets, net...................... 8,810 78,276 3,924 (943) 90,067 Other assets................................ 66,416 29,944 43,321 (62,428) 77,253 -------- -------- -------- -------- -------- Total assets.............................. $ 84,945 $229,294 $300,493 $(95,905) $518,827 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Current liabilities......................... $ 5,849 $107,249 $213,517 $(39,678) $286,937 Long-term debt, less current portion........ 187,716 1,796 4,554 - 194,066 Other noncurrent liabilities................ (159,412) 146,750 57,854 6,202 51,394 Stockholders' equity........................ 50,792 (26,501) 24,568 (62,429) (13,570) -------- -------- -------- -------- -------- Total liabilities and stockholders' equity.................................. $ 84,945 $229,294 $300,493 $ (95,905) $518,827 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Statement of Operations for the Three Months Ended March 31, 1999 ----------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined ------- ------------ ------------- ------------ -------- Revenues.................................... $ - $145,740 $255,963 $(36,374) $365,329 Transportation and other direct costs....... - 110,514 199,153 (36,374) 273,293 Operating expenses.......................... 4,053 39,242 56,055 - 99,350 -------- -------- -------- -------- -------- Operating profit (loss)................... (4,053) (4,016) 755 - (7,314) Interest, net............................... (1,422) (3,327) (825) - (5,574) Other income (expense) net.................. 1,444 (805) (784) - (145) Income tax provision ....................... - 1,213 587 - 1,800 Minority interest........................... - - (155) - (155) -------- -------- -------- -------- -------- Net loss.................................. $ (4,031) $ (9,361) $ (1,596) $ - $(14,988) -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
9 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS)
Statement of Cash Flows for the Three Months Ended March 31, 1999 ----------------------------------------------------------------- Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Combined ------- ------------ ------------- ------------ -------- Cash flows from: Operating activities....................... $(5,128) $(6,150) $(2,284) $ - $(13,562) Investing activities....................... 1,966 (3,634) (862) - (2,530) Financing activities....................... 4,046 8,200 2,098 - 14,344 ------- ------- ------- ----------- -------- Net increase (decrease) in cash and cash equivalents................................ 884 (1,584) (1,048) - (1,748) Cash and cash equivalents, beginning of period..................................... 27 2,534 12,591 - 15,152 ------- ------- ------- ----------- -------- Cash and cash equivalents, end of period..... $ 911 $ 950 $11,543 $ - $ 13,404 ------- ------- ------- ----------- -------- ------- ------- ------- ----------- --------
NOTE 3. SEGMENT INFORMATION The Company has adopted Statement of Financial Accounting Standards (FAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information". This statement required the Company to change the way it reports information about its operations. Information for 1997 and 1996 has been restated to conform to the 1998 presentation of operating 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. The Company manages its business primarily on a geographic basis. The Company's reportable geographic segments are comprised of North America, Europe and Asia. 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 EBITDA. EBITDA represents earnings before interest, taxes, depreciation and amortization. Corporate expenses are excluded from geographic segment EBITDA. 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, capitalized software development costs and intangible assets. 10 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 --------------------------------- MARCH 31, MARCH 31, 1999 1998 ---- ---- North America: Total revenues $171,626 $176,844 Transactions between regions 12,749 15,418 Revenues from customers 158,877 161,426 Net revenues 39,391 39,906 EBITDA (519) 1,182 Interest expense (3,449) (1,986) Depreciation and amortization 3,147 2,950 Europe: Total revenues $172,955 $180,320 Transactions between regions 24,862 24,148 Revenues from customers 148,093 156,172 Net revenues 38,604 37,749 EBITDA 337 1,891 Interest income (expense) (86) 44 Depreciation and amortization 849 777 Asia: Total revenues $ 78,316 $ 62,845 Transactions between regions 19,957 14,779 Revenues from customers 58,359 48,066 Net revenues 14,041 11,383 EBITDA 1,469 1,129 Interest expense (125) (81) Depreciation and amortization 428 149 Information regarding the Company's long lived assets by geographic region is summarized below as of March 31, 1999 and December 31, 1998. Long lived assets: North America $ 28,174 $ 14,552 Europe 45,092 40,367 Asia 6,239 3,879 Corporate 10,920 10,753 -------- -------- Consolidated $ 90,425 $ 69,551 -------- -------- -------- --------
11 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) A reconciliation of the Company's geographic segment revenues, net revenues, EBITDA and assets to the corresponding consolidated amounts as of and for the three months ended March 31, 1999 and 1998 is as follows:
THREE MONTHS ENDED MARCH 31, MARCH 31, 1999 1998 ---- ---- Revenues: North America $171,626 $176,844 Europe 172,955 180,320 Asia 78,316 62,845 Eliminations (57,568) (54,345) -------- -------- Consolidated $365,329 $365,664 -------- -------- -------- -------- Net revenues: North America $ 39,391 $ 39,906 Europe 38,604 37,749 Asia 14,041 11,383 -------- -------- Consolidated $ 92,036 $ 89,038 -------- -------- -------- -------- EBITDA: North America $ (519) $ 1,182 Europe 337 1,891 Asia 1,469 1,129 Corporate (3,959) (3,069) -------- -------- Consolidated $ (2,672) $ 1,133 -------- -------- -------- -------- Assets: North America $252,831 $224,546 Europe 242,041 208,365 Asia 83,396 58,565 Corporate 480,440 406,251 Eliminations (539,881) (408,965) -------- -------- Consolidated $518,827 $488,762 -------- -------- -------- --------
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. 12 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) NOTE 4. OTHER COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which established standards for reporting and display of comprehensive income and its components in the financial statements. Comprehensive income is comprised of all changes to stockholders' equity, including net income, except those changes resulting from investments by owners and distributions to owners. Other comprehensive income in the financial statements of the Company represents the change in foreign currency translation adjustments resulting from the conversion of the financial statements for foreign subsidiaries from local currency to U.S. dollars. Comprehensive loss for the three months ended March 31, 1999 and 1998 is as follows (in thousands):
1999 1998 ---- ---- Cumulative translation adjustment $ (67) $ 986 Net loss 14,988 4,328 -------- -------- Comprehensive loss $ 14,921 $ 5,314 -------- -------- -------- --------
NOTE 5. AMERICAS RESTRUCTURING On March 4, 1999 the Company announced the restructuring of its GeoLogistics Americas business into two independent operating units and the realignment of its products and services in light of a fourth quarter operating loss. The Americas operating unit experienced a difficult freight forwarding environment as a result of generally lower volumes and the effects of the Asian economic crisis which has continued during the first quarter of 1999. As part of the restructuring process, a new management team was put in place primarily to address the domestic operational situation. This new management team together with the Company's advisors has formulated certain initiatives to be undertaken to attain the goal of 13 GEOLOGISTICS CORPORATION NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS) profitability. These initiatives are being evaluated to determine their financial impact. The restructuring plan is expected to be implemented later in 1999 at which time the costs will be recorded as a charge to earnings. It is anticipated that the restructuring process will be substantially completed during the fourth quarter of 1999. It is expected that operational changes will include the separation of GeoLogistics Americas, Inc. into two independent operating units, Domestic and International, each with its own line management, thereby improving each division's focus on its core customers, agents, vendors and employees. In addition, surface transportation and cartage operations will be re-engineered in an effort to improve pricing, purchasing, utilization and internal business processes. 14 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 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 UNCERTAIN-TIES INHERENT IN SUCCESSFULLY 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 THE COMPANY'S REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-42607) AND FORM 10-K (FILED ON MARCH 31, 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 GeoLogistic 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 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 operating assets and assumed certain of the liabilities ("Air Services Acquisition") of Caribbean Air Services, Inc. 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 15 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 4, 1999 the Company announced the restructuring of its GeoLogistics Americas business into two independent operating units and the realignment of its products and services in light of a fourth quarter operating loss. The Americas operating unit experienced a difficult freight forwarding environment as a result of generally lower volumes and the effects of the Asian economic crisis which has continued during the first quarter of 1999. As part of the restructuring process, a new management team was put in place primarily to address the domestic operational situation. This new management team together with the Company's advisors have formulated certain initiatives to be undertaken to attain the goal of profitability. These initiatives are being evaluated to determine their financial impact. The restructuring plan is expected to be implemented later in 1999 at which time the estimated costs will be recorded as a charge to earnings. It is anticipated that the restructuring process will be substantially completed during the fourth quarter of 1999. The following comparison of Americas results for the three months ended March 31, 1999 and 1998 should be read in conjunction with the Management's Discussion and Analysis for the three months ended March 31, 1999 versus the three months ended March 31, 1998. Results for 1998 have been restated to reflect the transition of the Americas business between the U.S. and Puerto Rico to GeoLogistics Air Services ("Air Services") during the third quarter of 1998 as if such transition had occurred in the first quarter of 1998.
1999 1998 ----- ---- (IN THOUSANDS) Revenues $66,629 $77,180 Net revenues 15,967 18,400 Selling, general and administrative expenses 21,117 22,629 Depreciation and amortization 1,007 1,227 ------- ------- Operating loss $(6,157) $(5,456)
16 It is expected that operational changes will include the separation of GeoLogistics Americas, Inc. into two independent operating units, Domestic and International, each with its own line management, thereby improving each division's focus on its core customers, agents, vendors and employees. In addition, surface transportation and cartage operations will be re-engineered in an effort to improve pricing, purchasing, utilization and internal business processes. The following discussion and analysis relates to the results of operations for the Company as reported for the three months ended March 31, 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 MARCH 31, -------------------------- 1999 1998 ---- ---- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues $365,329 $365,664 Net revenues 92,036 89,038 Selling, general and administrative expenses 94,708 87,905 Depreciation and amortization 4,642 3,813 -------- -------- Operating loss (7,314) (2,680) Interest expense, net (5,574) (3,434) Other expense, net (145) (13) Income tax provision (benefit) 1,800 (1,957) Minority interest (155) (158) -------- -------- Net loss $(14,988) $ (4,328) -------- -------- -------- --------
THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998 REVENUES. The Company's revenues decreased by approximately $0.4 million to $365.3 million for the three months ended March 31, 1999 from $365.7 million for the three months ended March 31, 1998. Contributing additional revenue of $14.2 million in the period was Air Services. In addition, the Asia/Pacific region revenues increased $12.9 million, due primarily to increased export volumes and new customers. These increases were offset by a decline in the Americas business unit of $10.6 million, due to lower domestic and international forwarding volumes as a result of a difficult freight forwarding environment and the effects of the Asian economic crisis. Europe's revenues declined $11.3 million as a result of lower revenues in all modes and market softness throughout Europe as a result of the current economic climate. 17 Services business unit revenues decreased $4.7 million, on lower volume in both project cargo and international relocation product lines as a result of declining international relocations and softness in the oil and gas industries. Had foreign exchange rates remained constant from 1998 to 1999, consolidated revenues would have been $5.0 million less than the actual 1999 results. NET REVENUES. Net revenues, which represent gross profit after deducting transportation and other direct costs, increased by approximately $3.0 million, to $92.0 million for the three months ended March 31, 1999 from $89.0 million for the same period in 1998. Net revenues as a percentage of revenues increased to 25.2% in 1999 from 24.3% for the same period in 1998. This was primarily due to a shift in product offerings to higher margin value-added services, the effect of the Air Services Acquisition and increased volumes in the Asia/Pacific region. Reductions in Americas and Services, due to lower revenues as previously discussed, and GeoLogistics Network Solutions as a result of lower revenues and decreased profit margins partially offset these increases. Had foreign exchange rates remained constant from 1998 to 1999, consolidated net revenues would have been $1.8 million less than 1999 actual results. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased by approximately $6.8 million, to $94.7 million for the three months ended March 31, 1999 from $87.9 million for the three months ended March 31, 1998. These expenses as a percentage of net revenues increased to 102.9% in 1999 from 98.7% for the same period in 1998 primarily as a result of a disproportionately higher decrease in net revenues in the Americas versus the $2.0 million decrease in selling, general and administrative expenses. Expenses in excess of net revenues in the Services business unit due to lower volumes also contributed to the increase. Selling, general and administrative expenses relating to Air Services amounted to $1.7 million of the increase from 1998. The remaining $5.1 million increase in expenses was due to higher expenses experienced in all operating units except the Americas which decreased $2.0 million as a result of a decrease in headcount. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $0.8 million for the three months ended March 31, 1999 compared to the prior year period primarily as the result of the Air Services Acquisition ($0.3 million) and an increase in fixed assets primarily related to information technology. 18 OPERATING LOSS. The Company recorded a $7.3 million operating loss for the three months ended March 31, 1999 compared to a $2.7 million operating loss for the three months ended March 31, 1998. Increased profits in Asia Pacific Region and Air Services were offset by higher operating losses as a result of the Americas, Europe and the Services business units as previously discussed. INTEREST EXPENSE, NET. Interest expense, net, increased by approximately $2.2 million, to $5.6 million for the first quarter of 1999 from $3.4 million for the same period of 1998. The increase was associated with the issuance of the $15.0 million debt to finance the Air Services Acquisition in July 1998 and higher levels of working capital-related borrowings. INCOME TAX PROVISION. The income tax provision for the three months ended March 31, 1999 increased $3.8 million to a $1.8 million provision versus a $2.0 million tax benefit for the same period of 1998. 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 $0.2 million for the three months ended March 31, 1999 and 1998, respectively. NET LOSS. Net loss increased by $10.7 million to $15.0 million for the three months ended March 31, 1999 compared to $4.3 million for the same period of 1998. This increase is due primarily to operating losses attributable to the Americas, interest expense and income taxes. LIQUIDITY AND CAPITAL RESOURCES During the three months ended March 31, 1999, net cash used by operating activities was $13.6 million versus $8.3 million in the first quarter of 1998. Cash used in investing activities was $2.5 million versus $4.2 million in 1998 which related to capital expenditures. Cash provided by financing activities was $14.3 million versus $11.9 million in 1998 and primarily consisted of additional borrowings under the U.S. revolving line of credit and by certain foreign subsidiaries. 19 On February 26, 1999, the Company executed an amendment to the existing bank credit facility (the "Amendment"). The Amendment includes revised financial covenants and additional collateral that were required due to the recent operating results of the Company. The Amendment (a) provides for an additional $30.5 million commitment ("Supplemental Commitment") by one of the Company's existing lenders (the "Supplemental Lender") to make loans, which will become due and payable on December 31, 2002 (subject to extension of the maturity date), and to issue letters of credit, (b) requires the obligors under the 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 Credit Facility, (c) amends the EBITDA and interest charge coverage ratio covenants for the period from and after December 31, 1998 to and including December 31, 1999, (d) increases the restrictions regarding the making of investments and acquisitions and prohibits the payment of management fees by the Company and certain of its subsidiaries prior to the date following March 31, 1999 on which the Company is in compliance with the original EBITDA and the interest charge coverage ratio covenants or, in the case of the management fees, the earlier satisfaction of certain other tests, and (e) increases the margins applicable to eurodollar and base rate loans based on specified funded debt ratios. The Company applied approximately $15.0 million of borrowings under the Amendment to repay indebtedness incurred to finance the Air Services Acquisition. Because of the undetermined impact of the restructuring on GeoLogistics Americas, and because of the uncertainties surrounding the performance of GeoLogistics Americas, the Company may have to seek again to amend those covenants or other covenants in the credit 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 March 31, 1999, the Company had a working capital borrowing base under its credit facility of $95.1 million, $54.7 million of outstanding working capital related borrowings and $17.2 million of outstanding letter of credit commitments. In addition, at March 31, 1999, the Company had a total outstanding of $30.5 million on the Supplemental Commitment, consisting of $8.3 million of letter of credit commitments and $22.2 million of debt. The Company's credit agreement and the indenture related to the Senior Notes contain certain restrictive covenants. These restrictive covenants, as amended, include covenants related 20 to the maintenance of EBITDA and interest charge coverage ratios, limitations on indebtedness, limitations on restricted payments including dividends, 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. Total borrowings of foreign operations at March 31, 1999 were approximately $17.7 million, representing a combination of short and long-term borrowings and capital leases. Funding requirements have historically been satisfied by cash generated from operations and borrowings under various bank credit facilities. Under the Company's existing credit facility, a certain amount of borrowing capacity is based upon the level of accounts receivable in the United Kingdom. The indenture relating to the Company's Senior Notes generally provides that, subject to certain exceptions, the Company may 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 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 $100.0 million of indebtedness pursuant to its credit facility, notwithstanding the Company's inability to meet the consolidated coverage ratio test. As of March 31, 1999, the Company had incurred $54.7 million of indebtedness under its Credit Facility and, as of such date, the Company would have been able to incur an additional $23.2 million of indebtedness pursuant to the terms of such facility. 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 March 31, 1999, the Company had incurred $17.7 million of indebtedness under its foreign credit facilities and as of such date, would have been able to incur an additional $12.3 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 the Credit Facility and Senior Notes. Furthermore, the indenture and the Credit Facility contain numerous other financial and operating covenants. 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 21 subsidiaries, many of which are beyond their control. If the Company is unable to improve operations at the Americas unit or otherwise generate sufficient cash flow, 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. On February 26, 1999 certain shareholders and their affiliates provided $15.5 million of additional credit support to the Company through the provision of letters of credit to the Supplemental Lender pursuant to the Amendment. The Company is investigating strategic alternatives to finance future operations, including the sale of non-core assets. There can be no assurance that any of these alternatives could be effected on satisfactory terms, and any resort to alternative sources of funds could impair the Company's competitive position. 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 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 and Asia are in compliance, with North America scheduled for completion in June 1999, except for Services, which is expected by September 1999. Financial systems in all of Asia, most of Europe and North America are also in compliance. The financial systems for the remainder of Europe and North America are expected to be compliant by May 1999, except for Services, which is expected to be compliant in July 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 22 airlines. The Company is also working with major customers to gain Year 2000 certification with them in response to customer inquiries and surveys. The Company estimates total costs of the compliance process to be approximately $1.1 million of which $0.9 million has been spent through March 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 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 for any unexpected system problems 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. 23 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. 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 is required to be adopted in years beginning after June 15, 1999. The Company , which utilizes fundamental derivatives to hedge changes in interest rates and foreign currencies, expects to adopt SFAS No. 24 133 effective January 1, 2000. 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. 25 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (Filed electronically only). (b) Reports on Form 8-K On March 5, 1999 the Company filed a current report on Form 8-K disclosing a press release issued on March 4, 1999 regarding the restructuring of its GeoLogistics Americas business unit and the February 26, 1999 execution of Amendment No. 3 to the Amended and Restated Loan Agreement dated as of October 28, 1998. 26 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: May 14, 1999 By: /s/ Roger E. Payton ------------ ------------------------------------------- Roger E. Payton President, Chief Executive Officer and Director Date: May 14, 1999 By: /s/ Miles Stover ------------ ------------------------------------------ Miles Stover Chief Financial Officer 27 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: May 14, 1999 By: ---------------------------------------------- Roger E. Payton President, Chief Executive Officer and Director Date: May 14, 1999 By: ---------------------------------------------- Miles Stover Chief Financial Officer 28 EX-27 2 EXHIBIT 27
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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 13,404 0 257,129 19,594 0 297,368 108,432 18,007 518,827 286,937 0 0 0 2 (13,572) 518,827 365,329 365,329 273,293 372,643 0 0 5,574 (13,188) 1,800 (14,988) 0 0 0 (14,988) (7.30) (7.30)
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