<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
-------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file Number 0-27288
EAGLE USA AIRFREIGHT, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 76-0094895
--------------------------------- --------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3214 LODESTAR, HOUSTON, TEXAS
-----------------------------
(Address of Principal Executive Offices)
77032
-----
(Zip Code)
(713) 821-0300
-----------------------------
(Registrant's telephone number, including area code)
NONE
- - --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X * No
----- -----
* The registrant became subject to the reporting requirements of Section 13 of
the Securities Exchange Act of 1934 on November 30, 1995.
Number of shares of the registrant's
common stock as of July 31, 1996: 17,338,552 shares
----------
<PAGE> 2
EAGLE USA AIRFREIGHT, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of . . . . . . . . . . . . . . . . 3
September 30, 1995 and June 30, 1996 (unaudited)
Condensed Consolidated Statement of Income for the Nine . . . . . . . . . 4
Months ended June 30, 1995 and 1996 (unaudited)
Condensed Consolidated Statement of Income for the Three Months
ended June 30, 1995 and 1996 (unaudited) . . . . . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows for . . . . . . . . . . . . 6
the Nine Months ended June 30, 1995 and 1996 (unaudited)
Condensed Consolidated Statement of Shareholders' . . . . . . . . . . . . 7
Equity for the Nine Months ended June 30, 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996
------------- -----------
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 179 $ 24,613
Accounts receivable - trade 17,475 24,383
Accounts receivable - related parties 877
Short-term investments 1,927 500
Deferred income taxes 74 551
Other current assets 615 2,539
------------- -----------
Total current assets 21,147 52,586
Property and equipment, net 2,171 7,061
Other assets 1,150 669
------------- -----------
$ 24,468 $ 60,316
============= ===========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable - trade $ 950 $ 1,445
Accrued transportation costs 7,304 8,563
Other current liabilities 6,042 5,350
------------- -----------
Total current liabilities 14,296 15,358
------------- -----------
Long-term indebtedness (including related
party amounts of $8,209 at September 30, 1995) 8,474
------------- -----------
Shareholders' equity:
Preferred Stock, $0.001 par value, 10,000 shares
authorized
Common stock, $0.001 par value, 30,000 shares
authorized, 6,000 and 17,339 shares issued (Note 3) 6 17
Additional paid-in capital 108 37,359
Retained earnings 1,584 7,582
------------- -----------
1,698 44,958
------------- -----------
$ 24,468 $ 60,316
============= ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------
1995 1996
---------- ---------
<S> <C> <C>
Revenues $ 91,608 $ 127,989
Cost of transportation 52,478 71,402
---------- ---------
39,130 56,587
---------- ---------
Operating expenses:
Personnel costs 20,080 28,930
Other selling, general and administrative expenses 9,606 15,553
---------- ---------
29,686 44,483
---------- ---------
Operating income 9,444 12,104
---------- ---------
Interest income 180 758
Interest expense (8) (141)
---------- ---------
Nonoperating income 172 617
---------- ---------
Income before provision for income taxes 9,616 12,721
Provision for income taxes 1,057 4,013
---------- ---------
Net income $ 8,559 $ 8,708
========== =========
Pro forma information:
Net income - as reported $ 8,559 $ 8,708
Pro forma charge in lieu of income taxes (Note 2) 2,900 945
---------- ---------
Pro forma net income $ 5,659 $ 7,763
========== =========
Weighted average common and common equivalent
shares outstanding (Note 3) 14,588 17,872
========== =========
Pro forma net income per share (Note 3) $ 0.39 $ 0.43
========== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------
1995 1996
---------- ---------
<S> <C> <C>
Revenues $ 32,547 $ 48,240
Cost of transportation 18,392 27,016
---------- ---------
14,155 21,224
---------- ---------
Operating expenses:
Personnel costs 7,208 10,765
Other selling, general and administrative expenses 3,897 5,944
---------- ---------
11,105 16,709
---------- ---------
Operating income 3,050 4,515
---------- ---------
Interest income 111 295
Interest expense (8) (5)
---------- ---------
Nonoperating income 103 290
---------- ---------
Income before provision for income taxes 3,153 4,805
Provision for income taxes 388 1,691
---------- ---------
Net income $ 2,765 $ 3,114
========== =========
Pro forma information:
Net income - as reported $ 2,765 $ 3,114
Pro forma charge in lieu of income taxes (Note 2) 978
---------- ---------
Pro forma net income $ 1,787 $ 3,114
========== =========
Weighted average common and common equivalent
shares outstanding (Note 3) 14,792 18,818
========== =========
Pro forma net income per share (Note 3) $ 0.12 $ 0.17
========== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE> 6
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------
<S> <C> <C>
1995 1996
---------- ---------
Cash flows from operating activities $ 6,972 $ 4,397
---------- ---------
Cash flows from investing activities:
Purchase of investments (9,923) (4,991)
Maturity of investments 8,449 6,418
Acquisition of subsidiaries (135)
Acquisition of property and equipment, net (1,061) (5,625)
Advances to shareholders (1,068)
Repayment of advances to shareholders 701
Other, net 62 (100)
---------- ---------
Net cash used by investing activities (3,676) (3,597)
---------- ---------
Cash flows from financing activities:
Payments on indebtedness (17) (2,172)
Proceeds from indebtedness 291 1,800
Issuance of common stock, net of related costs 34,559
Proceeds from exercise of stock options 357
Prepayment of shareholder distribution notes (8,209)
Distributions to shareholders (4,194) (2,701)
---------- ---------
Net cash provided (used) by financing activities (3,920) 23,634
---------- ---------
Net increase (decrease) in cash and cash equivalents (624) 24,434
Cash and cash equivalents, beginning of period 663 179
---------- ---------
Cash and cash equivalents, end of period $ 39 $ 24,613
========== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ --------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 6,000 $ 6 $ 108 $ 1,584 $ 1,698
Issuance of common stock to
majority shareholder for
acquisition of subsidiaries (Note 1) 223
Issuance of common stock, net
of related costs (Note 1) 2,300 2 34,557 34,559
Distributions to shareholders (2,701) (2,701)
Conversion from S Corporation
to C Corporation (Note 2) 459 459
Exercise of stock options 143 357 357
Contributed capital related to
exercise of stock options 1,878 1,878
Two-for-one stock split 8,673 9 (9)
(Issuance of 8,672,548 shares of
common stock) (Note 3)
Net income 8,708 8,708
------ ------ --------- -------- --------
Balance at June 30, 1996 17,339 $ 17 $ 37,359 $ 7,582 $ 44,958
====== ====== ========= ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited condensed consolidated financial statements
have been prepared by Eagle USA Airfreight, Inc. (the Company) in accordance
with the rules and regulations of the Securities and Exchange Commission (the
SEC) for interim financial statements and accordingly do not include all
information and footnotes required under generally accepted accounting
principles for complete financial statements. The financial statements have
been prepared in conformity with the accounting principles and practices
disclosed in, and should be read in conjunction with, the annual financial
statements of the Company included in the Company's Registration Statement on
Form S-1, as amended (Registration No. 33-97606). In the opinion of management,
these interim financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position at June 30, 1996 and the results of its operations for the
three and nine months ended June 30, 1995 and 1996. Results of operations for
the three and nine months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the fiscal year ending September 30, 1996.
NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES:
The Company was organized in 1984 to provide ground and air freight
forwarding services throughout the United States and through international cargo
agents. The consolidated financial statements include the accounts of the
Company and the following of its wholly-owned subsidiaries: Eagle Freight
Services, Inc. (EFS); C&D Freight Services of California, Inc. (C&D); Eagle USA
Transportation Services, Inc. (ETSI); Freight Services Management, Inc. (FSMI);
and Eagle USA Import Brokers, Inc. (EIBI). Intercompany transactions have been
eliminated.
In December 1995, the Company completed an initial public offering of
2,300,000 (pre split) shares of its common stock. Net proceeds from the
offering were $34,559,000 after deducting underwriter commissions of $2,656,500
and other costs of $734,500. The Company used approximately $8,209,000 to
prepay promissory notes distributed to its shareholders prior to the initial
public offering that represented the Company's S Corporation earnings through
June 30, 1995, less all previous distributions to shareholders during the period
that the Company elected to be treated as an S Corporation, and $2,701,000 to
prepay a portion of additional promissory notes distributed to such shareholders
representing S Corporation retained earnings earned from July 1, 1995 through
just prior to the closing of the initial public offering and not previously
distributed. The Company used an additional $2,168,000 of the net proceeds to
retire outstanding bank indebtedness.
Also in connection with the initial public offering, the Company
acquired from its principal shareholder the interests of EFS, C&D, ETSI, FSMI,
and EIBI which were previously owned by the Company's principal shareholder in
exchange for 223,025 (pre split) shares of newly issued common stock of the
Company. The accounts of each subsidiary have been consolidated as if
wholly-owned as of the beginning of each period presented.
NOTE 2 - INCOME TAXES:
Effective October 1, 1992, the Company elected to be treated as an S
Corporation for federal income tax purposes. Shortly prior to the consummation
of the initial public offering, the Company's S Corporation status was
terminated and, accordingly, the Company became liable for federal income taxes
on taxable income generated prospectively and for cumulative temporary
differences between income for financial and tax reporting purposes at the date
of the termination. At that time, the Company recorded a net deferred tax asset
and increased additional paid-in capital to recognize the effect of its
conversion to C Corporation status pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109).
The pro forma charge in lieu of income taxes represents the estimated
federal income taxes that would have been reported under FAS 109 had the Company
been a C Corporation for each period presented.
8
<PAGE> 9
EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3 - PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
On July 8, 1996, the Board of Directors authorized a two-for-one stock
split, effected in the form of a stock dividend, payable to shareholders of
record on July 24, 1996. All earnings per share amounts have been retroactively
restated. The stock split resulted in the issuance of 8,672,548 new shares of
common stock and a reclassification of $8,673 from retained earnings to common
stock representing the par value of the shares issued.
Pro forma net income per share for the nine months ended June 30, 1996 and
1995 is computed by using the weighted average number of common and common
equivalent shares outstanding during the period, adjusted to include the
estimated number of shares required to be sold by the Company to pay
distributions related to S Corporation earnings, respectively generated through
just prior to the closing of the initial public offering in December 1995 and
June 30, 1995, respectively, (338,876 and 1,074,514 shares, respectively, as
calculated based on the net proceeds of the initial public offering), and to
include 446,050 shares the Company's principal shareholder received for sale of
his interests in certain related entities to the Company shortly before the
closing of the initial public offering of common stock. Common equivalent
shares from stock options in the aggregate of 1,307,542 and 1,067,978 shares,
respectively, are computed using the weighted average number of shares
attributable to such options outstanding during the period (using the treasury
stock method).
Pro forma net income per share for the three months ended June 30, 1996 and
1995 is computed by using the weighted average number of common equivalent
shares outstanding during the period, adjusted to include the estimated number
of shares required to be sold by the Company to pay distributions related to S
Corporation earning generated through June 30, 1996 and June 30, 1995 (0 and
1,074,514 shares, respectively, as calculated based upon the net proceeds of the
initial public offering). Common equivalent shares from stock options in the
aggregate of 1,486,370 and 1,271,402 are computed using the weighted average
number of shares attributable to such options outstanding during the period
(using the treasury stock method).
9
<PAGE> 10
EAGLE USA AIRFREIGHT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected certain aspects of the Company's
financial position and operating results during the periods included in the
accompanying unaudited condensed consolidated financial statements. This
discussion should be read in conjunction with the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the annual financial statements included in the Company's
Registration Statement on Form S-1, as amended (Registration No. 33-97606), and
the accompanying unaudited condensed consolidated financial statements.
General
The Company's revenues have increased to $126.2 million in the fiscal
year ended September 30, 1995 from $83.3 million in the fiscal year ended
September 30, 1994, and its operating income has increased to $12.2 million in
fiscal 1995 from $5.9 million in fiscal 1994. The Company's recent growth has
been generated almost exclusively by internal expansion. The opening of a new
terminal generally has an initial negative impact on profitability due to
operating losses of the new terminal. However, the Company is not required to
make major capital expenditures in opening a new terminal. Additionally,
personnel costs are contained at the time of the opening of a new terminal
because commissions are generally not paid until salesmen achieve minimum sales
levels and until managers achieve terminal profitability levels. Although
future new terminals may be opened in cities smaller than those in which the
Company's more mature terminals are located, the Company believes the results
of new terminals should benefit from a ready base of business provided by its
existing customers. In the future, the Company may rely on acquisitions to
complement new terminal openings.
The Company has recently begun to expand its international freight
forwarding business. International shipments typically generate higher
revenues per shipment than domestic shipments. The Company anticipates that
the costs of transportation for international freight will be higher than for
domestic freight as a percentage of such revenues, resulting in lower gross
margins than domestic shipments. The Company also intends to continue the
growth of its local pick-up and delivery operations. By providing local
pick-up and delivery services with respect to shipments for which it is the
freight forwarder, the Company has been able to increase its gross margin with
respect to such shipments because its costs to provide such services are less
than the third-party charges it previously paid. However, the Company's local
pick-up and delivery service provided to other (non-forwarding) customers
generate a lower gross margin than the Company's domestic forwarding
operations due to their higher transportation costs as a percentage of
revenues.
Nine Months Ended June 30, 1996 compared to the Nine Months Ended June 30, 1995
Revenues increased 39.7% to $128.0 million for the nine months ended
June 30, 1996 from $91.6 million for the nine months ended June 30, 1995. The
principal factors causing this increase were an increase in level of operations
from additional terminals, expansion of local delivery operations and an
increase in the number of freight forwarding shipments as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995 1996
----- -----
<S> <C> <C>
Freight forwarding terminals at end of period 32 44
Local delivery terminals at end of period 11 24
Freight forwarding shipments 290,204 363,252
Average weight per freight forwarding shipment 584 588
</TABLE>
For those freight forwarding terminals opened one year as of October 1,
1994 (26 terminals), revenues increased 23.7% to $107.2 million for the nine
months ended June 30,1996 from $86.7 million for the nine months ended June 30,
1995.
Revenues for the nine months ended June 30, 1996 were comprised of
$119.8 million of forwarding revenues, $7.9 million of local pickup and
delivery revenues and $302,000 of other freight forwarding service revenues, as
compared to $87.8 million, $3.8 million and zero, respectively, for the
corresponding period in 1995.
10
<PAGE> 11
EAGLE USA AIRFREIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Cost of transportation decreased as a percentage of revenues to 55.8% in
the first nine months of fiscal 1996 from 57.3% in the comparable period in
fiscal 1995. The decrease was primarily attributable to the continued
expansion of the local pick up and delivery operations, enabling the Company to
capture margins previously paid to third parties.
Operating expenses increased as a percentage of revenues to 34.8% in the
first nine months of fiscal 1996 from 32.4% for the same period in fiscal 1995.
The $14.8 million increase in absolute terms was attributable primarily to
continued growth in level of operations from additional terminals and expansion
of local delivery operations.
Operating income increased 28.2% to $12.1 million in the first nine
months of fiscal 1996 from $9.4 million in the comparable period in fiscal
1995. Operating margin as a percentage of revenues for the first nine months
of fiscal 1996 was 9.5%, down from 10.3% for the same period in fiscal 1995.
The first quarter of fiscal 1995 was impacted by an unexpected temporary
increase in business from a major customer. The Company handled this increase
with temporary resources, so that operating expenses did not proportionately
increase. Staff and facilities have since been increased to support increased
levels of activity.
Interest income increased to $758,000 in the first nine months of fiscal
1996 from $180,000 in the comparable period in fiscal 1995 as a result of
increased levels of investments resulting from the initial public offering
proceeds. Interest expense was $141,000 for the first nine months of fiscal
1996 versus $8,000 in the comparable period in fiscal 1995. The interest
expense was associated with the promissory notes distributed to the Company's S
Corporation shareholders and short-term borrowings on the Company's revolving
line of credit. These debts were retired with a portion of the net proceeds of
the initial public offering.
Income before provision for income taxes increased 32.3% to $12.7
million for the first nine months of fiscal 1996 from $9.6 million in the
comparable period of fiscal 1995. Provision for income taxes increased 279.7%
to $4.0 million for the nine months ended June 30, 1996 from $1.1 million for
the nine months ended June 30, 1995. The increase in the provision for income
taxes resulted from the termination of the S Corporation status shortly prior
to the initial public offering, at which time Eagle USA Airfreight, Inc. began
accruing federal income taxes. Federal income taxes had previously been paid
by the Company's subsidiaries. Pro forma net income increased 37.2% to $7.8
million for the first nine months of fiscal 1996 from $5.6 million in the
comparable period in fiscal 1995.
Three Months Ended June 30, 1996 compared to the Three Months Ended June 30,
1995.
Revenues increased 48.2% to $48.2 million in the third quarter of fiscal
1996 from $32.5 million in the same period of fiscal 1995. The principal
factors causing this increase were an increase in the level of operations from
additional terminals, expansion of local delivery operations and an increase in
the number of freight forwarding shipments as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1995 1996
------- -------
<S> <C> <C>
Freight forwarding terminals at end of period 32 44
Local delivery terminals at end of period 11 24
Freight forwarding shipments 112,621 136,327
Average weight per freight forwarding shipment 545 555
</TABLE>
For those freight forwarding terminals opened one year as of October 1,
1994 (26 terminals), revenues increased 30.5% to $39.7 million for the three
months ended June 30, 1996 from $30.3 million for the three months ended June
30, 1995.
Revenues for the three months ended June 30, 1996 were comprised of
$45.4 million of forwarding revenues, $2.7 million of local pick up and
delivery revenues and $94,000 of other freight forwarding service revenues, as
compared to $31.0 million, $1.5 million and zero, respectively, for the
corresponding period in 1995.
11
<PAGE> 12
EAGLE USA AIRFREIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Cost of transportation decreased as a percentage of revenues to 56.0% in
the third quarter of fiscal 1996 from 56.5% in the comparable period in fiscal
1995. The decrease was primarily attributable to the continued expansion of
the local pick up and delivery operations, enabling the Company to capture
margins previously paid to third parties.
Operating expenses increased as a percentage of revenues to 34.6% in the
third quarter of fiscal 1996 from 34.1% for the same period in fiscal 1995.
The $5.6 million increase in absolute terms was attributable primarily to
continued growth in the level of operations from additional terminals and
expansion of local delivery operations.
Operating income increased 48.0% to $4.5 million in the third quarter of
fiscal 1996 from $3.0 million in the comparable period in fiscal 1995.
Operating margin as a percentage of revenues for the quarter ended June 30,
1996 remained relatively constant at 9.4%, compared to 9.4% for the quarter
ended June 30, 1995.
Interest income increased to $295,000 in the third quarter of fiscal
1996 from $111,000 in the comparable period in fiscal 1995 as a result of
increased levels of investments resulting from the initial public offering
proceeds.
Income before provision for income taxes increased 52.4% to $4.8 million
for the third quarter of fiscal 1996 from $3.2 million in the comparable period
of fiscal 1995. Provision for income taxes increased 335.8% to $1,691,000 for
the three months ended June 30, 1996 from $388,000 in the comparable period of
fiscal 1995. The increase in the provision for income taxes resulted from the
termination of the S Corporation status shortly prior to the initial public
offering, at which time Eagle USA Airfreight, Inc. began accruing federal
income taxes. Federal income taxes had previously been paid by the Company's
subsidiaries. Pro forma net income increased 74.3% to $3.1 million for the
third quarter of fiscal 1996 from $1.8 million in the comparable period in
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
In December 1995, the Company completed an initial public offering of
2.3 (pre split) million shares of its common stock. Net proceeds from the
offering were $34.6 million after deducting underwriter commissions of $2.7
million and other costs of $734,500. The Company used approximately $8.2
million to prepay promissory notes distributed to its shareholders prior to the
initial public offering that represented the Company's S Corporation earnings
through June 30, 1995, less all previous distributions to shareholders during
the period that the Company elected to be treated as an S Corporation, and $2.7
million to prepay a portion of additional promissory notes distributed to such
shareholders representing S Corporation retained earnings earned through just
prior to the closing of the initial public offering and not previously
distributed. The Company used an additional $2.2 million of the net proceeds
to retire outstanding bank indebtedness. The Company has no plans to declare
any cash distributions in the foreseeable future.
Capital expenditures for the first nine months of fiscal 1996 increased
primarily because of increased levels of vehicle purchases related to the EFS
subsidiary, the continued upgrade to the Company's information systems and the
acquisition of land intended to be used for the construction of the Company's
new Houston facility. Capital expenditures for fiscal 1996 are expected to
increase because of the opening of new terminals, continued development of the
Company's information systems, and construction of the new Houston facility.
The Company may also use resources to acquire either related businesses or
similar businesses in selected markets or interests in any such business.
12
<PAGE> 13
EAGLE USA AIRFREIGHT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In addition to the proceeds from its initial public offering, the
Company's cash generated from operations has been its primary source of
liquidity, although it has from time to time made limited use of bank
borrowings and lease purchase arrangements. The Company has a $10 million
revolving credit facility with NationsBank of Texas, N.A. As of June 30, 1996,
no amounts were outstanding under this credit facility. The borrowing base
under the credit facility is equal to 80% of eligible accounts receivable and
was approximately $17.9 million as of June 30, 1996. Borrowings under the
credit facility bear interest, at the Company's option, at the bank's prime
rate or LIBOR plus an interest margin based on leverage ratios. The credit
facility expires and borrowings under the credit facility are due in January
1998. Borrowings under the credit facility are collateralized by substantially
all of the Company's accounts receivable and inventory. The credit facility's
covenants restrict the incurrence of other debt in an amount exceeding $1
million, include restrictions on liens, investments and acquisitions, require
the maintenance of a minimum net worth of $9 million, a fixed charge coverage
ratio of 2 to 1 and a leverage ratio of total liabilities to net worth of not
greater than 2.25 to 1 and restrict the payment of dividends to 25% of the
Company's cumulative net worth from the closing of its initial public offering.
The Company expects to retain all available earnings generated by its
operations for the development and growth of its business and does not
anticipate paying any cash dividends on its common stock in the foreseeable
future.
As of June 30, 1996, the Company had outstanding nonqualified stock
options to purchase an aggregate of 2,434,004 shares of common stock at
exercise prices equal to the fair market value of the underlying common stock
on the dates of grant (prices ranging from $1.25 to $18.75). At the time a
nonqualified stock option is exercised, the Company will generally be entitled
to a deduction for federal and state income tax purposes equal to the
difference between the fair market value of the common stock on the date of
exercise and the option price. As a result of the exercise in June 1996 of
nonqualified stock options to purchase an aggregate of 142,979 (pre split)
shares of common stock, the Company is entitled to a federal income tax
deduction of approximately $4.6 million. Assuming an effective tax rate of
40%, the Company expects to realize a tax benefit of approximately $1.9
million; accordingly, the Company recorded an increase in other current assets
and additional paid-in capital pursuant to the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS
109). The remaining outstanding options include those to purchase an aggregate
1,394,004 shares of common stock at an exercise price of $1.25 which vest
ratably on each September 30, 1996 through 1999. Any exercises of nonqualified
stock options in the future at exercise prices below the then fair market value
of the common stock may also result in tax benefits equal to the difference
between such amounts, although there can be no assurance as to whether or not
such exercises will occur, the amount of any deductions or the Company's
ability to fully utilize such tax deductions.
Cash and short-term investments increased $23.0 million to $25.1 million
at June 30, 1996 from $2.1 million at September 30, 1995. At June 30, 1996,
working capital was $37.2 million and the current ratio was 3.42 compared to
working capital of $6.9 million and a current ratio of 1.5 at September 30,
1995. Working capital has increased primarily as a result of the net proceeds
from the initial public offering. Management is of the opinion that existing
working capital, cash generated from operations, and the line of credit
described above will be sufficient to meet the Company's anticipated needs
during the ensuing twelve months.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS, NONE
ITEM 2. CHANGES IN SECURITIES, NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES, NONE
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS, NONE
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
The statements contained in all parts of this document regarding
future growth, cash needs, terminals, operations, business plans
and financial results and other statements which are not historical
facts are forward-looking statements. When used in this document,
the words "anticipate," "estimate," "expect," "project," and
similar expressions are intended to be among the words that
identify forward-looking statements. Such statements involve risks
and uncertainties, including, but not limited to, those relating to
the Company's dependence on its ability to attract and retain
skilled managers and other personnel; the intense competition
within the freight industry; the uncertainty of the Company's
ability to manage and continue its growth and implement its
business strategy; the Company's dependence on the availability of
cargo space to serve its customers; the potential for liabilities
if certain independent owner/operators that serve the Company are
determined to be employees; the Company's vulnerability to general
economic conditions and dependence on its principal customers; the
control by the Company's principal shareholder; the Company's
potential exposure to claims involving its local pick-up and
delivery operations; and the Company's ability to maintain and
comply with permits and licenses; as well as other factors detailed
in the Company's filings with the Securities and Exchange
Commission.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(A) EXHIBITS.
*3(i) Second Amended and Restated Articles of Incorporation
of the Company (Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No.
33-97606)).
*3(ii) Amended and Restated Bylaws of the Company, as amended
(Exhibit 3.2 to the Company's Registration Statement
on Form S-1 (Registration No. 33-97606)).
11(i) Computation of Per Share Earnings for the Nine months
ended June 30, 1996.
11(ii) Computation of Per Share Earnings for the Three months
ended June 30, 1996.
27 Financial Data Schedule
- - -------------------------
* Incorporated by reference as indicated.
(B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED
JUNE 30, 1996.
14
<PAGE> 15
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.
EAGLE USA AIRFREIGHT, INC.
--------------------------------------
(Registrant)
Date: August 12, 1996 BY: /s/ James R. Crane
-------------------------- ------------------------------
James R. Crane
President
Date: August 12, 1996 BY: /s/ Douglas A. Seckel
-------------------------- ------------------------------
Douglas A. Seckel
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- - -------- -----------
<S> <C>
*3(I) Second Amended and Restated Articles of Incorporation of the
Company (Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (Registration No. 33-97606)).
*3(ii) Amended and Restated Bylaws of the Company, as amended
(Exhibit 3.2 to the Company's Registration Statement on Form S-1
(Registration No. 33-97606)).
11(I) Computation of Per Share Earnings for the Nine months ended June 30, 1996.
11(ii) Computation of Per Share Earnings for the Three months ended June 30, 1996.
27 Financial Data Schedule
- - ------------------
</TABLE>
*Incorporated by reference as indicated.
<PAGE> 1
EXHIBIT 11(I)
EAGLE USA AIRFREIGHT, INC.
COMPUTATION OF PRO FORMA PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1995 1996
--------- -----------
<S> <C> <C>
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,659 $ 7,763
Shares used in computing pro forma net income per share (1):
Weighted average number of shares outstanding . . . . . . . . . . . 12,000 15,779
Incremental shares attributed to outstanding options (2) . . . . . . 1,067 1,308
Shares issued to James R. Crane for acquisition of subsidiaries . . 446 446
Shares for distributions paid from net proceeds of the initial
public offering (3) . . . . . . . . . . . . . . . . . . . . . . . . 1,075 339
---------- -----------
Total shares . . . . . . . . . . . . . . . . . . . . . . . . . . 14,588 17,872
Pro forma net income per share (1) . . . . . . . . . . . . . . . . . . $ 0.39 $ 0.43
========== ===========
</TABLE>
_____________
(1) On July 8, 1996, the Board of Directors authorized a two-for-one stock
split, effected in the form of a stock dividend, payable to shareholders of
record on July 24, 1996. All references in the financial statements to
number of shares outstanding and related prices, per share amounts and
stock option plan data have been retroactively restated to reflect the
split.
(2) Calculated assuming exercise of options for 1,779,962 and 2,434,004 shares
of common stock with prices ranging from $1.25 to $18.75 per share based
upon the average estimated market price of $3.13 and $12.60 for the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins
and Staff policy, common equivalent shares issued during the 12-month
period prior to an initial public offering at prices substantially below
the public offering price are presumed to have been issued in contemplation
of the initial public offering and have been included in the calculation as
if they were outstanding since the beginning of the period presented (using
the treasury stock method and the public offering price).
(3) Calculated for 1996 by dividing the sum of the Special Distribution Notes
($10,910,000) paid from the net proceeds of the offering by the net
proceeds price per share from the offering of $15.03 (pre split) and
weighted based upon the days the notes were outstanding during the first
quarter of 1996. Calculated for 1995 by dividing the sum of the S
Corporation retained earnings to be distributed to S Corporation
shareholders earned through June 30, 1995 by the net proceeds price per
share from the offering of $15.03 (pre split).
<PAGE> 1
EXHIBIT 11(II)
EAGLE USA AIRFREIGHT, INC.
COMPUTATION OF PRO FORMA PER SHARE EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND FOOTNOTE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1995 1996
-------- --------
<S> <C> <C>
Pro forma net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,787 $ 3,114
Shares used in computing pro forma net income per share (1):
Weighted average number of shares outstanding . . . . . . . . . . . . . . . . . . . . 12,000 17,332
Incremental shares attributed to outstanding options (2) . . . . . . . . . . . . . . . 1,271 1,486
Shares issued to James R. Crane for acquisition of subsidiaries . . . . . . . . . . . 446
Shares for distributions paid from net proceeds of the initial public
offering (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075
-------- --------
Total shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,792 18,818
Pro forma net income per share (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.12 $ 0.17
======== ========
</TABLE>
_____________
(1) On July 8, 1996, the Board of Directors authorized a two-for-one stock
split, effected in the form of a stock dividend, payable to shareholders of
record on July 24, 1996. All references in the financial statements to
number of shares outstanding and related prices, per share amounts and
stock option plan data have been retroactively restated to reflect the
split.
(2) Calculated assuming exercise of options for 1,779,962 and 2,434,004 shares
of common stock with prices ranging from $1.25 to $18.75 per share based
upon the average estimated market price of $4.38 and $16.18 for the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins
and Staff policy, common equivalent shares issued during the 12-month
period prior to an initial public offering at prices substantially below
the public offering price are presumed to have been issued in contemplation
of the initial public offering and have been included in the calculation as
if they were outstanding since the beginning of the period presented (using
the treasury stock method and the public offering price).
(3) Calculated for 1995 by dividing the sum of the S Corporation retained
earnings to be distributed to S Corporation shareholders earned through
June 30, 1995 by the net proceeds price per share from the offering of
$15.03 (pre split).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF EAGLE USA AIRFREIGHT, INC. FOR
THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 24,613
<SECURITIES> 500
<RECEIVABLES> 24,383
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,586
<PP&E> 7,061
<DEPRECIATION> 2,365
<TOTAL-ASSETS> 60,316
<CURRENT-LIABILITIES> 15,358
<BONDS> 0
<COMMON> 17
0
0
<OTHER-SE> 44,941
<TOTAL-LIABILITY-AND-EQUITY> 60,316
<SALES> 127,989
<TOTAL-REVENUES> 127,989
<CGS> 71,402
<TOTAL-COSTS> 71,402
<OTHER-EXPENSES> 44,483
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,721
<INCOME-TAX> 4,958<F1>
<INCOME-CONTINUING> 7,763<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,763<F1>
<EPS-PRIMARY> .43<F1>
<EPS-DILUTED> .43<F1>
<FN>
<F1>Includes a pro forma charge in lieu of income taxes that represents the
estimate federal income taxes that would have been reported under FAS 109 had
the company been a C Corporation for the period presented.
</FN>
</TABLE>
