<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended MARCH 31, 1999
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 (I.R.S. Employer
of Incorporation or Organization) Identification Number)
15350 VICKERY DRIVE, HOUSTON, TEXAS 77032
(281) 618-3100
-------------------------------------------------------------------------
(Address of Principal Executive Offices, Including Registrant's Zip Code,
and Telephone Number, Including Area Code)
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 number of shares of the registrant's common stock as of May 7, 1999:
18,881,877 shares (net of 558,558 treasury shares).
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1
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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 March 31, 1999 (unaudited)
and September 30, 1998 (audited)................................................... 3
Condensed Consolidated Statement of Income and Comprehensive Income for the
Six Months ended March 31, 1999 and 1998 (unaudited)............................... 4
Condensed Consolidated Statement of Income and Comprehensive Income for the
Three Months ended March 31, 1999 and 1998 (unaudited)............................. 5
Condensed Consolidated Statement of Cash Flows for the Six Months ended
March 31, 1999 and 1998 (unaudited)................................................ 6
Condensed Consolidated Statement of Shareholders' Equity for the
Six Months ended March 31, 1999 (unaudited)........................................ 7
Notes to Condensed Consolidated Financial Statements (unaudited)..................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................... 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 15
PART II. OTHER INFORMATION.......................................................... 16
SIGNATURES........................................................................... 18
INDEX TO EXHIBITS.................................................................... 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUES)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
(unaudited) (audited)
----------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 38,076 $ 37,191
Short-term investments 10,978 12,487
Accounts receivable - trade, net 76,516 69,576
Prepaid expenses and other 7,226 3,905
--------- ---------
Total current assets 132,796 123,159
Property and equipment, net 25,087 21,963
Other assets 10,932 11,214
--------- ---------
$ 168,815 $ 156,336
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable - trade $ 6,010 $ 4,542
Accrued transportation costs 15,684 14,014
Accrued compensation and employee benefits 14,696 14,061
Other current liabilities 6,943 4,673
--------- ---------
Total current liabilities 43,333 37,290
--------- ---------
Long-term indebtedness
--------- ---------
Shareholders' equity:
Preferred Stock, $0.001 par value, 10,000 shares
authorized
Common Stock, $0.001 par value, 100,000 shares
authorized, 18,732 and 19,125 shares issued and outstanding 19 19
Additional paid-in capital 72,297 70,256
Retained earnings 62,412 49,131
Accumulated other comprehensive loss (43) (360)
Treasury stock at cost (9,203)
--------- ---------
125,482 119,046
--------- ---------
$ 168,815 $ 156,336
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues $278,598 $188,189
Cost of transportation 157,322 104,182
-------- --------
121,276 84,007
-------- --------
Operating expenses:
Personnel costs 61,943 44,936
Other selling, general and administrative expenses 38,802 23,658
-------- --------
100,745 68,594
-------- --------
Operating income 20,531 15,413
-------- --------
Interest and other income 1,183 773
Interest expense
-------- --------
Nonoperating income 1,183 773
-------- --------
Income before provision for income taxes 21,714 16,186
Provision for income taxes 8,433 6,307
-------- --------
Net income 13,281 9,879
Other comprehensive income, net of tax:
Gain on foreign currency translation 193
-------- --------
Comprehensive income $ 13,474 $ 9,879
======== ========
Basic weighted average common shares outstanding 18,752 18,418
======== ========
Diluted weighted average common and common equivalent
shares outstanding 19,186 19,156
======== ========
Basic earnings per share (Note 2) $ 0.71 $ 0.54
======== ========
Diluted earnings per share (Note 2) $ 0.69 $ 0.52
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
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EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues $133,722 $ 90,544
Cost of transportation 75,769 50,575
-------- --------
57,953 39,969
-------- --------
Operating expenses:
Personnel costs 30,714 21,681
Other selling, general and administrative expenses 18,878 12,224
-------- --------
49,592 33,905
-------- --------
Operating income 8,361 6,064
-------- --------
Interest and other income 651 468
Interest expense
-------- --------
Nonoperating income 651 468
-------- --------
Income before provision for income taxes 9,012 6,532
Provision for income taxes 3,479 2,543
-------- --------
Net income 5,533 3,989
Other comprehensive income, net of tax:
Gain on foreign currency translation 90
-------- --------
Comprehensive income $ 5,623 $ 3,989
======== ========
Basic weighted average common shares outstanding 18,716 18,580
======== ========
Diluted weighted average common and common equivalent
shares outstanding 19,193 19,261
======== ========
Basic earnings per share (Note 2) $ 0.30 $ 0.21
======== ========
Diluted earnings per share (Note 2) $ 0.29 $ 0.21
======== ========
</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>
Six Months Ended
March 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities $ 14,912 $ 15,751
-------- --------
Cash flows from investing activities:
Purchase of investments (4,806) (5,499)
Maturity of investments 6,315
Acquisition of property and equipment, net (5,779) (4,419)
Payment of contingent consideration (1,500)
Other (136) (43)
-------- --------
Net cash used by investing activities (5,906) (9,961)
-------- --------
Cash flows from financing activities:
Issuance of common stock, net of related costs 51 6,701
Proceeds from exercise of stock options 777 2,209
Purchase of treasury stock (9,266)
-------- --------
Net cash provided (used) by financing
activities (8,438) 8,910
-------- --------
Effect of foreign currency translation on cash 317
-------- --------
Net increase in cash and cash equivalents 885 14,700
Cash and cash equivalents, beginning of period 37,191 25,107
-------- --------
Cash and cash equivalents, end of period $ 38,076 $ 39,807
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
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EAGLE USA AIRFREIGHT, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------- PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
------ ------ ---------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 19,125 $ 19 $ 70,256 $ 49,131 $ (360) $119,046
Exercise of stock options 166 777 777
Issuance of shares under stock
purchase plan 4 (12) $ 63 51
Purchase of treasury stock (563) (9,266) (9,266)
Tax benefit from exercise of stock
options 1,276 1,276
Net income 13,281 13,281
Foreign currency translation
adjustments 317 317
------ ------ ---------- -------- -------------- -------- --------
Balance at March 31, 1999 18,732 $ 19 $ 72,297 $ 62,412 $ (43) $ (9,203) $125,482
====== ====== ========== ======== ============== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(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 Annual Report on
Form 10-K (File No. 0-27288). In the opinion of management, these interim
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the Company's
financial position at March 31, 1999 and the results of its operations for the
six and three months ended March 31, 1999 and 1998. Results of operations for
the six and three months ended March 31, 1999 are not necessary indicative of
the results that may be expected for the fiscal year ending September 30, 1999.
NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES:
Eagle USA Airfreight, Inc. (the Company) is a worldwide logistics
company. The Company maintains operating facilities throughout the United
States, Mexico, Canada, Hong Kong, and the United Kingdom, as well as a
worldwide network of exclusive and nonexclusive agents. The Company operates in
one principal industry segment.
In September and October 1998, the Company's Board of Directors
authorized the repurchase of up to one million shares of the Company's common
stock in the open market. As of March 31, 1999, the Company had repurchased
563,200 shares of common stock (4,642 shares of which were subsequently resold
pursuant to the Company's employee stock purchase plan). Such shares are held in
treasury.
NOTE 2 - EARNINGS PER SHARE:
The Company has adopted Statement of Financial Accounting Standard
No. 128 (SFAS 128), "Earnings Per Share". Adoption of SFAS 128 has resulted in
the retroactive restatement of earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share includes potential dilution that could occur
if securities to issue common stock were exercised.
The computation of basic and diluted earnings per share are as
follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
-----------------------------
1999 1998
-------- -------
<S> <C> <C>
Net income $ 13,281 $ 9,879
Shares used in basic calculation:
Weighted average shares outstanding 18,752 18,418
-------- -------
Total basic shares 18,752 18,418
Additional shares for diluted computation:
Effect of stock options 434 738
-------- -------
Total diluted shares 19,186 19,156
======== =======
Basic earnings per share $ 0.71 $ 0.54
======== =======
Diluted earnings per share $ 0.69 $ 0.52
======== =======
</TABLE>
8
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
For the six months ended March 31, 1999, the effect of stock options
was calculated assuming exercise of options for 3,097,097 shares of common stock
at prices ranging from $1.25 to $35.13 per share and assumed repurchase of
shares at the average market price per share of $21.83 computed as of the
beginning of the period using the treasury stock method. For the six months
ended March 31, 1998, the effect of stock options was calculated assuming
exercise of options for 3,152,111 shares of common stock at prices ranging from
$1.25 to $35.13 per share and assumed repurchase of shares at the average market
price per share of $29.55 computed as of the beginning of the period using the
treasury stock method.
<TABLE>
<CAPTION>
Quarter Ended March 31,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $ 5,533 $ 3,989
Shares used in basic calculation:
Weighted average shares outstanding 18,716 18,580
-------- --------
Total basic shares 18,716 18,580
Additional shares for diluted computation:
Effect of stock options 477 681
-------- --------
Total diluted shares 19,193 19,261
======== ========
Basic earnings per share $ 0.30 $ 0.21
======== ========
Diluted earnings per share $ 0.29 $ 0.21
======== ========
</TABLE>
For the three months ended March 31, 1999, the effect of stock options
was calculated assuming exercise of options for 3,097,097 shares of common stock
at prices ranging from $1.25 to $35.13 per share and assumed repurchase of
shares at the average market price per share of $26.92 computed as of the
beginning of the period using the treasury stock method. For the three months
ended March 31, 1998, the effect of stock options was calculated assuming
exercise of options for 3,152,111 shares of common stock at prices ranging from
$1.25 to $35.13 per share and assume repurchase of shares at the average market
price per share of $28.53 computed as of the beginning of the period using the
treasury stock method.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS:
On October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". Under SFAS No. 130, companies are required
to report in the financial statements, in addition to net income, comprehensive
income including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. The Company's only component of other comprehensive
income is foreign currency translation adjustments. The Company's cumulative
translation adjustments are now characterized as accumulated other comprehensive
income or loss.
SFAS 131 requires that companies report separately, in the financial
statements, financial and descriptive information about operating segments, if
applicable. During the six and three months ended March 31, 1999, the Company's
geographics segments which are not domiciled in the United States did not
represent, in the aggregate, more than 10% of the revenues, net income, or
assets of the combined amounts for all geographics segments.
9
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected certain aspects of the Company's
financial position and operating results during the periods included in the
accompanying unaudited condensed consolidated financial statements. This
discussion should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the annual financial statements included in the Company's Annual Report on Form
10-K (File No. 0-27288) and the accompanying unaudited condensed consolidated
financial statements.
General
The Company's revenues have increased to $417.1 million in the fiscal
year ended September 30, 1998 from $185.4 million in the fiscal year ended
September 30, 1996, and its operating income has increased to $32.2 million in
fiscal 1998 from $17.8 million in fiscal 1996. The Company's recent growth has
been generated almost exclusively by increasing the number of terminals operated
by the Company and growth in revenue produced by existing terminals. The opening
of a new terminal generally has an initial negative impact on profitability due
to operating losses of the new terminal. The opening of a new terminal
generally does not require significant capital expenditures. Additionally,
personnel costs are contained at the time of the opening of a new terminal
because commissions are generally not paid until salesmen achieve minimum sales
levels and until managers achieve terminal profitability. Although future new
terminals may be opened in cities smaller than those in which the Company's more
mature terminals are located, the Company believes the results of new terminals
should benefit from a ready base of business provided by its existing customers.
Historically, the Company's operating results have been subject to a limited
degree to seasonal trends when measured on a quarterly basis. The second quarter
has traditionally been the weakest and the fourth quarter has traditionally been
the strongest.
The Company intends to continue to expand its international freight
forwarding business. International shipments typically generate higher absolute
revenues per shipment than domestic shipments. The Company anticipates that the
cost of transportation per shipment for international freight will be higher
than for domestic freight as a percentage of such revenues, resulting in lower
gross margins than domestic shipments; however, the Company does not expect its
operating expenses to increase in proportion to such revenues. In April 1998,
the Company expanded its international operations through the acquisition of the
operations of Eagle Transfer, Inc. and of S. Boardman (Air Services Limited).
Additionally, in October 1998, the Company commenced operations in Hong Kong.
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 it
captures margins which were previously paid to third parties. However, the
Company's local pick-up and delivery services provided to other (non-forwarding)
customers generate a lower gross margin than the Company's domestic forwarding
operations due to their higher transportation costs as a percentage of revenues.
Six Months Ended March 31, 1999 compared to Six Months Ended March 31, 1998
Revenues increased 48.0% to $278.6 million in the first six months of
fiscal 1999 from $188.2 million in the same period of fiscal 1998 primarily due
to increases in the number of shipments and the total weight of cargo shipped,
which in turn resulted from an increase in the number of terminals open during
such period, an increase in penetration in existing markets, the addition of
significant national account customers and the effect of two acquisitions.
10
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Operating data for the period were as follows:
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Freight forwarding terminals at end of period 74 60
Local delivery locations at end of period 67 54
Freight forwarding shipments 643,763 476,856
Average weight (lbs.) per freight forwarding shipment 651 577
</TABLE>
For those freight forwarding terminals opened as of the beginning of
fiscal 1998 (60 terminals), revenues increased 39.1% to $236.0 million for the
six months ended March 31, 1999 from $169.7 million for the six months ended
March 31, 1998.
Revenues for the six months ended March 31, 1999 were comprised of
$254.8 million of forwarding revenues and $23.8 million of local pick-up and
delivery revenues, as compared to $173.9 million and $14.3 million,
respectively, for the six months ended March 31, 1998.
Cost of transportation increased during the first six months as a
percentage of revenues to 56.5% from 55.4% in the comparable period in fiscal
1998. The increase was primarily attributable to increased international freight
shipping volumes which carry a higher cost of transportation per shipment than
domestic freight. Cost of transportation increased in absolute terms by 51.0% to
$157.3 million for the six months ended March 31, 1999 from $104.2 million in
the same period in fiscal 1998 as a result of increases in air freight shipped.
Gross margin decreased to 43.5% in the first six months of fiscal 1999 from
44.6% in the same period in fiscal 1998. The primary reasons for the margin
decline were increased international freight shipping volumes which carry a
higher cost of transportation per shipment than domestic freight. Gross profit
increased 44.4% to $121.3 million in first six months of fiscal 1999 from $84.0
million in the same period in fiscal 1998.
Operating expenses decreased as a percentage of revenues to 36.2% in
the first six months of fiscal 1999 from 36.5% for the same period in fiscal
1998. The $32.2 million increased costs in absolute terms was attributable
primarily to continued growth in the level of operations from additional
terminals and expansion of local delivery operations. Personnel costs decreased
as a percentage of revenues to 22.2% in the first six months of fiscal 1999 from
23.9% in the same period in fiscal 1998 due primarily to controlled headcount
growth, and increased in absolute terms by 37.8% to $61.9 million due to
increased staffing needs associated with the opening of new terminals and local
delivery locations, the effect of acquisitions, expanded operations at existing
terminals and increased revenues, which resulted in an increase in commissions
and expanded corporate infrastructure. Such personnel costs include all
compensation expenses, including those relating to sales commissions and
salaries and to headquarters employees and executive officers. The Company has
added personnel to build corporate infrastructure, to keep pace with its recent
significant growth, to deepen the staff at its terminals and to prepare for
expected growth during fiscal 1999. Other selling, general and administrative
expenses increased as a percentage of revenues increased to 13.9% in the first
six months of fiscal 1999 from 12.6% for the same period of fiscal 1998, and
increased in absolute terms by 64.0% to $38.8 million in the fiscal 1999 period
from $23.7 million in the fiscal 1998 period. In the first six months of fiscal
1999, selling expenses as a percentage of revenues decreased by 0.3% and other
general and administrative expenses as a percentage of revenues increased by
1.6% compared to the same period of fiscal 1998. The absolute increases in
selling, general and administrative expenses were due to overall increases in
the level of the Company's activities in the fiscal 1999 period, increased
expenses attributable to the Company's acquisitions, the Company's new
headquarters facility and increased professional fees.
Operating income increased 33.2% to $20.5 million in the first six
months of fiscal 1999 from $15.4 million in the comparable period in fiscal
1998. Operating margin for the six months ended March 31, 1999 was 7.4% down
from 8.2% for the six months ended March 31, 1998 primarily due to the increased
cost of transportation and the increases in other general and administrative
expenses described above. Interest income increased to $1.2 million from
$773,000 as a
11
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
result of increased levels of investments due to increased cash balances from
results of operations.
Income before provision for income taxes increased 34.2% to $21.7
million in the first six months of fiscal 1999 from $16.2 million in the
comparable period of fiscal 1998. Provision for income taxes increased 33.7% to
$8.4 million for the six months ended March 31, 1999 from $6.3 million for the
six months ended March 31, 1998. Net income increased 34.4% to $13.3 million in
the first six months of fiscal 1999 from net income of $9.9 million in the same
period in fiscal 1998. Diluted earnings per share increased 32.7% to $0.69 per
share for the six months ended March 31, 1999 from $0.52 in the same period in
fiscal 1998.
Three Months Ended March 31, 1999 compared to the Three Months Ended March 31,
1998
Revenues increased 47.7% to $133.7 million in the second quarter of
fiscal 1999 from $90.5 million in the same period of fiscal 1998 primarily due
to increases in the number of shipments and the total weight of cargo shipped,
which in turn resulted from an increase in the number of terminals open during
such period, an increase in penetration in existing markets, the addition of
significant national account customers and the effect of two acquisitions.
Operating data for the period were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Freight forwarding terminals at end of period 74 60
Local delivery locations at end of period 67 54
Freight forwarding shipments 324,399 240,361
Average weight (lbs.) per freight forwarding shipment 634 555
</TABLE>
For those freight forwarding terminals opened as of the beginning of
fiscal 1998 (60 terminals), revenues increased 40.9% to $112.7 million for the
three months ended March 31, 1999 from $80.0 million for the three months ended
March 31, 1998.
Revenues for the three months ended March 31, 1999 were comprised of
$121.5 million of forwarding revenues and $12.2 million of local pick-up and
delivery revenues, as compared to $82.6 million and $7.9 million, respectively,
for the three months ended March 31, 1998.
Cost of transportation increased during the quarter as a percentage of
revenues to 56.7% from 55.9% in the comparable period in fiscal 1998. The
increase was primarily attributable to increased international freight shipping
volumes which carry a higher cost of transportation per shipment than domestic
freight. Cost of transportation increased in absolute terms by 49.8% to $75.8
million in the fiscal 1999 quarter from $50.6 million in fiscal 1998 as a result
of increases in air freight shipped. Gross margin decreased to 43.3% in the
second quarter of fiscal 1999 from 44.1% in the same period in fiscal 1998. The
primary reasons for the margin decline were increased international freight
shipping volumes which carry a higher cost of transportation per shipment than
domestic freight. Gross profit increased 45.0% to $58.0 million in the second
quarter of fiscal 1999 from $40.0 million in the same period in fiscal 1998.
Operating expenses decreased as a percentage of revenues to 37.1% in
the second quarter of fiscal 1999 from 37.5% for the same period in fiscal 1998.
The $15.7 million increased costs in absolute terms was attributable primarily
to continued growth in the level of operations from additional terminals and
expansion of local delivery operations. Personnel costs decreased as a
percentage of revenues to 23.0% in the second quarter of fiscal 1999 from 24.0%
in the same period in fiscal 1998 due primarily to controlled headcount growth,
and increased in absolute terms by 41.7% to $30.7 million due to increased
staffing needs associated with the opening of new terminals and local delivery
locations, the effect of acquisitions, expanded operations at existing terminals
and increased revenues, which resulted in an increase in commissions and
expanded corporate infrastructure. Such personnel costs include all compensation
expenses, including those relating to sales commissions and salaries and to
headquarters employees and executive officers. The Company has added personnel
to build corporate infrastructure, to keep pace with its recent significant
growth, to deepen
12
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EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the staff at its terminals and to prepare for expected growth during fiscal
1999. Other selling, general and administrative expenses increased as a
percentage of revenues to 14.1% in the second quarter of fiscal 1999 from 13.5%
in the second quarter of fiscal 1998, and increased in absolute terms by 54.4%
to $18.9 million in the fiscal 1999 period from $12.2 million in the fiscal 1998
period. In the second quarter of fiscal 1999, selling expenses as a percentage
of revenues decreased by 0.1% and other general and administrative expenses as a
percentage of revenues increased by 0.7% compared to the second quarter of
fiscal 1998. The absolute increases in selling, general and administrative
expenses were due to overall increases in the level of the Company's activities
in the fiscal 1999 period, increased expenses attributable to the Company's
acquisitions, the Company's new headquarters facility and increased professional
fees.
Operating income increased 37.9% to $8.4 million in the second quarter
of fiscal 1999 from $6.1 million in the comparable period in fiscal 1998.
Operating margin for the quarter ended March 31, 1999 was 6.3% down from 6.7%
for the three months ended March 31, 1998 primarily due to the increased cost of
transportation and the increases in other general and administrative expenses
described above. Interest income increased to $563,000 from $468,000 as a result
of increased levels of investments due to increased cash balances from results
of operations.
Income before provision for income taxes increased 38.0% to $9.0
million in the second quarter of fiscal 1999 from $6.5 million in the comparable
period of fiscal 1998. Provision for income taxes increased 36.8% to $3.5
million for the three months ended March 31, 1999 from $2.5 million for the
three months ended March 31, 1998. Net income increased 38.7% to $5.5 million in
the second quarter of fiscal 1999 from net income of $4.0 million in the same
period in fiscal 1998. Diluted earnings per share increased 38.1% to $0.29 per
share for the quarter ended March 31, 1999 from $0.21 in the same period in
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments decreased $624,000 to
$49.1 million at March 31, 1999 from $49.7 million at September 30, 1998. At
March 31, 1999, the Company had working capital of $89.5 million and a current
ratio of 3.06 compared to working capital of $85.9 million and a current ratio
of 3.30 at September 30, 1998. The Company's working capital has increased
during this period primarily as a result of profitable growth associated with
the expansion of the Company's operations and the resultant increase in accounts
receivable and payable. Capital expenditures for the six months ended March 31,
1999 were approximately $5.8 million. The Company believes that cash flow from
operations and the remaining proceeds from its public offerings will be adequate
to support its normal working capital and capital expenditures requirements for
at least the next 12 months.
Other than its initial and 1997 and 1998 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 borrowing and lease
or purchase arrangements. The Company does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
On September 28, 1998, the Company announced that its Board of
Directors had authorized the repurchase of up to 500,000 shares (subsequently
increased to one million shares) of its Common Stock. As of March 31, 1999,
563,200 shares had been repurchased by the Company, all of which occurred in
fiscal 1999. The total cost of the share repurchases as of such date was
approximately $9.3 million. The Company's current intent is that future
repurchases are expected to be the approximate amount of shares issued in
connection with the exercise of stock options.
13
<PAGE> 14
EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's subsidiaries in the United Kingdom and Mexico maintain
bank lines of credit for purposes of securing customs bonds and bank letters of
credit for purposes of guaranteeing certain transportation expenses. These
credit lines and letters of credit are supported by standby letters of credit
issued by a United States bank or guarantees issued by the Company to the
foreign banks. At March 31, 1999, the Company was contingently liable for
approximately $2.5 million under outstanding letters of credit and guarantees
related to these obligations.
As of March 31, 1999, the Company had outstanding non-qualified stock
options to purchase an aggregate of 3,097,097 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 $35.125). At the time a
non-qualified stock option is exercised, the Company will generally be entitled
to a deduction for federal and state income tax purposes equal to the difference
between the fair market value of the common stock on the date of exercise and
the option price. As a result of exercises for the six months ended March 31,
1999 of non-qualified stock options to purchase an aggregate of 166,163 shares
of common stock, the Company is entitled to a federal income tax deduction of
approximately $3.4 million. The Company realized a tax benefit of approximately
$1.3 million with respect to the six months ended March 31, 1999, accordingly,
the Company recorded an increase in additional paid-in capital and a reduction
to current taxes payable pursuant to the provisions of SFAS No. 109, "Accounting
for Income Taxes." Any exercises of non-qualified stock options in the future at
exercise prices below the then fair market value of the common stock may also
result in tax deductions equal to the difference between 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.
On January 10, 1997, the Company entered into a five-year operating
lease agreement with two unrelated parties for financing the construction of its
Houston terminal, warehouse and headquarters facility (the "Houston facility").
The cost of the Houston facility was approximately $8.5 million. Under the terms
of the lease agreement, average monthly lease payments are approximately $59,000
(including monthly interest costs based upon LIBOR rate plus 145 basis points)
beginning on July 1, 1998 through October 2, 2002 with a balloon payment equal
to the outstanding lease balance (initially equal to the cost of the facility)
due on October 2, 2002. The Company has an option, exercisable at anytime during
the lease term, and under certain circumstances may be obligated, to acquire the
facility for an amount equal to the outstanding lease balance. In the event the
Company does not exercise the purchase option, and is not otherwise required to
acquire the facility, it is subject to a deficiency payment computed as the
amount equal to the outstanding lease balance minus the then current fair market
value of the Houston facility. The Company expects that the amount of any such
deficiency payment, if made, would be expensed. As of March 31, 1999, the lease
balance was approximately $8.4 million.
On April 3, 1998, the Company entered into a five-year $20 million
master operating lease agreement with two unrelated parties for financing the
construction of terminal and warehouse facilities throughout the United States
designated by the Company (each, a "Financed Facility"). Under the terms of the
master operating lease agreement, average monthly lease payments (including
monthly interest costs based upon LIBOR rate plus 145 basis points) began upon
the completion of the construction of each Financed Facility and will continue
for a term of 52 months with a balloon payment equal to the outstanding lease
balances (initially equal to the cost of the facility) due at the end of each
lease term. The Company has an option, exercisable at anytime during the lease
term, and under certain circumstances may be obligated, to acquire each Financed
Facility for an amount equal to the outstanding lease balance. In the event the
Company does not exercise the purchase option, and does not otherwise meet its
obligations, it is subject to deficiency payment computed as the amount equal to
the outstanding lease balance minus the then current fair market value of each
Financed Facility within certain limits. The Company expects that the amount of
any such deficiency payment, if made, would be expensed. The Company has begun
construction of each Financed Facility. As of March 31, 1999, the aggregate
lease balance was approximately $4.1 million under the master operating lease
agreement.
During fiscal 1998 and 1999, the Company entered into commitments of
approximately $6.0 million for the construction of terminal and warehouse
facilities located within the United States. Payments for the construction of
the facilities are being made from cash balances. As of March 31, 1999, the
Company had paid approximately $2.3 million of the commitments. Construction of
these facilities is estimated to be completed during fiscal 1999 and fiscal
2000.
14
<PAGE> 15
EAGLE USA AIRFREIGHT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Securities and Exchange Commission has published guidance regarding
the effect of "Year 2000" issues on companies. The "Year 2000" (or Y2K) problem
arose because some computer programs used only the last two digits of a year to
refer to a date, causing them to not properly recognize a year that does not
begin with "19".
The Company has completed its initial testing of possible exposure of
Y2K issues. The Company believes based on its testing that its primary operating
and accounting information systems are and have always been compliant with the
century factor. To date, the Company has not identified any non-information
technology systems that use embedded technology on which it relies and which it
believes is likely to have a Y2K problem. Like every other business enterprise,
the Company is at risk from year 2000 failures on the part of its major business
counterparts, including suppliers and service providers, as well as potential
failures in public and private infrastructure services, including electricity,
water, gas, transportation and communications. Based upon the Company's
assessments of its relationship with vendors, suppliers, customers and banks,
the Company is not aware of situations where material disruptions of its
business activities are likely to occur because of Year 2000 non-compliance by
third parties.
The Company's assessment of its Year 2000 issues involves many
assumptions. There can be no assurance that the Company's assumptions will prove
accurate, and actual results could differ significantly from the assumptions. In
conducting its Year 2000 compliance efforts, the Company has conducted tests,
utilized consultants and system auditors, and has also relied heavily on
representations from third parties with which the Company has business
relationships. The Company is in the process of independently verifying these
representations. With respect to the Company's internal systems, the Company has
conducted tests of its critical processes and found no significant areas of
non-compliance. There can be no assurance that these representations will prove
accurate or that the tests have been subjected to a sufficient sample of
conditions.
A Year 2000 failure could result in a business disruption that
adversely effects the Company's business, financial condition or results of
operations. For example, if a Year 2000 failure causes insufficient air lift to
be available to the Company, the Company's air freight forwarding operations
would be curtailed and the Company might also be unable to provide sufficient
alternative services such as ground, rail or ocean cargo capacity to meet
expected levels of operations. There can be no assurance that the global
transportation industry and regulatory authorities, including but not limited to
the United States Department of Transportation and related agencies, will not be
affected in a way that negatively affects the Company's business, results of
operations or financial condition. The Company is unable to determine the
potential business interruption costs which might be incurred as a result of Y2K
issues, including the costs if the cargo capacity of airline, truck, rail and
ocean vessels is insufficient to meet the Company's then operating requirements
in any of its geographic regions. The Company is currently exploring risk
management alternatives with respect to possible business interruption which may
result if certain of the Company's critical vendors and suppliers are not ready
for the Y2K problem by January 1, 2000 and its is expected that such plans will
continue through the Year 2000.
The Company's internal Y2K assessment is largely complete; however, the
Company's assessment of Y2K issues caused by its relationships with third
parties is expected to continue until and through the year 2000. The Company has
not to date expensed and does not currently plan to expend any significant
amount of funds for Y2K issues. Despite the Company's assessment to date, there
can be no assurance as to the ultimate effect that the Y2K issues will have on
the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not have any outstanding short-term or
long-term debt instruments as of March 31, 1999. Accordingly, the Company does
not have market risk related to interest rates. However, the Company's lease
payments on certain financed facilities are tied to market interest rates. At
March 31, 1999, a 10% rise in the base rate for these financing arrangements
would not have a material impact on operating income for the fiscal year ending
September 30, 1999.
The Company's earnings are affected by fluctuations in the value of the
U.S. dollar as it relates to the earnings of its United Kingdom, Canada, Mexico
and Hong Kong operations, as a result of transactions in foreign markets. At
March 31, 1999, the result of a uniform 10% strengthening in the value of the
dollar relative to the currencies in which these operations are denominated
would not have a material impact on operating income for the fiscal year ending
September 30, 1999.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
The Company has not purchased any futures contracts nor has it
purchased or held any derivative financial instruments for trading purposes
during the six months ended March 31, 1999.
In the second quarter of fiscal 1999 the Company entered into contracts
for the purpose of hedging the cost of a portion of anticipated jet fuel
purchases during the following twelve months. Such contracts are nominally
insignificant. At March 31, 1999, a 10% change in the price of jet fuel would
not have a material impact on operating income for the fiscal year ending
September 30, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS, NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES, NONE
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS
(a) ANNUAL MEETING OF SHAREHOLDERS ON FEBRUARY 22, 1999.
<TABLE>
<CAPTION>
BROKER
(c) PROPOSALS FOR AGAINST WITHHELD ABSTAIN NONVOTES
--------- --- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
(PROXY TOTALS IN THOUSANDS)
ELECTION OF DIRECTORS
JAMES R. CRANE 17,023 * 14 -- *
DOUGLAS A. SECKEL 17,023 * 14 -- *
WILLIAM P. O'CONNELL 17,023 * 14 -- *
NEIL E. KELLEY 17,023 * 14 -- *
FRANK J. HEVRDEJS 15,780 * 1,257 -- *
NORWOOD W. KNIGHT-RICHARDSON 17,023 * 14 -- *
APPROVAL OF APPOINTMENT OF 16,871 164 * 2 --
PRICEWATERHOUSECOOPERS, LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS
</TABLE>
* NOT APPLICABLE
ITEM 5. OTHER INFORMATION
FORWARDING LOOKING STATEMENTS
The statements contained in all parts of this documents, including, but
not limited to, those relating to the Company's plans for international air
freight forwarding services; the future expansion and results of the Company's
terminal network; plans for local delivery services; expected growth, future
marketing; construction of new facilities; future operating expenses; any
seasonality of the Company' s business; future margins; future dividend plans;
use of offering proceeds; fluctuations in currency valuations; fluctuations in
interest rates; future share repurchases; future acquisitions and any effects,
benefits, results, terms or other aspects of such acquisitions; fluctuations in
the price of jet fuel; effects of the Year 2000 issue; ability to continue
growth and implement growth and business strategy; the ability of expected
sources of liquidity to support working capital and capital expenditure
requirements; the tax benefit of any stock option exercises; and any other
statements regarding future growth, cash needs, terminals, operations, business
plans and financial results and any other statements which are not historical
facts are forward-looking statements. When used in this document, the words
"anticipate," "estimate," "expect," "may," "plans," "project," and similar
expressions are intended to be among the statements that identify
forward-looking statements. Such statements involve risks and uncertainties,
including, but not limited to, those relating to the Company's dependence on its
ability to attract and retain skilled managers and other personnel; 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
16
<PAGE> 17
FORWARDING LOOKING STATEMENTS (CONTINUED)
the availability of cargo space to serve its customers; the potential for
liabilities if certain independent owner/operators that serve the Company are
determined to be employees; effects of regulation; results of litigation; 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; risk of international operations; risks relating to acquisition; the
Company's future financial and operating results, cash needs and demand for its
services; and the Company's ability to maintain and comply with permits and
licenses; as well as other factors detailed in the Company's filings with the
Securities and Exchange Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual outcomes may vary materially from those indicated. The Company undertakes
no responsibility to update for changes related to these or any other factors
that may occur subsequent to this filing.
ELECTION OF DIRECTOR
Effective April 19, 1999, the Board of Directors elected Mrs. Rebecca
A. McDonald as a director to serve until the next annual meeting or until her
successor has been duly elected and qualified. Mrs. McDonald is Executive
Managing Director of Enron International and is a former President and CEO of
Amoco Energy Development Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(A) EXHIBITS.
*3(i) Second Amended and Restated Articles of Incorporation of
the Company, as amended (Exhibit 3(i) to the Company's
Form 10-Q for the fiscal quarter ended March 31, 1998).
*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)).
27 Financial Data Schedule.
- ----------------------
* Incorporated by reference as indicated.
(B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED
MARCH 31, 1999.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EAGLE USA AIRFREIGHT, INC.
------------------------------
(Registrant)
Date: May 14, 1999 BY: /s/ James R. Crane
--------------------- ------------------------------
James R. Crane
President
Date: May 14, 1999 BY: /s/ Douglas A. Seckel
--------------------- ------------------------------
Douglas A. Seckel
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- -------- -----------
<S> <C>
*3(i) Second Amended and Restated Articles of Incorporation of the
Company, as amended (Exhibit 3(i) to the Company's Form 10-Q for
the fiscal quarter ended March 31, 1998).
*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)).
27 Financial Data Schedule
</TABLE>
- -------------------------
*Incorporated by reference as indicated.
19
<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 SIX MONTHS ENDED MARCH 31, 1999 INCLUDED IN THIS FORM 10-Q AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001001718
<NAME> Eagle USA Airfreight, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 38,076
<SECURITIES> 10,978
<RECEIVABLES> 77,622
<ALLOWANCES> 1,106
<INVENTORY> 0
<CURRENT-ASSETS> 132,796
<PP&E> 35,772
<DEPRECIATION> 10,685
<TOTAL-ASSETS> 168,815
<CURRENT-LIABILITIES> 43,333
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 125,463
<TOTAL-LIABILITY-AND-EQUITY> 168,815
<SALES> 278,598
<TOTAL-REVENUES> 278,598
<CGS> 0
<TOTAL-COSTS> 157,322
<OTHER-EXPENSES> 100,745
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,714
<INCOME-TAX> 8,433
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,281
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.69
</TABLE>
