<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-42607
GEOLOGISTICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3438013
- --------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13952 Denver West Parkway
Golden, Colorado 80401
------------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (303) 704-4400
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
On November 12, 1998, the registrant had 2,128,893 outstanding shares of common
stock, par value $.001 per share.
<PAGE>
GEOLOGISTICS CORPORATION
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Part I. Financial Information Page
- ------- ---------------------- ----
<S> <C> <C>
Item 1. Financial Statements:
------
Condensed Consolidated Balance Sheets,
September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1998 and 1997 5
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1998 and 1997 6
Notes to the Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
------ Financial Condition and Results
of Operations 15
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 26
------
Item 2. Changes in Securities 26
-------
Item 4. Submission of Matter to a Vote of
------- Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
------
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
--------------------------------------
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
--------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,362 $ 37,909
Accounts receivable:
Trade, net 278,715 250,006
Other 10,564 11,139
Deferred income taxes 9,761 6,528
Prepaid expenses 12,772 14,150
-------- --------
Total current assets 326,174 319,732
------- -------
Property and equipment, at cost 105,620 67,433
Accumulated depreciation (17,891) (8,360)
------- ---------
Net property and equipment 87,729 59,073
------- --------
Notes receivable, less current portion 1,785 2,329
Deferred income taxes 24,513 20,861
Goodwill, net 79,165 54,397
Intangible assets, net 11,563 12,213
Other assets 18,139 17,161
------- --------
$549,068 $485,766
======= =======
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $116,389 $122,281
Accrued expenses 154,530 165,098
Income taxes payable 10,659 5,993
Current portion of long term debt 12,598 8,437
-------- --------
Total current liabilities 294,176 301,809
Long-term debt, less current portion 169,045 112,790
Other noncurrent liabilities 52,095 46,647
-------- --------
Total liabilities 515,316 461,246
------- -------
Minority interest 2,666 1,601
Stockholders' equity:
Preferred stock (15,000 shares authorized and issued) 14,550 -
Common stock ($.001 par value 5,000,000 shares authorized,
2,128,893 and 2,074,226 shares issued) 2 2
Additional paid-in-capital 54,229 52,291
Accumulated deficit (36,671) (28,902)
Notes receivable from stockholders (190) (357)
Cumulative translation adjustments (834) (115)
---------- ----------
Total stockholders' equity 31,086 22,919
-------- --------
$549,068 $485,766
-------- --------
-------- --------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
4
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTHS NINE-MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $387,968 $202,040 $1,124,843 $550,141
Transportation and other direct costs 292,855 161,914 847,335 436,466
-------- -------- --------- --------
Net revenues 95,113 40,126 277,508 113,675
Selling, general and administrative expenses 91,020 37,588 265,650 105,659
Depreciation and amortization 3,847 7,557 11,560 22,138
--------- ---------- --------- --------
Operating profit (loss) 246 (5,019) 298 (14,122)
Interest expense, net (4,761) (1,938) (12,098) (5,765)
Other income (32) 21 114 88
---------- ------------ ----------- -----------
Loss before income taxes and minority interest (4,547) (6,936) (11,686) (19,799)
Income tax benefit (2,267) (1,845) (4,503) (6,546)
-------- ---------- ---------- ---------
Loss before minority interest (2,280) (5,091) (7,183) (13,253)
Minority interest (213) - (586) -
--------- ------------- ----------- -------------
Net loss $ (2,493) $ (5,091) $ (7,769) $ (13,253)
Preferred stock dividend 438 438
--------- ------------- ----------- -------------
Loss applicable to common stock $ (2,931) $ (8,207)
--------- ------------- ----------- -------------
--------- ------------- ----------- -------------
Basic loss per common share $ (1.38) $ (2.47) $ (3.88) $ (6.48)
--------- ------------- ----------- -------------
--------- ------------- ----------- -------------
Diluted loss per common share $ (1.38) $ (2.47) $ (3.88) $ (6.48)
--------- ------------- ----------- -------------
--------- ------------- ----------- -------------
Weighted average number of common and
common equivalent shares outstanding 2,128,893 2,064,154 2,117,806 2,044,800
--------- ------------- ----------- -------------
--------- ------------- ----------- -------------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
5
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTHS
ENDED SEPTEMBER 30,
---------------------------------
1998 1997
---------- ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,769) $(13,253)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 11,560 22,138
Deferred income tax benefit (6,885) (8,638)
Changes in current assets and liabilities, net (38,567) (9,542)
Other, net (2,729) (2,432)
--------- --------
Net cash from operating activities (44,390) (11,727)
Cash flows from investing activities:
Purchases of property, equipment and software (22,885) (5,551)
Proceeds from the sale of net assets held for sale - 7,036
Business acquisitions, net of cash acquired (26,299) (433)
--------- ---------
Net cash from investing activities (49,184) 1,052
Cash flows from financing activities:
Proceeds from revolving line of credit 118,500 85,900
Payments on revolving line of credit (82,400) (72,500)
Proceeds from long-term debt/capital leases 32,500 -
Payments on long-term debt/capital leases (14,934) (4,038)
Proceeds from issuance of preferred common stock 14,550 -
Proceeds from issuance of common stock 1,673 2,326
Repurchase of common stock (20) (501)
Other, net 158 -
---------- ------------
Net cash from financing activities 70,027 11,187
-------- --------
Net change in cash and cash equivalents (23,547) 512
Cash and cash equivalents of acquired companies - 22,188
Cash and cash equivalents, beginning of period 37,909 3,424
-------- --------
Cash and cash equivalents, end of period $ 14,362 $ 26,124
======== =======
Supplemental cash flow information:
Interest paid during the period $ 8,601 $ 3,311
Income taxes paid during the period $ 2,116 $ 703
Noncash common stock transactions $ - $ 207
Noncash warrant transactions $ 1,080 $ -
New capital leases $ 7,541 $ -
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
6
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in GeoLogistics Corporation's (formerly known as
International Logistics Limited) ("Company") Registration Statement on Form S-4
as filed with the Securities and Exchange Commission on April 28, 1998 ("Form
S-4"). The condensed consolidated financial information furnished herein
reflects all adjustments (consisting of normal recurring accruals and
eliminations) which are, in the opinion of management, necessary for a fair
presentation in accordance with generally accepted accounting principles of the
condensed consolidated financial statements for the periods shown. Certain
amounts for prior years have been reclassified to conform with current year
financial statement presentations. Significant accounting policies followed by
the Company are included in Note 1 to the audited consolidated financial
statements in the Company's Form S-4. Results of operations for the nine months
ended September 30, 1998 may not be indicative of the results to be expected for
the full year.
PRINCIPLES OF CONSOLIDATION: The accompanying condensed consolidated financial
statements include the accounts of the Company and its majority owned
subsidiaries. The Company records its investment in each unconsolidated
affiliated company (20 to 50 percent ownership) using the equity method of
accounting. Other investments (less than 20 percent ownership) are recorded at
cost. Intercompany accounts and transactions have been eliminated. The financial
statements reflect minority interests in foreign affiliates acquired in
connection with the acquisition of LEP International Worldwide Limited ("LIW").
USE OF ESTIMATES: The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management. Actual results could differ from
those estimates. Accounts affected by significant estimates include accounts
receivable, accruals for transportation and other direct costs, tax
contingencies, cargo loss and damage claims, and insurance claims.
7
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
In February, 1998 the Company sold 55,267 shares of its Common stock to
employees, pursuant to an employee stock purchase plan for an aggregate
purchase price of $1.7 million or $30 per share. The proceeds of the sales
were used for general corporate purposes. These shares were not required to
be registered with the Securities and Exchange Commission pursuant to Rule
701 promulgated under the Securities Act of 1933.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128 ("FAS
128"), "Earnings Per Share" at December 31, 1997. All prior period earnings
per common share data have been restated to conform to the provisions of this
statement. Basic earnings per common share is computed using the weighted
average number of shares outstanding. Diluted earnings per common share is
computed under the treasury stock method using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to
outstanding warrants to purchase common stock. Incremental shares from
options were not used in the calculation of diluted loss per common share due
to their antidilutive effect.
NOTE 2. ACQUISITIONS
On July 13, 1998, the Company purchased substantially all of the operating
assets and assumed certain of the liabilities of Caribbean Air Services, Inc., a
Delaware corporation ("CAS"), and wholly-owned subsidiary of Amertranz Worldwide
Holding Corp., a Delaware corporation ("Holding"), for aggregate cash
consideration of $27 million. CAS is a provider of air logistics services
between the United States, Puerto Rico, and the Dominican Republic. The purchase
price, which was determined by the parties through arm's length negotiations,
was funded by a combination of borrowings under a $15 million credit agreement
(the "New Credit Facility") and proceeds from the private placement of the
Company's Series A Participating Preferred Stock (the "Preferred Stock").
On July 13, 1998 the Company borrowed $15 million pursuant to the New Credit
Facility executed July 10, 1998 by and among the Company and ING (U.S.) Capital
Corporation. The loan is unsecured and is evidenced by promissory notes in
aggregate principal amount of $15 million due October 15, 2007. Borrowings under
the facility are guaranteed by certain direct and indirect subsidiaries of the
Company, each of which is either a borrower or guarantor under the Company's
existing loan agreement or its 9 3/4% Senior Notes due 2007. At the Company's
option, interest will accrue on the loan with reference to either the average of
prime commercial lending (or equivalent) rates publicly announced by certain
banks
8
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
plus 1.75% or the offered rate for deposits in dollars in the London interbank
eurodollar market ("LIBOR") plus 3.75%. With the exception of mandatory
prepayments in connection with certain change of control events, certain sales
of equity interests of the Company and certain asset dispositions, the New
Credit Facility does not contain any mandatory prepayment provisions. The New
Credit Facility provides that the Company may prepay this loan in whole or in
part without penalty, subject to reimbursement of the lender's breakage and
redeployment costs in the case of prepayment of LIBOR loans. The credit facility
contains certain covenants and restrictions on actions by the Company including,
without limitation, restrictions on indebtedness, liens, guarantee obligations,
mergers, creation or dissolution of restricted subsidiaries, investments, loans,
advances, dividends and other restricted payments, transactions with affiliates,
sale and leaseback transactions, prepayment of or amendments to junior
obligations, entering other lines of business and amendments of other
indebtedness.
On July 13, 1998, the Company sold 11,000 and 4,000 shares of Preferred Stock to
OCM Principal Opportunities Fund L.P., and Logistical Simon, L.L.C.,
respectively (the "Investors"), for aggregate consideration of $14.6 million.
The Preferred Stock has a liquidation value of $1,000 per share and was sold to
the Investors for $970 per share. The holders of the Preferred Stock are
entitled to payment of quarterly dividends when, as and if declared by the board
of directors of the Company in amounts ranging from $30.00 per share per quarter
to $45.00 per share per quarter, which amount shall be determined based upon the
occurrence of certain events that are specified in the Certificate of
Designation relating to the Preferred Stock. Dividends on the Preferred Stock
will accrue and be fully cumulative (whether or not declared) and will bear
interest at rates ranging from 14% per annum to 18% per annum, depending upon
the occurrence of certain events that are specified in the Certificate of
Designation. Upon redemption of the Preferred Stock or liquidation of the
Company, the holders of Preferred Stock will be entitled to receive the
following for each share of Preferred Stock held by such holder: (i) (a) $1,000,
representing the liquidation preference of the Preferred Stock plus (b) all
accrued and unpaid dividends, whether or not declared multiplied by (c) the
applicable liquidation or redemption premium, and (ii) either ten shares of
common stock of the Company or the amount of the fair market value of ten shares
of common stock of the Company. The Preferred Stock has no mandatory redemption
feature and ranks senior to the Common Stock of the Company for
9
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
payment of dividends and upon liquidation. The Company intends to make a
rights offering of the preferred stock during the fourth quarter to its
existing security holders in accordance with the terms of the certificate of
incorporation.
The operating results of CAS have been included in the consolidated statements
of operations since the date of acquisition. Goodwill of approximately $26.3
million is being amortized over twenty-five years.
Pro forma unaudited operating results assuming the CAS acquisition was made on
January 1, 1998 and adjusting for goodwill amortization and additional interest
on long-term debt are as follows:
<TABLE>
<CAPTION>
NINE-MONTHS ENDED
SEPTEMBER 30, 1998
--------------------
<S> <C>
Revenues $1,153,278
Net revenues 288,033
Operating income 8,614
Net loss (3,547)
</TABLE>
In January 1998, the Company purchased additional shares in its Italian
affiliate which increased its investment to 51%. As a result the Company
consolidated the financial statements of Italy (which include approximately $13
million in property and equipment and $2.0 million of long term debt) in the
first quarter of 1998 and recorded a liability related to the minority interest
it does not own. In July 1998, the Company again purchased additional shares of
this affiliate increasing its investment to 72%. It is the Company's intention
to complete the purchase of the remaining 28% of the Italian operations over the
next two years for approximately $1.0 million.
10
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
On September 30, 1997, the Company increased its holdings of LIW's common stock,
a United Kingdom based international freight forwarder with operations primarily
in Europe and Asia, to 75.2% from 33.3%. In December 1997, the Company acquired
LIW's remaining outstanding common stock and acquired and retired LIW's
outstanding preferred stock the "LIW Acquisition." The transaction has been
accounted for under the purchase method of accounting and the operating results
of LIW have been included in the Company's consolidated statements of operations
since September 30, 1997.
NOTE 3. LONG-TERM DEBT
In October 1997, the Company issued and sold $110.0 million in aggregate
principal amount of its 9 3/4% senior notes (the "Old" notes) which were due
October 15, 2007, and were general unsecured obligations of the Company. The Old
notes were fully and unconditionally guaranteed on a joint and several senior
basis by all existing and future domestic Restricted Subsidiaries (as defined in
the indenture relating to the Notes). Three of the Company's domestic
subsidiaries hold as their sole assets all of the issued and outstanding equity
interests of the Company's direct non-guarantor foreign subsidiaries.
On April 28, 1998 the Company filed a Registration Statement on Form S-4 with
the Securities and Exchange Commission to exchange the Old notes for an equal
amount of newly issued and registered 9 3/4 % Senior Notes due 2007 ("New"
notes). The exchange offer was completed on June 1, 1998. The form and term of
the New notes is substantially identical to those of the Old notes except that
the New notes have been registered under the Securities Act of 1933.
11
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3. LONG-TERM DEBT (CONTINUED)
The following is condensed combined financial information of guarantor and
non-guarantor subsidiaries:
<TABLE>
<CAPTION>
BALANCE SHEET AS OF SEPTEMBER 30, 1998
---------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 95 $ 813 $ 13,454 -- $ 14,362
Accounts receivable--trade, net............. -- 111,231 167,484 -- 278,715
Property, net............................... 15,965 13,109 58,655 -- 87,729
Intangible assets, net...................... 8,992 78,915 3,773 $ (952) 90,728
Other assets................................ 6,172 31,963 39,399 -- 77,534
Investments in subsidiaries................. 88,962 -- -- (88,962) --
-------- --------- -------- --------- --------
Total assets.............................. $120,186 $ 236,031 $282,765 $ (89,914) $549,068
-------- --------- -------- --------- --------
-------- --------- -------- --------- --------
Current liabilities......................... $ 6,405 $ 99,580 $203,643 (15,452) $294,176
Long-term debt.............................. 162,049 1,366 5,630 -- 169,045
Other noncurrent liabilities................ 438 6,071 48,252 -- 54,761
Intercompany accounts....................... (105,328) 93,665 647 11,016 --
Stockholders' equity........................ 56,622 35,349 24,593 (85,478) 31,086
-------- --------- -------- --------- --------
Total liabilities and stockholders' equity $120,186 $ 236,031 $282,765 $ (89,914) $549,068
-------- --------- -------- --------- --------
-------- --------- -------- --------- --------
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
---------- ------------- ------------ ------------ --------
Revenues.................................... -- $489,094 $755,170 $ (119,421) $1,124,843
Transportation and other direct costs....... -- 376,311 590,445 (119,421) 847,335
Operating expenses.......................... $ 7,628 112,825 156,757 -- 277,210
------- -------- -------- ---------- ----------
Operating profit (loss)................... (7,628) (42) 7,968 -- 298
Interest and other, net..................... (1,930) (8,397) (1,657) -- (11,984)
Income tax provision (benefit).............. (5,526) (2,333) 3,356 -- (4,503)
Minority interest........................... -- -- (586) -- (586)
------- -------- -------- ---------- ----------
Net (loss) income......................... $(4,032) $ (6,106) $ 2,369 $ -- $ (7,769)
------- -------- -------- ---------- ----------
------- -------- -------- ---------- ----------
</TABLE>
12
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
----------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities....................... $(35,039) $ (5,818) $ (3,533) -- $(44,390)
Investing activities....................... (10,477) (32,562) (6,145) -- (49,184)
Financing activities....................... 38,033 36,917 (4,923) -- 70,027
-------- -------- --------- -------- --------
Net change in cash and cash equivalents...... (7,483) (1,463) (14,601) -- (23,547)
Cash and cash equivalents, beginning of
period..................................... 7,578 2,276 28,055 -- 37,909
-------- -------- --------- -------- --------
Cash and cash equivalents, end of period..... $ 95 $ 813 $ 13,454 -- $ 14,362
-------- -------- --------- -------- --------
-------- -------- --------- -------- --------
</TABLE>
NOTE 4. SEGMENT INFORMATION
The Company operates in a single business segment providing worldwide logistics
solutions to meet customers' specific requirements for transportation and
related services by arranging and monitoring all aspects of material flow
activities utilizing advanced information technology systems.
Information regarding the Company's operations by geographic region is
summarized below.
<TABLE>
<CAPTION>
U.S AND
CANADA EUROPE ASIA CORPORATE ELIMINATIONS CONSOLIDATED
--------- --------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1998
Total revenue......................... $557,294 $499,635 $187,335 -- $(119,421) $1,124,843
Transactions between regions.......... 43,933 41,970 33,518 -- (119,421) --
Revenues from customers............... 513,361 457,665 153,817 -- -- 1,124,843
Net revenues ......................... 125,028 115,230 37,250 -- -- 277,508
Operating profit (loss)............... 2,293 2,751 3,311 $(8,057) -- 298
Long-lived assets..................... 15,936 48,300 5,796 17,697 87,729
NINE MONTHS ENDED SEPTEMBER 30, 1997
Total revenue......................... $550,141 -- -- -- -- $550,141
Transactions between regions.......... -- -- -- -- -- -
Revenues from customers............... 550,141 -- -- -- -- 550,141
Net revenues.......................... 113,675 -- -- -- -- 113,675
Operating profit (loss)............... (11,595) -- -- $(2,527) -- (14,122)
Long-lived assets..................... 20,919 29,036 5,764 1,051 -- 56,770
</TABLE>
13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Revenue from transfers between regions represents approximate amounts that would
be charged if the service were provided by an unaffiliated company. Total
regional revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue.
NOTE 5. OTHER COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted FAS No. 130, "Reporting Comprehensive
Income," which established standards for reporting and display of comprehensive
income and its components in the financial statements. Comprehensive income is
comprised of all changes to stockholders' equity, including net income, except
those changes resulting from investments by owners and distributions to owners.
Other comprehensive income in the financial statements of the Company represents
foreign currency translation adjustments resulting from the conversion of the
financial statements of foreign subsidiaries from local currency to U.S.
dollars.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the results of operations of
the Company for the three months and nine months ended September 30, 1998 and
1997, and should be read in conjunction with the condensed consolidated
financial statements of the Company included elsewhere in this report.
The Company is one of the largest non-asset-based providers of global
logistics and transportation services headquartered in the United States
based on revenues for 1997 and after giving pro forma effect to the LIW and
CAS Acquisitions. The Company's primary business operations involve obtaining
shipment or material orders from customers, creating and delivering a wide
range of logistics solutions to meet customers' specific requirements for
transportation and related services, and arranging and monitoring all aspects
of material flow activity utilizing advanced information technology systems.
The logistics solutions include domestic and international freight forwarding
and door-to-door delivery services using a wide range of transportation
modes, including air, ocean, truck and rail. The Company also provides
value-added services such as warehousing, inventory management, assembly,
customs brokerage, distribution and installation for manufacturers and
retailers of commercial and consumer products such as copiers, computers,
medical equipment, consumer durables and aviation products. The Company also
specializes in arranging for the worldwide transportation of goods for major
infrastructure projects, such as power plants, oil refineries, oil fields and
mines, to lesser developed countries and remote geographic locations. In
addition, the Company provides international and domestic relocation services
through the Household Goods divisions ("HHG") of Bekins and GeoLogistics
Services.
In February 1998, the Company announced its new brand name: GeoLogistics. The
corporation changed its name on March 1, 1998 and the Company's business
units adopted the new name on September 15, 1998. Below are the new names for
the Company's business units:
15
<PAGE>
<TABLE>
<CAPTION>
NEW GEOLOGISTICS NAME FORMER NAME
- ----------------------------- ------------------
<S> <C>
GeoLogistics Europe LIW Europe
GeoLogistics Asia Pacific LIW Asia Pacific
GeoLogistics Americas LEP Profit
GeoLogistics Air Services Caribbean Air Services
GeoLogistics Network Solutions Bekins HVP/Logistics
GeoLogistics Services Matrix
Bekins Van Lines LLC HHG division name is unchanged
</TABLE>
Costs associated with the branding strategy include registration expenses and
legal fees, collateral material and advertising and promotional expense. A
Logistics Consulting Team has also been established in conjunction with the
branding strategy to design, plan and implement supply chain programs for our
customers and other strategic business opportunities. An integral component
of the Company's strategic plan is to provide improved information technology
to its customers as well as improved systems for its own operational and
financial management purposes. Accordingly, the Company has committed to
spend approximately $30 million to achieve this objective through 1999. Costs
aggregating approximately $16.0 million related to these initiatives have
been incurred from the fourth quarter of 1997 following the LIW Acquisition
through September 1998. The Company expects to spend approximately $14.0
million (which will be funded through a combination of cash provided from
operations and borrowings under the existing bank credit facility) over the
next fifteen months to conclude the implementation and integration of these
systems. Related to these projects, the Company will also incur incremental
expense for maintenance fees and additional systems programmers and
technicians. Costs related to these three initiatives (branding, consulting
and information technology) were initially incurred in the fourth quarter of
1997 following the LIW Acquisition, but further expansion, and expenditures,
of all three initiatives were increased in 1998. These costs are reported
within the Selling, General and Administrative Expenses line on the Statement
of Operations.
This Quarterly Report on Form 10-Q may contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Discussions
containing such forward-looking
16
<PAGE>
statements may be found in the material set forth herein as well as within
this Quarterly Report generally (including any document incorporated by
reference herein). Also, documents subsequently filed by the Company with the
Securities and Exchange Commission may contain forward-looking statements.
Actual results could differ materially from those projections in the
forward-looking statements as a result of the challenges and uncertainties
inherent in successfully implementing its branding, information technology
and cost reduction strategies and the other risk factors identified herein
or in other public filings by the Company, including but not limited to, the
Company's Registration Statement on Form S-4 (File No. 333-42607) such as
risks relating to the Company's leverage and ability to service its debt
obligations, challenges presented by integration of recent acquisitions,
risks associated with international operations and currency fluctuations and
risks related to information technology implementation and integration.
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUES. The Company's revenues increased by approximately $185.9
million, to $388.0 million for the three months ended September 30, 1998 from
$202.0 million for the three months ended September 30, 1997. Revenues for
1998 include approximately $195.6 million related to the LIW Acquisition
whose revenues have been impacted in 1998 by the temporary negative effect of
strategically shifting to "owned" operations from agent representation in
India and South Africa. Also contributing additional revenue in the quarter
was the Air Services Acquisition of $18.8 million. In addition, Network
Solutions revenues increased $3.0 million, or 13.0%, which was due primarily
to increased volume from new customers. Americas business unit revenues
declined $28.2 million, or 27.6% during this period primarily as a result of
lower international forwarding volume as well as continued softness in
domestic forwarding volume. Additionally, Americas business between the U.S.
and Puerto Rico was shifted to the management of Air Services during the
quarter which accounted for $8.1 million of the decrease.
NET REVENUES. Net revenues, which represent gross profit after deducting
transportation and other direct costs, increased by approximately $55.0 million,
to $95.1 million for the three months ended September 30, 1998 from $40.1
million for the same period in 1997. Net revenues as a percentage of revenues
increased to 24.5% in 1998 from 19.9% for the same period in 1997 primarily due
to a shift in product offerings to higher margin value-added services resulting
from the acquisition of LIW. Net revenue increases are primarily the result of
the LIW Acquisition ($50.4 million), the Air Services Acquisition ($5.7
million), and an increase in Network Solutions net revenues of $0.8 million, or
17.2%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $53.4 million, to $91.0
million for the three months ended
17
<PAGE>
September 30, 1998 from $37.6 million for the three months ended September
30, 1997. These expenses as a percentage of net revenues in 1998 increased to
95.7% from 93.7% for the same period in 1997 due to higher expenses for
general corporate purposes in addition to specific corporate initiatives
relating to the new branding strategy, the logistics consulting
infrastructure team and strategic information technology projects. These
corporate initiatives are in support of the new strategic focus of global
branded integrated logistics solutions and amounted to $1.0 million. The
Company also incurred $1.1 million of operational and information technology
start-up costs in the period ended September 30, 1998 related to new supply
chain and logistics management contractual service agreements. Excluding the
$1.0 million of costs related to the strategic corporate initiatives and the
$1.1 million customer start-up costs, other selling, general and
administrative expenses as a percentage of net revenues decreased in the
period to 93.5% from 93.7%. Selling, general and administrative expenses
relating to LIW and Air Services operations amounted to $51.1 million of the
increase from 1997. The remaining $2.3 million increase was primarily due to
the strategic corporate initiatives and customer start-up costs previously
discussed, and costs of approximately $.5 million relating to the start-up
of new company-owned operations in India and the Caspian Sea area of the
Commonwealth of Independent States ("CIS").
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased 49.1% to $3.8 million for the three months ended September 30, 1998
compared to $7.6 million for the three months ended September 30, 1997. This
decrease was despite an additional $1.6 million of depreciation and amortization
from the LIW and AirServices Acquisitions. The remaining $5.4 million decrease
was due to amortization of intangible assets (acquired in the 1996 acquisitions)
that was completed by the end of 1997.
OPERATING PROFIT. The Company recorded a $0.2 million operating profit
for the three months ended September 30, 1998 compared to a $5.0 million
operating loss for the three months ended September 30, 1997. These improved
results were primarily due to lower amortization expense ($3.7 million) and
the addition of operating results from LIW and Air Services ($5.1 million),
partially offset by increased corporate operating expenses, costs associated
with the strategic initiatives previously discussed, customer start-up
costs and increased losses at the Americas business unit.
Operating profit, excluding depreciation and amortization, and corporate
expenses, improved $5.0 million to profit of $6.3 million for the three months
ended September 30, 1998 compared
18
<PAGE>
to $1.3 million for the three months ended September 30, 1997. This
improvement was primarily due to the AirServices and LIW Acquisitions
partially offset by higher operating losses at Americas business unit.
Improvement in operating results of Americas business unit has proved to
require a longer timeframe than anticipated. A strategic review has been
undertaken to identify initiatives to improve profitability. Action plans to
reduce costs are currently being finalized with some initiatives already
underway. Once finalized, the Company may incur some charges in connection
with these activities.
Operating profit for the three months ended September 30, 1998 includes
results of the Air Services business unit since its acquisition on July 13 as
well as synergies related to operational efficiencies from their effective
date in the same period. These synergies related to consolidation of aircraft
lift and related aircraft operating expenses between Air Services and
Americas business units as well as similar consolidation cost benefits of
Puerto Rico operations bases. Had the acquisition and all related synergy
initiatives been completed as of July 1, 1998, operating profit would have
been estimated to increase approximately $1.0 million in the three months
ended September 30, 1998 representing historical results of Caribbean Air
Services, benefit of synergy activities, and no increase in revenues.
INTEREST EXPENSE, NET. Interest expense, net, increased by approximately
$2.8 million, to $4.7 million for 1998 from $1.9 million for the three months
ended September 30, 1997. The increase was associated with the issuance of the
old Notes in October 1997, borrowings of the $15 million debt under the New
Credit Facility related to the Air Services Acquisition, and higher levels of
working capital-related borrowings.
INCOME TAX BENEFIT. Income tax benefit was $2.3 million for the three
months ended September 30, 1998 versus $1.8 million for the three months
ended September 30, 1997. The effective tax rate was 50% for the three months
ended September 30, 1998 versus 27% for the same period in the prior year as
a result of improved foreign profitability in 1998 versus 1997 resulting in
the utilization of net operating loss carryforwards.
MINORITY INTERESTS. Interests held by minority shareholders in certain
foreign subsidiaries were $0.2 million for the three months ended
September 30, 1998, the period of ownership by the Company.
NET LOSS. Net loss improved by $2.6 million to $2.5 million for the three
months ended September 30, 1998 compared to $5.1 million for the same period of
1997. This improvement is due to operating profits resulting from the LIW and
Air Services Acquisitions and lower amortization expense, partially offset by
higher corporate expenses, customer start-up costs and increased interest
expense.
19
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
REVENUES. The Company's revenues increased by approximately $574.7
million, to $1,124.8 million for the nine months ended September 30, 1998
from $550.1 million for the nine months ended September 30, 1997.
Approximately $579.0 million of the increase related to the LIW Acquisition
whose revenues have been impacted in 1998 by the temporary negative effect of
strategically shifting to "owned" operations from agent representation in
India and South Africa. Also contributing additional revenue in the period
was the Air Services Acquisition of $18.8 million. In addition, Network
Solutions revenues increased $16.7 million, or 24.3% due primarily to
increased volume from new customers. Services business unit revenues also
increased $4.0 million, or 8.0% on higher volume in both project cargo and
international relocation product lines. Revenues at Americas business unit
declined $40.0 million, or 13.9% due to lower domestic and international
forwarding volumes. Additionally, Americas business between the U.S. and
Puerto Rico was shifted to the management of Air Services during the third
quarter which accounted for $8.1 million of the decrease.
NET REVENUES. Net revenues, which represent gross profit after deducting
transportation and other direct costs, increased by approximately $163.8
million, to $277.5 million for the nine months ended September 30, 1998 from
$113.7 million for the same period in 1997. Net revenues as a percentage of
revenues increased to 24.7% in 1998 from 20.7% for the same period in 1997
primarily due to a shift in product offerings to higher margin value-added
services resulting from the acquisition of LIW. Net revenue increases are
primarily the result of the LIW Acquisition ($152.5 million) and the Air
Services Acquisition ($5.7 million). In addition, Network Solutions net
revenues increased $3.7 million, or 25.5%, due to higher revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $160.0 million, to $265.7
million for the nine months ended September 30, 1998 from $105.7 million for
the nine months ended September 30, 1997. These expenses as a percentage of
net revenues increased to 95.7% in 1998 from 92.9% for the same period in
1997 due to the higher expenses at Americas business unit and for general
corporate purposes in addition to specific corporate initiatives relating to
the new branding strategy, the logistics consulting infrastructure team and
strategic information technology projects. These corporate initiatives are in
support of the new strategic focus of globally branded integrated logistics
solutions which amounted to $3 million. The Company also incurred $1.2
million of operational and information technology start-up costs in the
period ended September 30, 1998
20
<PAGE>
related to new supply chain and logistics management contractual service
agreements. Excluding the $3.0 million of costs related to the strategic
corporate initiatives and the $1.2 million customer start-up costs, other
selling, general and administrative expenses as a percentage of net revenues
increased in the period to 94.2% from 92.9%. Selling, general and
administrative expenses relating to the LIW and Air Services Acquisitions
amounted to $146.1 million of the increase from 1997. The remaining $13.9
million increase was primarily due to the strategic corporate initiatives
previously discussed, sales and administrative infrastructure improvements
and additions at Americas business unit and Network Solutions, customer
start-up costs, and costs of approximately $1.1 million for start-up costs
relating to new company owned operations in India and the Caspian Sea area of
the CIS.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased 47.8% to $11.6 million for the nine months ended September 30, 1998
compared to $22.1 million for the nine months ended September 30, 1997 primarily
as the result of a $13.9 million decrease that was due to amortization of
intangible assets (acquired in the 1996 acquisitions) that was completed by the
end of 1997. The decrease was partially offset by an additional $3.4 million of
depreciation and amortization resulting from the LIW and Air Services
Acquisitions.
OPERATING PROFIT. The Company recorded a $0.3 million operating profit
for the nine months ended September 30, 1998 compared to a $14.1 million
operating loss for the nine months ended September 30, 1997. These improved
results were due primarily to the operating profits of LIW and Air Services
($12.1 million), lower amortization expense ($10.6 million) and increased
operating profits at Network Solutions ($1.0 million), offset by increased
corporate operating expenses, costs associated with the strategic initiatives
previously discussed, customer start-up costs and increased losses at the
Americas business unit.
Operating profit, excluding depreciation and amortization, and corporate
expenses, improved $10.8 million to profit of $19.1 million for the nine
months ended September 30, 1998 compared to $8.3 million for the nine months
ended September 30, 1997. This improvement was primarily due to the LIW and
Air Services Acquisitions and improved Network Solutions results, partially
offset by higher operating losses at Americas business unit. Improvement in
operating results of Americas business unit has proved to require a longer
timeframe than anticipated. A strategic review has been undertaken to
identify initiatives to improve profitability. Action plans to reduce costs
are currently being finalized with some initiatives already underway. Once
finalized, the Company may incur some charges in connection with these
activities.
21
<PAGE>
Operating profit for the nine months ended September 30, 1998 includes
results of the Air Services business unit since its acquisition on July 13 as
well as synergies related to operational efficiencies from their effective
date in the same period. These synergies related to consolidation of aircraft
lift and related aircraft operating expenses between Air Services and
Americas business unit as well as similar consolidation cost benefits of
Puerto Rico operations bases. Had the acquisition and all related synergy
initiatives been completed as of January1, 1998, operating profit would have
been estimated to increase approximately $8.3 million in the nine months
ended September 30, 1998 representing historical results of Caribbean Air
Services, benefit of synergy activities, and no increase in revenues.
INTEREST EXPENSE, NET. Interest expense, net, increased by approximately
$6.3 million, to $12.1 million for 1998 from $5.8 million for the nine months
ended September 30, 1997. The increase was associated with the issuance of the
notes in October 1997, issuance of the $15 million debt related to the Air
Services Acquisition and higher levels of working capital-related borrowings.
INCOME TAX BENEFIT. Income tax benefit for the nine months ended
September 30, 1998 decreased $2.0 million to $4.5 million versus $6.5 million
for the first nine months of 1997. The effective tax rate was 38% for the
nine months ended September 30, 1998 versus 33% for the same period in 1997
as a result of improved foreign profitability in 1998 versus 1997.
MINORITY INTERESTS. Interests held by minority shareholders in certain
foreign subsidiaries were $0.6 million for the nine months ended September
30, 1998, the period of ownership by the Company.
NET LOSS. Net loss improved by $5.5 million to $7.8 million for the first
nine months of 1998 compared to $13.3 million for the same period of 1997. This
improvement is due primarily to operating profits resulting primarily from the
LIW and Air Services Acquisitions and lower amortization expense, partially
offset by increased interest expense, higher corporate operating expenses and
customer start-up costs.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1998, net cash used by operating
activities was $44.4 million. Cash used in investing activities was $49.2
million, which primarily consisted of
22
<PAGE>
the acquisition of Air Services and strategic information technology related
capital expenditures including the new Peoplesoft financial systems
introduced to replace the multiple legacy systems at the Americas business
unit. Cash provided by financing activities was $70.0 million which primarily
consisted of additional borrowings under the U.S. revolving line of credit
and by certain foreign subsidiaries, funds borrowed pursuant to the
acquisition of Air Services and the sale of preferred stock.
Within North America, the Company has utilized cash flows from operations and
borrowings under its credit facilities to meet working capital requirements
and to fund capital expenditures principally related to the improvement of
information systems in support of the strategic information technology plan.
At September 30, 1998, the Company had a working capital borrowing base under
its credit facility of $95.1 million, $36.1 million outstanding working
capital related borrowings and $29.0 million outstanding letter of credit
commitments. The Company's credit agreement, the indenture related to the Old
notes and the credit facility related to the CAS Acquisition contain certain
restrictive covenants that affect actions the Company may take. These
restrictive covenants include: covenants related to the maintenance of EBITDA
and interest charge coverage ratios, limitations on indebtedness, limitations
on restricted payments, limitations on restrictions on distributions from
restricted subsidiaries, limitations on sales of assets and subsidiary stock,
limitations on transactions with affiliates, provisions related to changes of
control, limitations on liens, limitations on sale or issuance of capital
stock of restricted subsidiaries, limitations on sale/leaseback transactions,
requirements relating to future subsidiary guarantors, restrictions on
mergers, consolidation and sale of assets, restrictions on creation or
dissolution of subsidiaries, restrictions on prepayment of indebtedness and
payment of subordinated obligations.
Total borrowings of foreign operations at September 30, 1998 were
approximately $14.6 million, representing a combination of short and
long-term borrowings and capital leases in local currencies. Funding
requirements have historically been satisfied by cash generated from
operations and borrowings under various bank credit facilities. Under the
Company's existing credit facility, a certain amount of borrowing capacity is
based upon the level of accounts receivable in the United Kingdom.
The Company expects to spend an additional $14.0 million over the next
fifteen months to provide improved information technology to its customers as
well as improved systems for its own operational and financial management
purposes. Additionally, the Company will be required to pay approximately
$1.0 million to complete the acquisition of the Italy operations during the
same period. These initiatives are expected to be funded through bank
borrowings under the existing credit facility and cash provided from
operations. The Company believes that its current borrowing ability and cash
from operations will be sufficient to meet the liquidity needs in the future.
RECENT ACCOUNTING PRONOUNCEMENTS: In January 1998, the American Institute
of Certified Public Accountants (AICPA) issued SOP-98-1 (SOP) "Accounting for
the Costs of Computer Software Developed or Planned for Internal Use" which sets
forth standards for the capitalization of computer software costs as they relate
to the development of internal systems.
23
<PAGE>
The SOP requires capitalization of computer software costs relating to direct
costs of materials purchased and services consumed in developing internal use
computer software and payroll and payroll related costs for employees who are
directly associated with these projects. As part of the Company's strategic
plan it expects to spend approximately $30 million on such internal systems
related to the implementation and integration of its proprietary system for
real time management of shipments and purchase of additional information
systems hardware and software to enhance financial reporting and other
operational activities. As a result, the Company has capitalized
approximately $13.1 million of such costs through September 30, 1998.
Capitalized costs of these projects will be amortized over their useful lives
in accordance with the pronouncement.
FOREIGN CURRENCY RISK MANAGEMENT. The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes and allow management
to focus its attention on its core business issues and challenges.
Accordingly, the Company enters into various contracts which change in value
as foreign exchange rates change to minimize the impact of currency movements
on certain existing commitments and anticipated foreign earnings. The Company
may use a combination of financial instruments to manage these risks,
including forward contracts or option related instruments. The principal
currencies hedged are the British pound, German mark, Canadian dollar and
some Asian currencies such as the Hong Kong dollar and Singapore dollar. By
policy, the Company maintains hedge coverage between minimum and maximum
percentages of its anticipated foreign exchange exposures for the next year.
The gains and losses on these contracts are offset by changes in the value of
the related exposures. At September 30, 1998 the Company had approximately
$14.5 million in notional amounts of forward contracts and options
outstanding. The credit and market risks under these agreements are not
considered to be significant since the counterparties have high credit
ratings. In addition, the net investment position in these forward contracts
and options is not material.
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above.
The Company does not enter into foreign currency transactions for speculative
purposes.
YEAR 2000. In addition to the Company's strategic information technology
projects previously discussed, the Company is in the process of addressing
the Year 2000 problem.
24
<PAGE>
The Company is currently engaged in a comprehensive project to upgrade
its information technology including hardware and software that will
consistently and properly recognize the Year 2000. As a provider of global
logistics and transportation services, the Company is reliant on its computer
systems and applications to conduct its business. In addition to these
systems, the Company is also reliant upon the system capabilities of its
business partners. Many of the Company's systems include new hardware and
packaged software recently purchased from large vendors who have represented
that these systems are already Year 2000 compliant. As a result a majority of
the Company's financial systems are already in compliance with the Company's
objectives and all computing hardware of the Company is Year 2000 compliant.
An extensive review has also been made of all remaining internal systems.
All of the operational systems in Europe and Asia are in compliance with
North America scheduled for completion in June, 1999 except for Services
which is expected by September, 1999. Financial systems in all of Asia, most
of Europe and North America are also in compliance. The remainder of Europe
and North America are expected to be completed by May, 1999 except for
Services, which is expected to be completed in July, 1999. As part of this
process the Company is also surveying embedded systems to ensure Year 2000
compliance with schedule completion by December 1998.
The Company has conducted a survey of its business partners most of whom
have certified Year 2000 compliance however, the Company is still gathering
information from the airlines. The Company is also working with major
customers to gain Year 2000 certification with them in response to their
inquiries and surveys.
The Company estimates total costs of the compliance process to be
approximately $1.1 million of which $.5 million has been spent to date. This
does not include the costs associated with the Company's strategic
information plan much of which addresses the Year 2000 project as well as
strategic initiatives.
The Year 2000 Plan prepared by the Company has been designed to identify
points of failure and corrective actions to avoid systems failures. Procedures
have been designed and systems implemented to prevent invalid dates from
customers and suppliers from impacting Company systems. We believe the risk
of operational failure from internal systems is minimal. We also believe that
there are sufficient transportation providers who can meet our contractual
commitments even if some carriers are impaired by the Year 2000 problem. For
those parties for which the Company has identified to be non-Year 2000
compliant, the Company will secure alternate carriers who are Year 2000 ready
in order to continue to provide basic business services.
The Company has already prepared manual operational procedures which are
in place should disruption from a Company system or third party system occur.
In addition, all system development will be stopped and all technical
resources will be available for any unexpected system problems during the
first quarter of 2000.
25
<PAGE>
PART II. OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings generally incidental to its
business. While the result of any litigation contains an element of uncertainty,
the Company presently believes that the outcome of any known pending or
threatened legal proceeding or claim, or all of them combined, will not have a
material adverse effect on its results of operations or consolidated financial
position.
ITEM 2. CHANGE IN SECURITIES
On July 13, 1998, the Company sold 11,000 and 4,000 shares of Preferred Stock
to OCM Principal Opportunities Fund L.P., and Logistical Simon, L.L.C.,
respectively (the "Investors"), for aggregate consideration of $14.6 million.
The Preferred Stock has a liquidation value of $1,000 per share and was sold
to the Investors for $970 per share. The holders of the Preferred Stock are
entitled to payment of quarterly dividends when, as and if declared by the
board of directors of the Company in amounts ranging from $30.00 per share
per quarter to $45.00 per share per quarter, which amount shall be determined
based upon the occurrence of certain events that are specified in the
Certificate of Designation relating to the Preferred Stock. Dividends on the
Preferred Stock will accrue and be fully cumulative (whether or not declared)
and will bear interest at rates ranging from 14% per annum to 18% per annum,
depending upon the occurrence of certain events that are spcified in the
Certificate of Designation. Upon redemption of the Preferred Stock or
liquidation of the Company, the holders of Preferred Stock will be entitled
to receive the following for each share of Preferred Stock held by such
holder: (i) (a) $1,000, representing the liquidation preference of the
Preferred Stock plus (b) all accrued and unpaid dividends, whether or not
declared multiplied by (c) the applicable liquidation or redemption premium,
and (ii) either ten shares of common stock of the Company or the amount of
the fair market value of ten shares of common stock of the Company. The
Preferred Stock has no mandatory redemption feature and ranks senior to the
Common Stock of the Company for payment of dividends and upon liquidation.
The Company intends to make a rights offering of the preferred stock during
the fourth quarter to its existing security holders in accordance with the
terms of the certificate of incorporation.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
On July 10, 1998, stockholders holding shares representing 82.91% of the
issued and outstanding shares of the Company's Common Stock acted by written
consent and approved the amendment and restatement of the Company's
certificate of incorporation thereby authorizing the Company's board of
directors to issue a series of blank check preferred stock with such terms
and conditions as the board of directors deem appropriate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule (Filed electronically only).
(b) Reports on Form 8-K
On June 15, 1998 the Company filed a current report on Form
8-K disclosing its intent to purchase substantially all of the
assets and assume certain liabilities of Caribbean Air
Services, Inc. ("CAS"), a wholly owned subsidiary of Amertranz
Worldwide Holding Corporation.
On July 22, 1998 the Company filed a current report on Form
8-K disclosing the consummation of the CAS purchase and the
details of the related transaction.
On September 24, 1998 the Company filed a current report on
Form 8-K/A disclosing the pro forma financial statements of
the Company including the CAS Acquisition.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEOLOGISTICS CORPORATION
Date: November 12, 1998 By: /s/ Roger E. Payton
----------------- ---------------------------------
Roger E. Payton
President, Chief Executive Officer and Director
Date: November 12, 1998 By: /s/ Gary S. Holter
----------------- ---------------------------------
Gary S. Holter
Chief Financial Officer
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOUND ON PAGES 3 THROUGH 5 OF THE
COMPANY'S FORM 10 Q FOR THE PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,362
<SECURITIES> 0
<RECEIVABLES> 289,279
<ALLOWANCES> 18,207
<INVENTORY> 0
<CURRENT-ASSETS> 326,174
<PP&E> 105,620
<DEPRECIATION> 17,891
<TOTAL-ASSETS> 549,068
<CURRENT-LIABILITIES> 294,176
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 31,084
<TOTAL-LIABILITY-AND-EQUITY> 549,068
<SALES> 1,124,843
<TOTAL-REVENUES> 1,124,843
<CGS> 847,335
<TOTAL-COSTS> 1,124,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,098
<INCOME-PRETAX> (12,272)
<INCOME-TAX> (4,503)
<INCOME-CONTINUING> (7,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,769)
<EPS-PRIMARY> (3.88)
<EPS-DILUTED> (3.88)
</TABLE>
