<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 MARCH 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-42607
GEOLOGISTICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3438013
- --------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13952 Denver West Parkway
Golden, Colorado 80401
----------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code:(303) 704-4400
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
On May 14, 1999, the registrant had 2,118,893 outstanding shares of common
stock, par value $.001 per share.
<PAGE>
GEOLOGISTICS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets,
March 31, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months ended
March 31, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1999 and 1998 (unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 15
ITEM 3. Information required for this item has been
included in Management's Discussion and Analysis.
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities 26
ITEM 6. Exhibits and Reports on Form 8-K 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,404 $ 15,152
Accounts receivable:
Trade, net 247,678 267,047
Other 9,451 11,046
Deferred income taxes 7,247 7,245
Prepaid expenses 19,588 20,708
-------- --------
Total current assets 297,368 321,198
-------- --------
Property and equipment, at cost 108,432 113,618
Accumulated depreciation (18,007) (18,364)
-------- --------
Net property and equipment 90,425 95,254
Notes receivable, less current portion 1,662 1,711
Deferred income taxes 19,337 19,168
Goodwill, net 78,767 79,347
Intangible assets, net 11,300 11,927
Other assets 19,968 20,573
-------- --------
$518,827 $549,178
-------- --------
-------- --------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- --------
<S> <C> <C>
Current liabilities:
Accounts payable $133,668 $139,696
Accrued expenses 128,298 149,519
Income taxes payable 9,327 7,940
Current portion of long term debt 15,644 12,549
-------- --------
Total current liabilities 286,937 309,704
Long-term debt, less current portion 194,066 183,177
Other noncurrent liabilities 48,950 52,400
Minority interest 2,444 2,381
--------- ---------
Total liabilities 532,397 547,662
Stockholders' equity:
Preferred stock 15,000 shares authorized,
issued and outstanding 14,550 14,550
Common stock ($.001 par value 5,000,000
shares authorized, 2,118,893 and 2,128,893
shares issued and outstanding) 2 2
Additional paid-in-capital 55,731 55,371
Accumulated deficit (83,411) (67,898)
Notes receivable from stockholders (191) (191)
Cumulative translation adjustment (251) (318)
--------- ---------
Total stockholders' equity (13,570) 1,516
--------- ---------
$518,827 $549,178
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED
----------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 365,329 $ 365,664
Transportation and other direct costs 273,293 276,626
----------- -----------
Net revenues 92,036 89,038
Selling, general and administrative expenses 94,708 87,905
Depreciation and amortization 4,642 3,813
----------- -----------
Operating loss (7,314) (2,680)
Interest expense, net (5,574) (3,434)
Other expense, net (145) (13)
----------- -----------
Loss before income taxes and minority interest (13,033) (6,127)
Income tax provision (benefit) 1,800 (1,957)
----------- -----------
Loss before minority interest (14,833) (4,170)
Minority interest (155) (158)
----------- -----------
Net loss (14,988) (4,328)
Preferred stock dividend (525) --
----------- -----------
Loss applicable to common stock $ (15,513) $ (4,328)
----------- -----------
----------- -----------
Basic loss per common share $ (7.30) $ (2.06)
----------- -----------
----------- -----------
Diluted loss per common share $ (7.30) $ (2.06)
----------- -----------
----------- -----------
Weighted average number of common and
common equivalent shares outstanding 2,126,393 2,101,026
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS
ENDED
--------------------------
MARCH 31, MARCH 31,
1999 1998
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (14,988) $ (4,328)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 4,642 3,813
Amortization of deferred items 589 297
Deferred income taxes (170) (1,898)
Changes in current assets and liabilities, net (3,408) (5,436)
Other, net (227) (735)
---------- ---------
Net cash from operating activities (13,562) (8,287)
Cash flows from investing activities:
Purchases of property, equipment and software, net (2,530) (3,607)
Other -- (633)
---------- ---------
Net cash from investing activities (2,530) (4,240)
Cash flows from financing activities:
Proceeds from revolving line of credit, net 5,607 8,800
Proceeds from long-term debt 9,332 1,799
Payments on long-term debt (955) (838)
Proceeds from issuance of common stock 360 2,018
Other, net -- 124
---------- ---------
Net cash from financing activities 14,344 11,903
---------- ---------
Net decrease in cash and cash equivalents (1,748) (624)
Cash and cash equivalents, beginning of period 15,152 37,909
---------- ---------
Cash and cash equivalents, end of period $ 13,404 $ 37,285
---------- ---------
---------- ---------
Supplemental cash flow information:
Interest paid during the period $ 2,086 $ 891
Income taxes paid during the period $ 492 $ 646
Noncash warrant transactions $ 360 $ 360
New capital leases $ 20 $ 1,884
</TABLE>
See accompanying notes to the condensed consolidated financial statements
6
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in GeoLogistics Corporation's ("Company") Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1998. The condensed consolidated financial information furnished herein
reflects all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary for a fair presentation in accordance
with generally accepted accounting principles of the condensed consolidated
financial statements for the periods shown. Certain amounts for the prior
year have been reclassified to conform with the current year financial
statement presentation. Significant accounting policies followed by the
Company are included in Note 2 to the audited consolidated financial
statements in the Company's Form 10-K. Results of operations for the three
months ended March 31, 1999 may not be indicative of the results to be
expected for the full year.
PRINCIPLES OF CONSOLIDATION: The accompanying condensed consolidated
financial statements include the accounts of the Company and its majority
owned subsidiaries. The Company records its investment in each unconsolidated
affiliated company (20 to 50 percent ownership) using the equity method of
accounting. Other investments (less than 20 percent ownership) are recorded
at cost. Intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES: The financial statements have been prepared in conformity
with generally accepted accounting principles and, as such, include amounts
based on informed estimates and judgments of management. Actual results could
differ from those estimates. Accounts affected by significant estimates
include accounts receivable and accruals for transportation and other direct
costs, tax contingencies, insurance claims, cargo loss and damage claims.
7
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number
of shares outstanding. Diluted earnings per common share is computed under
the treasury stock method using the weighted average number of shares
outstanding adjusted for the incremental shares attributed to outstanding
warrants to purchase common stock. Incremental shares were not used in the
calculation of diluted loss per common share due to their antidilutive effect.
NOTE 2. LONG-TERM DEBT
In October 1997, the Company issued and sold $110.0 million in aggregate
principal amount of its 9 3/4% senior notes (the "Notes") which are due
October 15, 2007, and are general unsecured obligations of the Company. The
Notes are fully and unconditionally guaranteed on a joint and several senior
basis by all existing and future domestic Restricted Subsidiaries (as defined
in the indenture relating to the Notes). Three of the Company's domestic
subsidiaries hold as their sole assets all of the issued and outstanding
equity interests of the Company's direct non-guarantor foreign subsidiaries.
8
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 2. LONG-TERM DEBT (CONTINUED)
The following is condensed combined financial information of guarantor and
non-guarantor subsidiaries:
<TABLE>
<CAPTION>
Balance Sheet as of March 31, 1999
---------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 911 $ 950 $ 11,543 $ - $ 13,404
Accounts receivable--trade, net............. - 96,752 183,460 (32,534) 247,678
Property, net............................... 8,808 23,372 58,245 - 90,425
Intangible assets, net...................... 8,810 78,276 3,924 (943) 90,067
Other assets................................ 66,416 29,944 43,321 (62,428) 77,253
-------- -------- -------- -------- --------
Total assets.............................. $ 84,945 $229,294 $300,493 $(95,905) $518,827
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Current liabilities......................... $ 5,849 $107,249 $213,517 $(39,678) $286,937
Long-term debt, less current portion........ 187,716 1,796 4,554 - 194,066
Other noncurrent liabilities................ (159,412) 146,750 57,854 6,202 51,394
Stockholders' equity........................ 50,792 (26,501) 24,568 (62,429) (13,570)
-------- -------- -------- -------- --------
Total liabilities and stockholders'
equity.................................. $ 84,945 $229,294 $300,493 $ (95,905) $518,827
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<CAPTION>
Statement of Operations for the Three Months Ended March 31, 1999
-----------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ - $145,740 $255,963 $(36,374) $365,329
Transportation and other direct costs....... - 110,514 199,153 (36,374) 273,293
Operating expenses.......................... 4,053 39,242 56,055 - 99,350
-------- -------- -------- -------- --------
Operating profit (loss)................... (4,053) (4,016) 755 - (7,314)
Interest, net............................... (1,422) (3,327) (825) - (5,574)
Other income (expense) net.................. 1,444 (805) (784) - (145)
Income tax provision ....................... - 1,213 587 - 1,800
Minority interest........................... - - (155) - (155)
-------- -------- -------- -------- --------
Net loss.................................. $ (4,031) $ (9,361) $ (1,596) $ - $(14,988)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
9
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Statement of Cash Flows for the Three Months Ended March 31, 1999
-----------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities....................... $(5,128) $(6,150) $(2,284) $ - $(13,562)
Investing activities....................... 1,966 (3,634) (862) - (2,530)
Financing activities....................... 4,046 8,200 2,098 - 14,344
------- ------- ------- ----------- --------
Net increase (decrease) in cash and cash
equivalents................................ 884 (1,584) (1,048) - (1,748)
Cash and cash equivalents, beginning of
period..................................... 27 2,534 12,591 - 15,152
------- ------- ------- ----------- --------
Cash and cash equivalents, end of period..... $ 911 $ 950 $11,543 $ - $ 13,404
------- ------- ------- ----------- --------
------- ------- ------- ----------- --------
</TABLE>
NOTE 3. SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standards (FAS) No.
131, "Disclosures about Segments of an Enterprise and Related Information".
This statement required the Company to change the way it reports information
about its operations. Information for 1997 and 1996 has been restated to
conform to the 1998 presentation of operating segment information.
The Company operates in a single business segment providing worldwide
logistics solutions to meet customers' specific requirements for
transportation and related services by arranging and monitoring all aspects
of material flow activities utilizing advanced information technology systems.
The Company manages its business primarily on a geographic basis. The
Company's reportable geographic segments are comprised of North America,
Europe and Asia. Each geographic segment provides products and services
previously described.
Accounting policies for each geographic segment are the same as those
described in "Summary of Significant Accounting Policies" in Note 2 of the
Notes to the Consolidated Financial Statements included in the Form 10-K
filed for the year ended December 31, 1998. The Company evaluates the
performance of each geographic segment primarily based on EBITDA. EBITDA
represents earnings before interest, taxes, depreciation and amortization.
Corporate expenses are excluded from geographic segment EBITDA. Corporate
expenses are comprised primarily of marketing costs, incremental information
technology costs and other general and administrative expenses which are
separately managed. Geographic segment assets exclude corporate assets.
Corporate assets include cash and cash equivalents, capitalized software
development costs and intangible assets.
10
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
Information regarding the Company's operations by geographic region is
summarized below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
North America:
Total revenues $171,626 $176,844
Transactions between regions 12,749 15,418
Revenues from customers 158,877 161,426
Net revenues 39,391 39,906
EBITDA (519) 1,182
Interest expense (3,449) (1,986)
Depreciation and amortization 3,147 2,950
Europe:
Total revenues $172,955 $180,320
Transactions between regions 24,862 24,148
Revenues from customers 148,093 156,172
Net revenues 38,604 37,749
EBITDA 337 1,891
Interest income (expense) (86) 44
Depreciation and amortization 849 777
Asia:
Total revenues $ 78,316 $ 62,845
Transactions between regions 19,957 14,779
Revenues from customers 58,359 48,066
Net revenues 14,041 11,383
EBITDA 1,469 1,129
Interest expense (125) (81)
Depreciation and amortization 428 149
Information regarding the Company's long lived assets by geographic region is
summarized below as of March 31, 1999 and December 31, 1998.
Long lived assets:
North America $ 28,174 $ 14,552
Europe 45,092 40,367
Asia 6,239 3,879
Corporate 10,920 10,753
-------- --------
Consolidated $ 90,425 $ 69,551
-------- --------
-------- --------
</TABLE>
11
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
A reconciliation of the Company's geographic segment revenues, net
revenues, EBITDA and assets to the corresponding consolidated amounts as of
and for the three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
North America $171,626 $176,844
Europe 172,955 180,320
Asia 78,316 62,845
Eliminations (57,568) (54,345)
-------- --------
Consolidated $365,329 $365,664
-------- --------
-------- --------
Net revenues:
North America $ 39,391 $ 39,906
Europe 38,604 37,749
Asia 14,041 11,383
-------- --------
Consolidated $ 92,036 $ 89,038
-------- --------
-------- --------
EBITDA:
North America $ (519) $ 1,182
Europe 337 1,891
Asia 1,469 1,129
Corporate (3,959) (3,069)
-------- --------
Consolidated $ (2,672) $ 1,133
-------- --------
-------- --------
Assets:
North America $252,831 $224,546
Europe 242,041 208,365
Asia 83,396 58,565
Corporate 480,440 406,251
Eliminations (539,881) (408,965)
-------- --------
Consolidated $518,827 $488,762
-------- --------
-------- --------
</TABLE>
Revenue from transfers between regions represents approximate amounts that
would be charged if the service were provided by an unaffiliated company.
Total regional revenue is reconciled with total consolidated revenue by
eliminating inter-regional revenue.
12
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 4. OTHER COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which established standards for reporting
and display of comprehensive income and its components in the financial
statements. Comprehensive income is comprised of all changes to stockholders'
equity, including net income, except those changes resulting from investments
by owners and distributions to owners. Other comprehensive income in the
financial statements of the Company represents the change in foreign currency
translation adjustments resulting from the conversion of the financial
statements for foreign subsidiaries from local currency to U.S. dollars.
Comprehensive loss for the three months ended March 31, 1999 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cumulative translation adjustment $ (67) $ 986
Net loss 14,988 4,328
-------- --------
Comprehensive loss $ 14,921 $ 5,314
-------- --------
-------- --------
</TABLE>
NOTE 5. AMERICAS RESTRUCTURING
On March 4, 1999 the Company announced the restructuring of its
GeoLogistics Americas business into two independent operating units and the
realignment of its products and services in light of a fourth quarter
operating loss. The Americas operating unit experienced a difficult freight
forwarding environment as a result of generally lower volumes and the effects
of the Asian economic crisis which has continued during the first quarter of
1999.
As part of the restructuring process, a new management team was put in
place primarily to address the domestic operational situation. This new
management team together with the Company's advisors has formulated certain
initiatives to be undertaken to attain the goal of
13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
profitability. These initiatives are being evaluated to determine their
financial impact. The restructuring plan is expected to be implemented later
in 1999 at which time the costs will be recorded as a charge to earnings. It
is anticipated that the restructuring process will be substantially completed
during the fourth quarter of 1999.
It is expected that operational changes will include the separation of
GeoLogistics Americas, Inc. into two independent operating units, Domestic
and International, each with its own line management, thereby improving each
division's focus on its core customers, agents, vendors and employees. In
addition, surface transportation and cartage operations will be re-engineered
in an effort to improve pricing, purchasing, utilization and internal
business processes.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY INCLUDED ELSEWHERE
IN THIS REPORT. THIS QUARTERLY REPORT ON FORM 10-Q MAY CONTAIN
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH HEREIN AS WELL AS WITHIN
THIS QUARTERLY REPORT GENERALLY. ALSO, DOCUMENTS SUBSEQUENTLY FILED BY THE
COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION MAY CONTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTIONS IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE CHALLENGES
AND UNCERTAIN-TIES INHERENT IN SUCCESSFULLY IMPLEMENTING THE COMPANY'S
BRANDING, INFORMATION TECHNOLOGY AND COST REDUCTION STRATEGIES AND THE OTHER
RISK FACTORS AND MATTERS IDENTIFIED HEREIN OR IN OTHER PUBLIC FILINGS BY THE
COMPANY, INCLUDING THE COMPANY'S REGISTRATION STATEMENT ON FORM S-4 (FILE NO.
333-42607) AND FORM 10-K (FILED ON MARCH 31, 1999), SUCH AS RISKS RELATING TO
THE COMPANY'S LEVERAGE AND ABILITY TO SERVICE ITS DEBT OBLIGATIONS,
CHALLENGES PRESENTED BY INTEGRATION OF RECENT ACQUISITIONS AND IN THE
AMERICAS BUSINESS, RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND
CURRENCY FLUCTUATIONS AND RISKS RELATED TO INFORMATION TECHNOLOGY
IMPLEMENTATION AND INTEGRATION.
GENERAL
The Company commenced operations on May 2, 1996 in connection with
its acquisition of The Bekins Company ("Bekins"). On October 31, 1996, the
Company acquired GeoLogistics Americas ("Americas") and GeoLogistic Company
("Canada") and securities representing 33.3%, in the aggregate, of the common
equity of LEP International Worldwide Limited ("LIW"). On November 7, 1996,
the Company acquired Services. On September 30, 1997, the Company acquired an
additional 41.9% of the common equity of LIW and on December 15, 1997, the
Company completed the acquisition of all of the remaining equity securities
of LIW. On July 13, 1998, the Company purchased substantially all of the
operating assets and assumed certain of the liabilities ("Air Services
Acquisition") of Caribbean Air Services, Inc. All acquisitions were
accounted for by the purchase method of accounting, and accordingly, the book
values of the assets and liabilities of the acquired companies were adjusted
to reflect their fair values at the dates of acquisition.
The portion of the Company's business that is focused on traditional
transportation and logistics services normally experiences a higher
percentage of its revenues and operating income
15
<PAGE>
in the fourth calendar quarter as volumes increase for the holiday season.
Conversely, the Company's domestic household goods relocation business
experiences approximately half of its revenue between June and September. In
addition, Services has a significant project logistics business which is
cyclical due to its dependence upon the timing of shipment volumes for large,
one-time projects.
On March 4, 1999 the Company announced the restructuring of its
GeoLogistics Americas business into two independent operating units and the
realignment of its products and services in light of a fourth quarter
operating loss. The Americas operating unit experienced a difficult freight
forwarding environment as a result of generally lower volumes and the effects
of the Asian economic crisis which has continued during the first quarter of
1999.
As part of the restructuring process, a new management team was put
in place primarily to address the domestic operational situation. This new
management team together with the Company's advisors have formulated certain
initiatives to be undertaken to attain the goal of profitability. These
initiatives are being evaluated to determine their financial impact. The
restructuring plan is expected to be implemented later in 1999 at which time
the estimated costs will be recorded as a charge to earnings. It is
anticipated that the restructuring process will be substantially completed
during the fourth quarter of 1999.
The following comparison of Americas results for the three months ended
March 31, 1999 and 1998 should be read in conjunction with the Management's
Discussion and Analysis for the three months ended March 31, 1999 versus the
three months ended March 31, 1998. Results for 1998 have been restated to
reflect the transition of the Americas business between the U.S. and Puerto
Rico to GeoLogistics Air Services ("Air Services") during the third quarter
of 1998 as if such transition had occurred in the first quarter of 1998.
<TABLE>
<CAPTION>
1999 1998
----- ----
(IN THOUSANDS)
<S> <C> <C>
Revenues $66,629 $77,180
Net revenues 15,967 18,400
Selling, general and administrative expenses 21,117 22,629
Depreciation and amortization 1,007 1,227
------- -------
Operating loss $(6,157) $(5,456)
</TABLE>
16
<PAGE>
It is expected that operational changes will include the separation of
GeoLogistics Americas, Inc. into two independent operating units, Domestic
and International, each with its own line management, thereby improving each
division's focus on its core customers, agents, vendors and employees. In
addition, surface transportation and cartage operations will be re-engineered
in an effort to improve pricing, purchasing, utilization and internal
business processes.
The following discussion and analysis relates to the results of operations
for the Company as reported for the three months ended March 31, 1999 and
1998, and should be read in conjunction with the consolidated financial
statements of the Company included elsewhere in this Form 10-Q.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $365,329 $365,664
Net revenues 92,036 89,038
Selling, general and administrative expenses 94,708 87,905
Depreciation and amortization 4,642 3,813
-------- --------
Operating loss (7,314) (2,680)
Interest expense, net (5,574) (3,434)
Other expense, net (145) (13)
Income tax provision (benefit) 1,800 (1,957)
Minority interest (155) (158)
-------- --------
Net loss $(14,988) $ (4,328)
-------- --------
-------- --------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998
REVENUES. The Company's revenues decreased by approximately $0.4
million to $365.3 million for the three months ended March 31, 1999 from
$365.7 million for the three months ended March 31, 1998. Contributing
additional revenue of $14.2 million in the period was Air Services. In
addition, the Asia/Pacific region revenues increased $12.9 million, due
primarily to increased export volumes and new customers. These increases were
offset by a decline in the Americas business unit of $10.6 million, due to
lower domestic and international forwarding volumes as a result of a
difficult freight forwarding environment and the effects of the Asian
economic crisis. Europe's revenues declined $11.3 million as a result of
lower revenues in all modes and market softness throughout Europe as a result
of the current economic climate.
17
<PAGE>
Services business unit revenues decreased $4.7 million, on lower volume in
both project cargo and international relocation product lines as a result of
declining international relocations and softness in the oil and gas
industries. Had foreign exchange rates remained constant from 1998 to 1999,
consolidated revenues would have been $5.0 million less than the actual 1999
results.
NET REVENUES. Net revenues, which represent gross profit after
deducting transportation and other direct costs, increased by approximately
$3.0 million, to $92.0 million for the three months ended March 31, 1999 from
$89.0 million for the same period in 1998. Net revenues as a percentage of
revenues increased to 25.2% in 1999 from 24.3% for the same period in 1998.
This was primarily due to a shift in product offerings to higher margin
value-added services, the effect of the Air Services Acquisition and
increased volumes in the Asia/Pacific region. Reductions in Americas and
Services, due to lower revenues as previously discussed, and GeoLogistics
Network Solutions as a result of lower revenues and decreased profit margins
partially offset these increases. Had foreign exchange rates remained
constant from 1998 to 1999, consolidated net revenues would have been $1.8
million less than 1999 actual results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $6.8 million, to $94.7
million for the three months ended March 31, 1999 from $87.9 million for the
three months ended March 31, 1998. These expenses as a percentage of net
revenues increased to 102.9% in 1999 from 98.7% for the same period in 1998
primarily as a result of a disproportionately higher decrease in net revenues
in the Americas versus the $2.0 million decrease in selling, general and
administrative expenses. Expenses in excess of net revenues in the Services
business unit due to lower volumes also contributed to the increase. Selling,
general and administrative expenses relating to Air Services amounted to $1.7
million of the increase from 1998. The remaining $5.1 million increase in
expenses was due to higher expenses experienced in all operating units except
the Americas which decreased $2.0 million as a result of a decrease in
headcount.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $0.8 million for the three months ended March 31, 1999 compared to
the prior year period primarily as the result of the Air Services Acquisition
($0.3 million) and an increase in fixed assets primarily related to
information technology.
18
<PAGE>
OPERATING LOSS. The Company recorded a $7.3 million operating loss
for the three months ended March 31, 1999 compared to a $2.7 million
operating loss for the three months ended March 31, 1998. Increased profits
in Asia Pacific Region and Air Services were offset by higher operating
losses as a result of the Americas, Europe and the Services business units as
previously discussed.
INTEREST EXPENSE, NET. Interest expense, net, increased by
approximately $2.2 million, to $5.6 million for the first quarter of 1999
from $3.4 million for the same period of 1998. The increase was associated
with the issuance of the $15.0 million debt to finance the Air Services
Acquisition in July 1998 and higher levels of working capital-related
borrowings.
INCOME TAX PROVISION. The income tax provision for the three months
ended March 31, 1999 increased $3.8 million to a $1.8 million provision
versus a $2.0 million tax benefit for the same period of 1998. No income tax
benefit has been recorded for business units incurring operating losses in
1999.
MINORITY INTERESTS. Interests held by minority shareholders in the
earnings of certain foreign subsidiaries were $0.2 million for the three
months ended March 31, 1999 and 1998, respectively.
NET LOSS. Net loss increased by $10.7 million to $15.0 million for
the three months ended March 31, 1999 compared to $4.3 million for the same
period of 1998. This increase is due primarily to operating losses
attributable to the Americas, interest expense and income taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1999, net cash used by
operating activities was $13.6 million versus $8.3 million in the first
quarter of 1998. Cash used in investing activities was $2.5 million versus
$4.2 million in 1998 which related to capital expenditures. Cash provided by
financing activities was $14.3 million versus $11.9 million in 1998 and
primarily consisted of additional borrowings under the U.S. revolving line of
credit and by certain foreign subsidiaries.
19
<PAGE>
On February 26, 1999, the Company executed an amendment to the
existing bank credit facility (the "Amendment"). The Amendment includes
revised financial covenants and additional collateral that were required
due to the recent operating results of the Company. The Amendment (a)
provides for an additional $30.5 million commitment ("Supplemental
Commitment") by one of the Company's existing lenders (the "Supplemental
Lender") to make loans, which will become due and payable on December 31,
2002 (subject to extension of the maturity date), and to issue letters of
credit, (b) requires the obligors under the Credit Facility to grant a
security interest in all of their personal property, including all trademarks
and other intangibles, to the extent not already included in the collateral,
and one item of real property to secure the loans under the Credit Facility,
(c) amends the EBITDA and interest charge coverage ratio covenants for the
period from and after December 31, 1998 to and including December 31, 1999,
(d) increases the restrictions regarding the making of investments and
acquisitions and prohibits the payment of management fees by the Company and
certain of its subsidiaries prior to the date following March 31, 1999 on
which the Company is in compliance with the original EBITDA and the interest
charge coverage ratio covenants or, in the case of the management fees, the
earlier satisfaction of certain other tests, and (e) increases the margins
applicable to eurodollar and base rate loans based on specified funded debt
ratios. The Company applied approximately $15.0 million of borrowings under
the Amendment to repay indebtedness incurred to finance the Air Services
Acquisition. Because of the undetermined impact of the restructuring on
GeoLogistics Americas, and because of the uncertainties surrounding the
performance of GeoLogistics Americas, the Company may have to seek again to
amend those covenants or other covenants in the credit facility.
Within North America, the Company has utilized borrowings under its
credit facilities to meet working capital requirements and to fund capital
expenditures principally related to information technology. At March 31,
1999, the Company had a working capital borrowing base under its credit
facility of $95.1 million, $54.7 million of outstanding working capital
related borrowings and $17.2 million of outstanding letter of credit
commitments. In addition, at March 31, 1999, the Company had a total
outstanding of $30.5 million on the Supplemental Commitment, consisting of
$8.3 million of letter of credit commitments and $22.2 million of debt.
The Company's credit agreement and the indenture related to the
Senior Notes contain certain restrictive covenants. These restrictive
covenants, as amended, include covenants related
20
<PAGE>
to the maintenance of EBITDA and interest charge coverage ratios, limitations
on indebtedness, limitations on restricted payments including dividends,
limitations on sales of assets and subsidiary stock, limitations on
transactions with affiliates, provisions relating to changes of control,
limitations on liens, sale or issuance of capital stock of restricted
subsidiaries, sale/leaseback transactions, and restrictions on mergers,
consolidation and sales of assets.
Total borrowings of foreign operations at March 31, 1999 were
approximately $17.7 million, representing a combination of short and
long-term borrowings and capital leases. Funding requirements have
historically been satisfied by cash generated from operations and borrowings
under various bank credit facilities. Under the Company's existing credit
facility, a certain amount of borrowing capacity is based upon the level of
accounts receivable in the United Kingdom.
The indenture relating to the Company's Senior Notes generally
provides that, subject to certain exceptions, the Company may not incur
indebtedness unless on the date of such incurrence the consolidated coverage
ratio of the Company exceeds 2.25 to 1.0 and that the restricted subsidiaries
of the Company may not incur indebtedness unless on the date of such
incurrence the consolidated coverage ratio of the Company exceeds 2.5 to 1.0.
The indenture permits the Company to incur up to $100.0 million of
indebtedness pursuant to its credit facility, notwithstanding the Company's
inability to meet the consolidated coverage ratio test. As of March 31, 1999,
the Company had incurred $54.7 million of indebtedness under its Credit
Facility and, as of such date, the Company would have been able to incur an
additional $23.2 million of indebtedness pursuant to the terms of such
facility. In addition, the indenture permits the Company to incur up to $30.0
million under its foreign credit facilities notwithstanding the Company's
inability to meet the consolidated coverage ratio test. As of March 31, 1999,
the Company had incurred $17.7 million of indebtedness under its foreign
credit facilities and as of such date, would have been able to incur an
additional $12.3 million of indebtedness under such facilities in compliance
with the terms of the indenture.
The Company is highly leveraged and has significant interest expense
obligations under the Credit Facility and Senior Notes. Furthermore, the
indenture and the Credit Facility contain numerous other financial and
operating covenants. The ability of the Company to comply with such covenants
will be dependent upon the Company's future performance, which is subject to
financial, economic, competitive, regulatory and other factors affecting the
Company and its
21
<PAGE>
subsidiaries, many of which are beyond their control. If the Company is
unable to improve operations at the Americas unit or otherwise generate
sufficient cash flow, it could be required to adopt one or more alternatives,
such as reducing or delaying planned expansions or capital expenditures,
selling or leasing assets, restructuring debt or obtaining additional debt or
equity capital. On February 26, 1999 certain shareholders and their
affiliates provided $15.5 million of additional credit support to the Company
through the provision of letters of credit to the Supplemental Lender
pursuant to the Amendment. The Company is investigating strategic
alternatives to finance future operations, including the sale of non-core
assets. There can be no assurance that any of these alternatives could be
effected on satisfactory terms, and any resort to alternative sources of
funds could impair the Company's competitive position.
YEAR 2000
The Company is currently engaged in a comprehensive project to
upgrade its information technology including hardware and software that will
consistently and properly recognize the Year 2000 ("Year 2000 Plan"). As a
provider of global logistics and transportation services, the Company is
reliant on its computer systems and applications to conduct its business. In
addition to these systems, the Company is also reliant upon the system
capabilities of its business partners. Many of the Company's systems include
new hardware and packaged software recently purchased from large vendors who
have represented that these systems are already Year 2000 compliant. As a
result a majority of the Company's financial systems are already in
compliance with the Company's objectives and all computing hardware of the
Company is Year 2000 compliant. An extensive review has also been made of all
remaining internal systems. All of the operational systems in Europe and Asia
are in compliance, with North America scheduled for completion in June 1999,
except for Services, which is expected by September 1999. Financial systems
in all of Asia, most of Europe and North America are also in compliance. The
financial systems for the remainder of Europe and North America are expected
to be compliant by May 1999, except for Services, which is expected to be
compliant in July 1999. As part of this process the Company is also surveying
embedded systems to ensure Year 2000 compliance with scheduled completion by
December 1999.
The Company has conducted a survey of its business partners most of
whom have certified Year 2000 compliance. The Company, however, is still
gathering information from the
22
<PAGE>
airlines. The Company is also working with major customers to gain Year 2000
certification with them in response to customer inquiries and surveys.
The Company estimates total costs of the compliance process to be
approximately $1.1 million of which $0.9 million has been spent through March
31, 1999. This does not include the costs associated with the Company's
strategic information plan much of which addresses the Year 2000 project as
well as strategic initiatives.
The Year 2000 Plan prepared by the Company has been designed to
identify points of failure and corrective actions to avoid systems failures.
Procedures have been designed and systems implemented to prevent invalid
dates from customers and suppliers from impacting Company systems. The
Company believes the risk of operational failure from internal systems is
minimal. The Company also believes that there are sufficient transportation
providers who can meet the Company's contractual commitments even if some
carriers are impaired by the Year 2000 problem. For those parties for which
the Company has identified to be non-Year 2000 compliant, the Company intends
to secure alternate carriers who are Year 2000 ready in order to continue to
provide basic business services.
The Company has already prepared manual operational procedures which
are in place should disruption from a Company system or third party system
occur. In addition, all system development will be stopped and all technical
resources will be available for any unexpected system problems during the
first quarter of 2000.
CONVERSION TO THE EURO CURRENCY
In January 1999 certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency ("euro"). The Company conducts business in
member countries. The transition period for the introduction of the euro will
be between January 1, 1999 and June 30, 2002. The Company is addressing the
issues involved with the introduction of the euro. The more important issues
facing the Company include: converting information technology systems;
reassessing currency risk; negotiating and amending contracts; and processing
tax and accounting records.
23
<PAGE>
Based upon progress to date the Company believes that use of the
euro will not have a significant impact on the manner in which it conducts
its business affairs and processes its business and accounting records.
Accordingly, conversion to the euro is not expected to have a material effect
on the Company's financial condition or results of operations.
RISK MANAGEMENT AND MARKET RISK SENSITIVE INSTRUMENTS
The Company is exposed to certain market risks, including changes in
interest rates and currency exchange rates. In the normal course of business,
the Company employs established policies and procedures to manage its
exposure to changes in interest rates and fluctuations in the value of
foreign currencies using a variety of financial instruments.
In order to mitigate the impact on fluctuations in the general level
of interest rates, the Company generally maintains a large portion of its
debt as fixed rate in nature by borrowing on a long term basis.
The Company's objectives in managing the exposure to foreign
currency fluctuations is to reduce earnings and cash flow volatility
associated with foreign exchange rate changes and allow management to focus
its attention on its core business issues and challenges. Accordingly, the
Company enters into various contracts which change in value as foreign
exchange rates change to minimize the impact of currency movements on certain
existing commitments and anticipated foreign earnings. The Company may use a
combination of financial instruments to manage these risks, including forward
contact or option related instruments.
It is the Company's policy to enter into foreign currency
transactions only to the extent considered necessary to meet its objectives
as stated above. The Company does not enter into foreign currency
transactions for speculative purposes.
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board Issued
Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES ("SFAS 133"), which is required to be adopted in years beginning
after June 15, 1999. The Company , which utilizes fundamental derivatives to
hedge changes in interest rates and foreign currencies, expects to adopt SFAS
No.
24
<PAGE>
133 effective January 1, 2000. This new accounting standard will require that
all derivatives be recorded on the balance sheet at fair value. If the
derivative is a hedge, depending on the nature of the hedge, changes in fair
value of the derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. Management is currently assessing the impact that the
adoption of SFAS No. 133 will have on the Company's financial position,
results of operations, and cash flows.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed electronically only).
(b) Reports on Form 8-K
On March 5, 1999 the Company filed a current report on Form 8-K
disclosing a press release issued on March 4, 1999 regarding the
restructuring of its GeoLogistics Americas business unit and the
February 26, 1999 execution of Amendment No. 3 to the Amended
and Restated Loan Agreement dated as of October 28, 1998.
26
<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: May 14, 1999 By: /s/ Roger E. Payton
------------ -------------------------------------------
Roger E. Payton
President, Chief Executive Officer and Director
Date: May 14, 1999 By: /s/ Miles Stover
------------ ------------------------------------------
Miles Stover
Chief Financial Officer
27
<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: May 14, 1999 By:
----------------------------------------------
Roger E. Payton
President, Chief Executive Officer and Director
Date: May 14, 1999 By:
----------------------------------------------
Miles Stover
Chief Financial Officer
28
<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 MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,404
<SECURITIES> 0
<RECEIVABLES> 257,129
<ALLOWANCES> 19,594
<INVENTORY> 0
<CURRENT-ASSETS> 297,368
<PP&E> 108,432
<DEPRECIATION> 18,007
<TOTAL-ASSETS> 518,827
<CURRENT-LIABILITIES> 286,937
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> (13,572)
<TOTAL-LIABILITY-AND-EQUITY> 518,827
<SALES> 365,329
<TOTAL-REVENUES> 365,329
<CGS> 273,293
<TOTAL-COSTS> 372,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,574
<INCOME-PRETAX> (13,188)
<INCOME-TAX> 1,800
<INCOME-CONTINUING> (14,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,988)
<EPS-PRIMARY> (7.30)
<EPS-DILUTED> (7.30)
</TABLE>
