<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 JUNE 30, 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 August 16, 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>
PART I. FINANCIAL INFORMATION PAGE
- ------- --------------------- ----
<S> <C> <C>
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets,
June 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months and six months ended
June 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
June 30, 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 28
ITEM 6. Exhibits and Reports on Form 8-K 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,618 $ 15,152
Accounts receivable:
Trade, net 247,068 267,047
Other 11,110 11,046
Deferred income taxes 7,228 7,245
Prepaid expenses 22,319 20,708
-------- --------
Total current assets 300,343 321,198
------- -------
Property and equipment, at cost 107,889 113,618
Accumulated depreciation (20,157) (18,364)
-------- --------
Net property and equipment 87,732 95,254
Notes receivable, less current portion 1,715 1,711
Deferred income taxes 19,134 19,168
Goodwill, net 78,191 79,347
Intangible assets, net 11,316 11,927
Other assets 19,630 20,573
-------- --------
$518,061 $549,178
-------- --------
-------- --------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
3
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Current portion of long term debt $ 19,988 $ 12,549
Accounts payable 129,807 139,696
Accrued expenses 121,529 149,519
Income taxes payable 6,561 7,940
--------- ---------
Total current liabilities 277,885 309,704
Long-term debt, less current portion 215,403 183,177
Other noncurrent liabilities 48,617 52,400
Minority interest 3,024 2,381
--------- ---------
Total liabilities 544,929 547,662
Stockholders' (deficit) 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 56,091 55,371
Accumulated deficit (96,327) (67,898)
Notes receivable from stockholders (191) (191)
Cumulative translation adjustment (993) (318)
---------- ----------
Total stockholders' (deficit) equity (26,868) 1,516
-------- ---------
$518,061 $549,178
-------- ---------
-------- ---------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE-MONTHS SIX-MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $395,770 $371,211 $761,099 $736,875
Transportation and other direct costs 301,004 277,854 574,297 554,480
-------- -------- -------- --------
Net revenues 94,766 93,357 186,802 182,395
Selling, general and administrative expenses 96,559 86,725 191,267 174,630
Depreciation and amortization 5,059 3,900 9,701 7,713
-------- -------- -------- --------
Operating income (loss) (6,852) 2,732 (14,166) 52
Interest expense, net (5,572) (3,903) (11,146) (7,337)
Other income (expense) (305) 159 (450) 146
-------- -------- -------- --------
Loss before income taxes and minority interest (12,729) (1,012) (25,762) (7,139)
Income tax provision (benefit) (769) (279) 1,031 (2,236)
-------- -------- -------- --------
Loss before minority interest (11,960) (733) (26,793) (4,903)
Minority interest (432) (215) (587) (373)
-------- -------- -------- --------
Net loss $(12,392) $ (948) $(27,380) $ (5,276)
-------- -------- -------- --------
-------- -------- -------- --------
Preferred stock dividend (525) - (1,050) -
-------- -------- -------- --------
Loss applicable to common stock $(12,917) $ (948) $(28,430) $ (5,276)
-------- -------- -------- --------
-------- -------- -------- --------
Basic loss per common share $ (6.10) $ (.45) $ (13.39) $ (2.50)
-------- -------- -------- --------
-------- -------- -------- --------
Diluted loss per common share $ (6.10) $ (.45) $ (13.39) $ (2.50)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of common and
common equivalent shares outstanding 2,118,893 2,129,318 2,123,179 2,113,126
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to the condensed consolidated financial statements.
</TABLE>
5
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<TABLE>
<CAPTION>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX-MONTHS
ENDED JUNE 30,
1999 1998
-------- -------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $(27,380) $(5,276)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 9,701 7,713
Amortization of deferred items 899 579
Deferred income taxes 51 (3,678)
Changes in current assets and liabilities, net (20,955) (17,100)
Other, net 891 (2,235)
-------- -------
Net cash used in operating activities (36,793) (19,997)
Cash flows used in investing activities:
Purchases of property, equipment and software, net (6,125) (13,823)
-------- -------
Net cash used in investing activities (6,125) (13,823)
Cash flows provided by financing activities:
Proceeds from revolving line of credit, net 25,542 16,100
Proceeds from long-term debt 16,936 10,896
Payments on long-term debt (2,814) (8,380)
Proceeds from issuance of common stock 720 1,673
Other, net - 140
-------- -------
Net cash provided by financing activities 40,384 20,429
-------- -------
Net decrease in cash and cash equivalents (2,534) (13,391)
Cash and cash equivalents, beginning of period 15,152 37,909
-------- -------
Cash and cash equivalents, end of period $12,618 $24,518
-------- -------
-------- -------
Supplemental cash flow information:
Interest paid during the period $10,084 $ 6,581
Income taxes paid during the period $ 1,341 $ 1,454
Noncash warrant transactions $ 720 $ 720
New capital leases $ 704 $ 4,465
See accompanying notes to the condensed consolidated financial statements
</TABLE>
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 and six months ended June 30, 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)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 June 30, 1999
--------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
--------- ------------ ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 2,689 $ 1,414 $ 8,515 $ - $ 12,618
Accounts receivable, net...................... 309 96,816 184,187 (34,244) 247,068
Property, net................................. 6,278 24,234 57,220 - 87,732
Intangible assets, net........................ 8,597 77,908 3,921 (919) 89,507
Other assets.................................. 66,232 32,148 45,183 (62,427) 81,136
------- ------- -------- -------- -------
Total assets................................ $84,105 $232,520 $299,026 $(97,590) $518,061
------- ------- -------- -------- -------
------- ------- -------- -------- -------
Current liabilities........................... $ 1,699 $101,112 $215,224 $(40,150) $277,885
Long-term debt, less current portion.......... 204,686 1,472 9,245 - 215,403
Other noncurrent liabilities.................. (167,080) 163,824 49,910 4,987 51,641
Stockholders' (deficit) equity................ 44,800 (33,888) 24,647 (62,427) (26,868)
------- -------- ------- -------- --------
Total liabilities and stockholders' deficit. $ 84,105 $232,520 $299,026 $(97,590) $518,061
------- -------- ------- -------- --------
------- -------- ------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations for the Six Months Ended June 30, 1999
---------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ - $304,327 $529,063 $(72,291) $761,099
Transportation and other direct costs....... - 231,792 414,796 (72,291) 574,297
Operating expenses.......................... 7,748 80,620 112,600 - 200,968
------- -------- --------- ------------ -------
Operating income (loss)..................... (7,748) (8,085) 1,667 - (14,166)
Interest, net............................... (2,438) (7,128) (1,580) - (11,146)
Other income (expense) net.................. 355 (1,540) 735 - (450)
Income tax provision ....................... 28 - 1,003 - 1,031
Minority interest........................... - - (587) - (587)
------- -------- --------- ------------ -------
Net loss.................................. $(9,859) $(16,753) $ (768) $ - $(27,380)
------- -------- --------- ------------ -------
------- -------- --------- ------------ -------
</TABLE>
9
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Statement of Cash Flows for the Six Months Ended June 30, 1999
-----------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
--------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows (used in) provided by:
Operating activities....................... $(14,800) $(19,209) $ (3,375) $ 591 $(36,793)
Investing activities....................... 4,621 (7,663) (3,083) - (6,125)
Financing activities....................... 12,841 25,752 2,382 (591) 40,384
Net increase (decrease) in cash and cash
equivalents................................ 2,662 (1,120) (4,076) - (2,534)
Cash and cash equivalents, beginning of
period..................................... 27 2,534 12,591 - 15,152
------- ------- ------ ----- ------
Cash and cash equivalents, end of period..... $ 2,689 $ 1,414 $ 8,515 $ - $ 12,618
------- ------- ------ ----- ------
------- ------- ------ ----- ------
</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 1998 has been restated to conform to the 1999
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
North America:
Total revenues $187,062 $183,851 $358,688 $360,695
Transactions between regions 14,955 12,303 27,704 27,721
Revenues from customers 172,107 171,548 330,984 332,974
Net revenues 41,945 40,493 81,336 80,399
EBITDA (55) 4,856 (574) 6,038
Depreciation and amortization 3,658 2,660 6,805 5,610
Interest expense, net (4,000) (2,206) (7,449) (4,192)
Europe:
Total revenues $177,529 $176,274 $350,484 $356,594
Transactions between regions 19,614 26,222 44,476 50,370
Revenues from customers 157,915 150,052 306,008 306,224
Net revenues 36,935 40,076 75,539 77,825
EBITDA (562) 2,601 (225) 4,492
Depreciation and amortization 808 566 1,657 1,343
Interest expense (94) (77) (180) (33)
Asia:
Total revenues $85,548 $65,343 $163,864 $128,188
Transactions between regions 19,800 15,732 39,757 30,511
Revenues from customers 65,748 49,611 124,107 97,677
Net revenues 15,886 12,788 29,927 24,171
EBITDA 2,528 1,429 3,997 2,558
Depreciation and amortization 446 369 874 518
Interest expense, net 5 74 (120) (7)
Information regarding the Company's long lived assets by geographic region is summarized below.
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Long lived assets:
North America $29,591 $27,538
Europe 43,283 48,628
Asia 6,573 6,244
Corporate 8,285 13,024
------- -------
Consolidated $87,732 $95,254
------- -------
------- -------
</TABLE>
11
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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 June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
North America $187,062 $183,851 $358,688 $360,695
Europe 177,529 176,274 350,484 356,594
Asia 85,548 65,343 163,864 128,188
Eliminations (54,369) (54,257) (111,937) (108,602)
-------- -------- -------- --------
Consolidated $395,770 $371,211 $761,099 $736,875
-------- -------- -------- --------
-------- -------- -------- --------
Net revenues:
North America $41,945 $40,493 $ 81,336 $ 80,399
Europe 36,935 40,076 75,539 77,825
Asia 15,886 12,788 29,927 24,171
------ ------ -------- --------
Consolidated $94,766 $93,357 $186,802 $182,395
-------- -------- -------- --------
-------- -------- -------- --------
EBITDA:
North America $ (55) $4,856 $ (574) $ 6,038
Europe (562) 3,842 (225) 5,912
Asia 2,528 1,948 3,997 3,088
Corporate (3,704) (4,014) (7,663) (7,265)
------ ------ ------ ------
Consolidated $ (1,793) $6,632 $(4,465) $ 7,765
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Assets:
North America $254,639 $260,694
Europe 240,671 263,481
Asia 90,700 86,119
Corporate 489,205 482,429
Eliminations (557,154) (543,545)
-------- --------
Consolidated $518,061 $549,178
-------- --------
-------- --------
</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 income (loss) for the three and six months ended June 30, 1999
and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cumulative translation adjustment $ (742) $1,636 $ (675) $ 650
Net loss (12,392) (948) (27,380) (5,276)
------- ------- ------- ------
Comprehensive loss $(13,134) $ 688 $(28,055) $(4,626)
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
NOTE 5. RESTRUCTURING COSTS
On March 4, 1999, the Company announced its intended restructuring of its
GeoLogistics Americas ("Americas") business as a result of a fourth quarter 1998
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. In addition, the Company is reevaluating the
operations of its other business units to determine what initiatives can be
taken to help reduce costs in light of lower volumes and market softness in the
European region.
13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
As part of the restructuring process, a new management team was put in place
primarily to improve the global operating results. This new management team
together with the Company's advisors is in process of designing initiatives to
provide greatly improved operating results. As these initiatives are in the
formative stages, it is not possible to discuss the actions to be taken nor the
expected financial results thereof. The restructuring plan is expected to
commence in the fourth quarter of this year at which time the related costs will
be recorded as a charge to earnings.
NOTE 6. SUBSEQUENT EVENT
On August 6, 1999 the Company entered into an agreement to sell substantially
all of the assets of its GeoLogistics Air Services, Inc. ("GLAS") business
unit to FDX Global Logistics, Inc., a wholly-owned subsidiary of FDX
Corporation, for aggregate cash consideration of $115.8 million in accordance
with the terms of the Asset Purchase Agreement (the "Asset Purchase
Agreement") among the Company, Americas, GLAS, FDX Corporation and FDX Global
Logistics, Inc. The Company anticipates using the proceeds to reduce
revolving debt. Consummation of the sale of GLAS is subject to receipt of
certain third party and governmental consent and there can be no assurances
that the transaction will be consummated.
For the six months ended June 30, 1999 revenues from the GLAS operations
contributed approximately $48.2 million to the Company's revenues and income
from GLAS operations contributed approximately $8.0 million of income to the
Company's loss from operations of $14.2 million.
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 UNCERTAINTIES 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 BUT NOT LIMITED TO THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-42607), ANNUAL REPORT ON FORM
10-K (FILED ON MARCH 31, 1999) AND QUARTERLY REPORT ON FORM 10-Q (FILED MAY 14,
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 GeoLogistics 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 GeoLogistics Services ("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
15
<PAGE>
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 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 its intended restructuring of
its GeoLogistics Americas ("Americas") business as a result of a fourth quarter
1998 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. In addition, the Company is reevaluating the
operations of its other business units to determine what initiatives can be
taken to help reduce costs in light of lower volumes and market softness in the
European region.
As part of the restructuring process, a new management team was put in
place primarily to improve the global operating results. This new management
team together with the Company's advisors is in process of designing initiatives
to provide greatly improved operating results. As these initiatives are in the
formative stages, it is not possible to discuss the actions to be taken nor the
expected financial results thereof. The restructuring plan is expected to
commence in the fourth quarter of this year at which time the related costs will
be recorded as a charge to earnings.
On August 6, 1999 the Company entered into an agreement to sell
substantially all of the assets of its GeoLogistics Air Services, Inc.
("GLAS") business unit to FDX Global Logistics, Inc., a wholly-owned
subsidiary of FDX Corporation, for aggregate cash consideration of $115.8
million in accordance with the terms of the Asset Purchase Agreement (the
"Asset Purchase Agreement") among the Company, Americas, GLAS, FDX
Corporation and FDX Global Logistics, Inc. The Company anticipates using the
proceeds to reduce revolving debt. Consummation of the sale of GLAS is
subject to receipt of certain third party and governmental consent and there
can be no assurances that the transaction will be consummated.
16
<PAGE>
For the six months ended June 30, 1999 revenues from the GLAS
operations contributed approximately $48.2 million to the Company's revenues
and income from GLAS operations contributed approximately $8.0 million of
income to the Company's loss from operations of $14.2 million.
The following discussion and analysis relates to the results of
operations for the Company as reported for the six months ended June 30, 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $395,770 $371,211 $761,099 $736,875
Net revenues 94,766 93,357 186,802 182,395
Selling, general and administrative expenses 96,559 86,725 191,267 174,630
Depreciation and amortization 5,059 3,900 9,701 7,713
Operating income (loss) (6,852) 2,732 (14,166) 52
Interest expense, net (5,572) (3,903) (11,146) (7,337)
Other income (expense), net (305) 159 (450) 146
Income tax provision (benefit) (769) (279) 1,031 (2,236)
Minority interest (432) (215) (587) (373)
Net loss (12,392) (948) (27,380) (5,276)
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 VERSUS THREE MONTHS ENDED JUNE 30, 1998
REVENUES. The Company's revenues increased approximately $24.6 million
to $395.8 million for the three months ended June 30, 1999 from $371.2 million
for the three months ended June 30, 1998. Asia/Pacific region revenues increased
$20.2 million, due primarily to increased export volumes and new customers. Also
contributing additional revenue of $13.6 million in the period was GLAS which
was acquired in July 1998 and Canada and Europe which contributed $2.7 million
and $1.5 million, respectively, more revenue than the prior period. These
increases were offset by a decline in the Americas business unit of $8.4
million, due to lower domestic and international forwarding volumes as a result
of a difficult freight forwarding environment. GeoLogistics Network Solutions
("GNS") revenues declined $3.1 million primarily due to lower
17
<PAGE>
volumes as a result of customer industry consolidations. Services business
unit revenues decreased $2.0 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 $2.8 million higher than the actual 1999 results.
NET REVENUES. Net revenues, which represent gross profit after
deducting transportation and other direct costs, increased by approximately $1.4
million, to $94.8 million for the three months ended June 30, 1999 from $93.4
million for the same period in 1998. Net revenues as a percentage of revenues
decreased to 23.9% in 1999 from 25.1% for the same period in 1998. This decrease
in margins was primarily due to a $3.1 million decrease in net revenues in
Europe resulting from softness in the economy which accounted for a substantial
portion of the overall decrease. In addition, 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
contributed to the decrease in net revenues. The effect of the acquisition of
GLAS partially offset these margin decreases. Had foreign exchange rates
remained constant from 1998 to 1999, consolidated net revenues would have been
$0.1 million less than 1999 actual results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $9.9 million, to $96.6
million for the three months ended June 30, 1999 from $86.7 million for the
three months ended June 30, 1998. These expenses as a percentage of net revenues
increased to 101.9% in 1999 from 92.9% for the same period in 1998 primarily as
a result of a disproportionately higher decrease in net revenues in the Americas
business unit versus the $3.3 million increase in selling, general and
administrative expenses. Expenses in excess of net revenues in the Services
business units due to lower volumes also contributed to the increase. Selling,
general and administrative expenses relating to GLAS amounted to $0.6 million of
the increase from 1998. The remaining $6.0 million increase in expenses was due
to higher expenses experienced in all other operating units.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $1.2 million for the three months ended June 30, 1999 compared to the
prior year period primarily as the result of the acquisition of GLAS ($0.3
million) and an increase in fixed assets primarily related to information
technology.
18
<PAGE>
OPERATING LOSS. The Company recorded a $6.9 million operating loss for
the three months ended June 30, 1999 compared to $2.7 million of operating
income for the three months ended June 30, 1998. Increased profits in Asia
Pacific Region and GLAS were offset by higher operating losses in the Americas,
Europe and the Services business units as previously discussed.
INTEREST EXPENSE, NET. Interest expense, net, increased by
approximately $1.7 million, to $5.6 million for the second quarter of 1999 from
$3.9 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 required as a
result of the losses at GNS, Services and the Americas operating units.
INCOME TAX BENEFIT. The income tax benefit for the three months ended
June 30, 1999 increased $0.5 million to a $0.8 million benefit versus a $0.3
million tax benefit for the same period of 1998 as a result of a reversal of
first quarter 1999 domestic tax expense which will be offset by 1999 operating
losses of other domestic business units.
MINORITY INTERESTS. Interests held by minority shareholders in the
earnings of certain foreign subsidiaries were $0.4 million and $0.2 million for
the three months ended June 30, 1999 and 1998, respectively.
NET LOSS. Net loss increased by $11.5 million to $12.4 million for the
three months ended June 30, 1999 compared to $0.9 million for the same period of
1998. This increase is due primarily to operating losses attributable to the
Americas, Europe and Services, as previously discussed, in addition to increased
interest expense.
SIX MONTHS ENDED JUNE 30, 1999 VERSUS SIX MONTHS ENDED JUNE 30, 1998
REVENUES. The Company's revenues increased by approximately $24.2
million to $761.1 million for the six months ended June 30, 1999 from $736.9
million for the six months ended June 30, 1998. Contributing additional revenue
of $27.8 million in the period was GLAS. In addition, the Asia/Pacific region
revenues increased $35.7 million, due primarily to increased export volumes and
new customers. These increases were offset by a decline in the Americas business
unit of $19.0 million, due to lower domestic and international forwarding
volumes as a result of a difficult freight forwarding environment and the
effects in the first quarter of the Asian economic crisis. GNS revenues declined
$5.7 million primarily due to lower volumes resulting
19
<PAGE>
from customer industry consolidations. Europe's revenues declined $6.1
million primarily as a result of lower revenues in all modes and market
softness throughout Europe. Services' revenues decreased $6.7 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 $2.2 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 $4.4
million, to $186.8 million for the six months ended June 30, 1999 from $182.4
million for the same period in 1998. Net revenues as a percentage of revenues
decreased to 24.5% in 1999 from 24.8% for the same period in 1998. This decrease
in margins was primarily the result of reductions in Americas and Services, due
to lower revenues as previously discussed, decreased net revenues in Europe due
to softness in the region's economy and GeoLogistics Network Solutions lower
revenues and decreased profit margins. The effect of the Air Services
Acquisition and increased volumes in the Asia/Pacific region partially offset
these increases. Had foreign exchange rates remained constant from 1998 to 1999,
consolidated net revenues would have been $1.9 million less than 1999 actual
results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $16.7 million, to $191.3
million for the six months ended June 30, 1999 from $174.6 million for the six
months ended June 30, 1998. These expenses as a percentage of net revenues
increased to 102.4% in 1999 from 95.7% for the same period in 1998 primarily as
a result of a disproportionately higher decrease in net revenues in the Americas
versus the $1.3 million increase in selling, general and administrative expenses
for the six month period. 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 GLAS amounted to $2.3 million of
the increase from 1998. The remaining $13.1 million increase in expenses was due
to higher expenses experienced in all other operating units.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.0 million for the six months ended June 30, 1999 compared to the
prior year period primarily as the result of the Air Services Acquisition ($0.6
million) and an increase in fixed assets primarily related to information
technology.
20
<PAGE>
OPERATING LOSS. The Company recorded a $14.2 million operating loss for
the six months ended June 30, 1999 compared to a $0.1 million operating profit
for the six months ended June 30, 1998. Increased profits in Asia Pacific Region
and GLAS were offset by higher operating losses in the Americas, GNS, Europe and
the Services business units as previously discussed.
INTEREST EXPENSE, NET. Interest expense, net, increased by
approximately $3.8 million, to $11.1 million for the second quarter of 1999 from
$7.3 million for the same period of 1998. The increase was associated with the
issuance of the $15.0 million debt to finance the acquisition of GLAS in July
1998 and higher levels of working capital-related borrowings required as a
result of the losses incurred at GNS, Services and the Americas operating units.
INCOME TAX PROVISION. The income tax provision for the six months ended
June 30, 1999 increased $3.2 million to a $1.0 million provision versus a $2.2
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 $0.6 million and $0.4 million for
the six months ended June 30, 1999 and 1998, respectively.
NET LOSS. Net loss increased by $22.1 million to $27.4 million for the
six months ended June 30, 1999 compared to $5.3 million for the same period of
1998. This increase is due primarily to operating losses attributable to the
Americas, GNS, Europe and Services previously discussed interest expense and
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1999, net cash used by operating
activities was $36.8 million versus $20.0 million in the first half of 1998. The
increase was primarily due to a decrease in earnings results. Cash used in
investing activities which related to capital expenditures was $6.1 million
versus $13.8 million in 1998. Cash provided by financing activities was $40.4
million versus $20.4 million in 1998 and primarily consisted of additional
borrowings under the U.S. revolving line of credit and by certain foreign
subsidiaries.
21
<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 June 30,
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 of certain
of the companies businesses, and because of the uncertainties surrounding
earnings-performance, 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 July 31, 1999,
the Company had a working capital borrowing base under its credit facility of
$100.0 million, $80.5 million of outstanding working capital related borrowings
and $5.5 million of outstanding letter of credit commitments, leaving $14.0 of
additional borrowing capacity comprised of $6.8 million in North America and
$7.2 million in the UK. In addition, at July 31, 1999, the Company had a total
outstanding of $30.5 million on the Supplemental Commitment, consisting of $5.1
million of letter of credit commitments and $25.4 million of debt. The Company
incurred $13.8 million of working capital borrowings to finance operations in
the first six months of 1999.
22
<PAGE>
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 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 June 30, 1999 were
approximately $22.1 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 $115 million of total
indebtedness; $100.0 million of indebtedness pursuant to its credit facility
and $15.0 million of other indebtedness notwithstanding the Company's
inability to meet the consolidated coverage ratio test. As of July 31, 1999,
the Company had incurred $98.7 million of indebtedness under its Credit
Facility and, as of such date, the Company would have been able to incur an
additional $1.3 million of indebtedness pursuant to the terms of such
facility. As of July 31, 1999, the Company had incurred $11.7 million of
Other Indebtedness and would have been able to incur an additional $3.3
million of additional debt in this classification. 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 June 30, 1999, the Company had incurred $22.1
million of indebtedness under its foreign credit facilities and as of such
date, would have been able to incur an additional $7.9 million of
indebtedness under such facilities in compliance with the terms of the
indenture.
23
<PAGE>
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 subsidiaries, many of which are beyond their control. In addition, the
Company has recently financed operations from borrowing under its credit
facilities. The Company's ability to borrow additional funds is significantly
restricted because the Company's borrowing capacity under its existing credit
facilities is limited to $14.0 million as of July 31, 1999. 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 has entered into an agreement to sell substantially all of the assets of
GLAS and will use the proceeds of the sale to reduce outstanding debt. The
Company will continue to investigate strategic alternatives to finance future
operations, including the sale of other non-core assets. There can be no
assurance that the sale of the GLAS assets will be consummated or 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, Asia and the United States are in compliance,
with Canada
24
<PAGE>
expected to be compliant in September 1999. Financial systems in all of Asia,
all of Europe, except Italy, and the United States are also in compliance.
The financial systems for Italy and Canada are expected to be compliant by
October 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 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 July 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
25
<PAGE>
("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.
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.
26
<PAGE>
OTHER MATTERS
In June 1998, the Financial Accounting Standards Board Issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which was originally required to be adopted in years beginning after June
15, 1999. 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.
The FASB recently issued Statement No. 137 which delays the effective
date of this Statement until fiscal years beginning after June 15, 2000. In
addition, the Statement requires that all derivatives that are expected to be
hedges must be designated as such on the first day of the period in which the
statement becomes effective. The Company, which utilizes fundamental derivatives
to hedge changes in interest rates and foreign currencies, expects to adopt SFAS
No. 133 effective January 1, 2001.
27
<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 August 11, 1999 the Company filed a current report on Form
8-K disclosing a press release issued on August 6, 1999
regarding the sale of its GeoLogistics Air Services, Inc.
business unit to FDX Global Logistics, Inc.
28
<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: August 16, 1999 By: /s/ Roger E. Payton
--------------- -----------------------------------
Roger E. Payton
President, Chief Executive Officer
and Director
Date: August 16, 1999 By: /s/ Miles Stover
-------------- -----------------------------------
Miles Stover
Chief Financial Officer
29
<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, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,618
<SECURITIES> 0
<RECEIVABLES> 258,178
<ALLOWANCES> 19,150
<INVENTORY> 0
<CURRENT-ASSETS> 300,343
<PP&E> 107,889
<DEPRECIATION> 20,157
<TOTAL-ASSETS> 518,061
<CURRENT-LIABILITIES> 277,885
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> (26,870)
<TOTAL-LIABILITY-AND-EQUITY> 518,061
<SALES> 761,099
<TOTAL-REVENUES> 761,099
<CGS> 574,297
<TOTAL-COSTS> 772,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,146
<INCOME-PRETAX> (26,349)
<INCOME-TAX> 1,031
<INCOME-CONTINUING> (27,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,380)
<EPS-BASIC> (13.39)
<EPS-DILUTED> (13.39)
</TABLE>
