<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 15, 1999, the registrant had 2,104,893 outstanding shares of common
stock, par value $.001 per share.
<PAGE>
GEOLOGISTICS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets,
September 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1999 and 1998 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 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 17
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 33
ITEM 6. Exhibits and Reports on Form 8-K 33
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,719 $ 15,152
Accounts receivable:
Trade, net 258,561 267,047
Other 18,540 11,046
Deferred income taxes 727 7,245
Prepaid expenses 24,613 20,708
-------- --------
Total current assets 316,160 321,198
------- -------
Property and equipment, at cost 98,994 113,618
Accumulated depreciation (21,784) (18,364)
-------- --------
Net property and equipment 77,210 95,254
Notes receivable, less current portion 1,682 1,711
Deferred income taxes 484 19,168
Goodwill, net 46,643 79,347
Intangible assets, net 9,220 11,927
Other assets 18,399 20,573
-------- --------
$469,798 $549,178
-------- --------
-------- --------
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 19,252 $ 12,549
Accounts payable 140,654 139,696
Accrued expenses 140,876 149,519
Income taxes payable 14,428 7,940
-------- ---------
Total current liabilities 315,210 309,704
Long-term debt, less current portion 130,869 183,177
Other non-current liabilities 49,019 52,400
Minority interest 1,999 2,381
--------- ---------
Total liabilities 497,097 547,662
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, 2,118,393 and 2,128,893
shares issued and outstanding) 2 2
Additional paid-in-capital 56,199 55,371
Accumulated deficit (97,357) (67,898)
Notes receivable from stockholders (191) (191)
Cumulative translation adjustment (502) (318)
---------- ----------
Total stockholders' (deficit) equity (27,299) 1,516
--------- ---------
$469,798 $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-MONTHS NINE-MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
-------- ------ ------ -----
<S> <C> <C>
Revenues $ 400,020 $ 387,968 $1,161,119 $ 1,124,843
Transportation and other direct costs 306,145 292,855 880,442 847,335
-------- ------- -------- -------
Net revenues 93,875 95,113 280,677 277,508
Selling, general and administrative expenses 94,693 91,020 284,970 265,650
Restructuring and other non-recurring charges 10,144 - 11,134 -
Asset impairment charges 12,060 - 12,060 -
Depreciation and amortization 5,128 3,847 14,829 11,560
--------- --------- -------- ----------
Operating income (loss) (28,150) 246 (42,316) 298
Interest expense, net (7,316) (4,761) (18,462) (12,098)
Gain on disposition of business 69,760 - 69,760 -
Other income (expense) (197) (32) (647) 114
--------- ----------- --------- ---------
Income (loss) before income taxes and minority interest 34,097 (4,547) 8,335 (11,686)
Income tax provision (benefit) 34,230 (2,267) 35,261 (4,503)
-------- ----------- ------- --------
Loss before minority interest (133) (2,280) (26,926) (7,183)
Minority interest (371) (213) (958) (586)
---------- ---------- -------- ---------- -
Net loss $ (504) $ (2,493) $ (27,884) $ (7,769)
Preferred stock dividend 525 438 1,575 438
----------- ---------- ---------- ------------
Loss applicable to common stock $ (1,029) $ (2,931) $ (29,459) $ (8,207)
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
Basic loss per common share $ (0.49) $ (1.38) $ (13.88) $ (3.88)
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
Diluted loss per common share $ (0.49) $ (1.38) $ (13.88) $ (3.88)
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
Weighted average number of common and
common equivalent shares outstanding 2,118,768 2,128,893 2,121,843 2,117,806
----------- ---------- ---------- ------------
----------- ---------- ---------- ------------
</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>
NINE-MONTHS
ENDED SEPTEMBER 30,
-----------------------------
1999 1998
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(27,884) $(7,769)
Adjustments to reconcile net loss
to net cash from operating activities:
Cash used for restructuring activities (1,688) -
Asset impairment charges 13,551 -
Depreciation and amortization 14,829 11,560
Gain on disposition of business, net (69,760) -
Amortization of deferred items 1,505 900
Deferred income taxes 25,202 (6,885)
Changes in current assets and liabilities, net (7,112) (38,567)
Other, net (2,074) (4,709)
-------- -------
Net cash used in operating activities (53,431) (45,470)
Cash flows from investing activities:
Purchases of property, equipment and software, net (6,155) (22,885)
Proceeds from disposition of business 102,988 -
Business acquisitions, net of cash acquired - (26,299)
-------- -------
Net cash provided by (used in) investing activities 96,833 (49,184)
Cash flows from financing activities:
(Payments)/Proceeds from revolving line of credit, net (47,288) 36,100
Proceeds from long-term debt 17,036 32,500
Payments on long-term debt (15,411) (14,934)
Proceeds from issuance of preferred stock - 14,550
Proceeds from issuance of common stock 828 2,733
Other, net - 158
-------- --------
Net cash provided by (used in) financing activities (44,835) 71,107
-------- ------
Net decrease in cash and cash equivalents (1,433) (23,547)
Cash and cash equivalents, beginning of period 15,152 37,909
-------- ------
Cash and cash equivalents, end of period $ 13,719 $14,362
-------- --------
-------- --------
Supplemental cash flow information:
Interest paid during the period $ 13,143 $ 8,601
Income taxes paid during the period $ 2,161 $ 2,116
Non-cash warrant transactions $ 828 $ 1,080
New capital leases $ 804 $ 7,541
</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 nine months ended September 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 September 30, 1999
----------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
-------- ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 5,270 $ 292 $ 8,157 $ - $ 13,719
Accounts receivable, net.................... 113 97,176 196,689 (35,417) 258,561
Property, net............................... 2,561 19,741 54,908 - 77,210
Intangible assets, net...................... 6,164 46,384 4,279 (964) 55,863
Other assets................................ 79,873 7,369 39,631 (62,428) 64,445
------ ------- ------- ------- ------
Total assets.............................. $ 93,981 $170,962 $303,664 $ (98,809) $469,798
-------- ------------- ------------ ------------ -----------
-------- ------------- ------------ ------------ -----------
Current liabilities......................... $ 6,844 $127,031 $220,285 $ (38,950) $315,210
Long-term debt, less current portion........ 123,637 1,168 6,064 - 130,869
Other non-current liabilities............... (73,364) 58,857 62,956 2,569 51,018
Stockholders' (deficit) equity.............. 36,864 (16,094) 14,359 (62,428) (27,299)
------- -------- ------- -------- --------
Total liabilities and stockholders' deficit $ 93,981 $170,962 $303,664 $ (98,809) $469,798
-------- ------------- ------------ ------------ -----------
-------- ------------- ------------ ------------ -----------
Statement of Operations for the Nine Months Ended September 30, 1999
--------------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
-------- ------------ ------------- ------------ --------
Revenues.................................... $ - $ 468,526 $ 802,114 $(109,521) $1,161,119
Transportation and other direct costs....... - 359,368 630,595 (109,521) 880,442
Operating expenses.......................... 10,359 120,015 169,425 - 299,799
Restructuring and other non-recurring charges 1,913 8,335 886 - 11,134
Asset impairment charges.................... 2,167 5,926 3,967 - 12,060
------- --------- -------- ------------- ----------
Operating loss.............................. (14,439) (25,118) (2,759) - (42,316)
Interest, net............................... (5,088) (11,120) (2,254) - (18,462)
Other income (expense) net.................. 2,199 67,138 (224) - 69,113
Income tax provision ....................... 49 33,744 1,468 - 35,261
Minority interest........................... - - (958) - (958)
----------------------- ------- --------------- --------
Net loss.................................. $(17,377) $ (2,844) $ (7,663) $ - $ (27,884)
-------- ------------- ------------ ------------ -----------
-------- ------------- ------------ ------------ -----------
</TABLE>
9
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Statement oF Cash Flows for the Nine Months Ended September 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....................... $(22,418) $(22,939) $(6,294) $(1,780) $(53,431)
Investing activities....................... 6,463 94,940 (4,570) - 96,833
Financing activities....................... 21,198 (74,243) 6,430 1,780 (44,835)
-------- -------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ 5,243 (2,242) (4,434) - (1,433)
Cash and cash equivalents, beginning of
period..................................... 27 2,534 12,591 - 15,152
------- ------- ------- -------- -------
Cash and cash equivalents, end of period..... $ 5,270 $ 292 $ 8,157 $ - $ 13,719
------- ------- ------- -------- -------
------- ------- ------- -------- -------
</TABLE>
As a result of the disposition of GeoLogistics Air Services, Inc. ("GLAS")
(see note 6 to financial statements) the Company, together with its guarantor
subsidiaries, entered into an amendment to the revolving credit agreement
(the "September Amendment"). Among other changes, the amendment provides for
(a) reductions in credit availability from $100.0 million to $50.5 million in
the aggregate with a sublimit of $20.0 million in the United Kingdom, (b)
reductions in the percentage of eligible accounts receivable that qualify for
the U.S. and United Kingdom borrowing base which affect the Company's ability
to incur debt under the revolving credit facility, (c) the elimination of the
interest coverage ratio covenant, (d) the change in the maturity date to
March 31, 2000, (e) the reduction of the Supplemental Commitment from $30.0
million to $15.0 million and (f) the amendment of the EBITDA covenant to
provide that EBITDA for the three month period ended December 31, 1999 will
not be less than a deficit of $500,000. Because the maturity date of the
credit facility is March 31, 2000, borrowings under the revolving credit
facility of $1.8 million have been classified as current liabilities in the
September 30, 1999 balance sheet.
NOTE 3. 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.
10
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
The Company manages its business primarily on a geographic basis. The Company's
reportable geographic segments are comprised of North America, Europe and
Asia/Pacific. 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 operating income. Operating income
represents earnings before interest and taxes. Corporate expenses are excluded
from geographic segment operating income. 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, certain capitalized software development costs and intangible
assets. Information for 1998 has been restated to conform to the 1999
presentation of operating segment information.
11
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- ------ ------ -------
<S> <C> <C> <C> <C>
North America:
Total revenues $191,561 $196,599 $550,249 $557,294
Transactions between regions 14,567 16,212 42,271 43,933
Revenues from customers 176,994 180,387 507,978 513,361
Net revenues 40,939 44,629 122,274 125,028
Restructuring and other non-recurring charges 7,345 - 8,335 -
Asset impairment charges 8,285 - 8,285 -
Depreciation and amortization 3,676 2,455 10,481 8,065
Operating income/(loss) (19,477) 1,865 (26,856) 2,293
Interest expense, net (4,199) (2,306) (11,648) (6,498)
Europe:
Total revenues $173,621 $176,482 $524,105 $533,076
Transactions between regions 19,646 25,041 64,122 75,411
Revenues from customers 153,975 151,441 459,983 457,665
Net revenues 36,465 37,405 112,004 115,230
Restructuring and other non-recurring charges 886 - 886 -
Asset impairment charges 1,608 - 1,608 -
Depreciation and amortization 918 919 2,575 2,262
Operating income/(loss) (3,938) (398) (5,820) 2,751
Interest expense (121) (251) (301) (284)
Asia/Pacific:
Total revenues 91,049 72,965 $254,913 $201,153
Transactions between regions 21,998 16,825 61,755 47,336
Revenues from customers 69,051 56,140 193,158 153,817
Net revenues 16,471 13,079 46,399 37,250
Depreciation and amortization 443 328 1,317 846
Operating income 2,173 1,271 5,296 3,311
Interest expense, net (57) (83) (177) (90)
</TABLE>
Information regarding the Company's long lived assets by geographic region is
summarized below.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
Long lived assets:
North America $23,614 $27,358
Europe 42,516 48,628
Asia/Pacific 6,506 6,244
Corporate 4,574 13,024
------- -------
Consolidated $77,210 $95,254
------- -------
------- -------
</TABLE>
12
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
A reconciliation of the Company's geographic segment revenues, net revenues,
operating income and assets to the corresponding consolidated amounts as of and
for the three and nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
North America $191,561 $196,599 $550,249 $557,294
Europe 173,621 176,482 524,105 533,076
Asia/Pacific 91,049 72,965 254,913 201,153
Eliminations (56,211) (58,078) (168,148) (166,680)
-------- -------- --------- ----------
Consolidated $400,020 $387,968 $1,161,119 $1,124,843
-------- -------- --------- ----------
-------- -------- --------- ----------
Net revenues:
North America $40,939 $44,629 $122,274 $125,028
Europe 36,465 37,405 112,004 115,230
Asia/Pacific 16,471 13,079 46,399 37,250
------- ------ -------- --------
Consolidated $93,875 $95,113 $280,677 $277,508
-------- -------- --------- ----------
-------- -------- --------- ----------
Operating income (loss):
North America $(19,477) $ 1,865 $(26,856) $ 2,293
Europe (3,938) (398) (5,820) 2,751
Asia/Pacific 2,173 1,271 5,296 3,311
Corporate (6,908) (2,492) (14,936) (8,057)
-------- ------- -------- -------
Consolidated $(28,150) $ 246 $(42,316) $ 298
-------- -------- --------- ----------
-------- -------- --------- ----------
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
Assets:
North America $193,644 $260,694
Europe 247,009 263,481
Asia/Pacific 91,461 86,119
Corporate 410,073 482,429
Eliminations (472,389) (543,545)
-------- --------
Consolidated $469,798 $549,178
-------- --------
-------- --------
</TABLE>
13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
Revenue from transfers between regions represents approximate amounts that would
be charged if the service were provided by an unaffiliated company. Total
regional revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue.
NOTE 4. OTHER COMPREHENSIVE INCOME
Comprehensive income loss for the three and nine months ended September 30, 1999
and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -------------------------
1999 1998 1999 1998
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net loss $ (504) $(2,493) $(27,884) $(7,769)
Foreign currency translation adjustment 491 (1,369) (184) (719)
------ ------ --------- -------
Comprehensive loss $ (13) $(3,862) $(28,068) $(8,488)
------ ------ --------- -------
------ ------ --------- -------
</TABLE>
NOTE 5. RESTRUCTURING AND OTHER NON-RECURRING CHARGES / ASSET IMPAIRMENT CHARGES
On March 5, 1999 the Company announced its intended restructuring of its
GeoLogistics Americas ("Americas") business as a result of a difficult domestic
freight forwarding environment. In light of lower volumes in the European
region, the Company initiated a process to reevaluate the operations of its
other business units to determine what initiatives could be taken to reduce
costs and streamline administrative operations. As part of this restructuring
process a new management team was put in place in an effort to improve the
global operating results.
In connection with this effort, the Company (a) has exited the domestic
freight forwarding portion of Americas business as of the end of the third
quarter of 1999, (b) is rationalizing personnel such that their numbers and
skill sets are suited to the ongoing services and volumes of the business,
(c) closed, or will close, unnecessary facilities in the United States and
Europe, (d) arranged for the settlement of remaining obligations to the
selling shareholders of the project forwarding and international household
goods relocation services business (GeoLogistics Services, Inc.) and
integrated the project forwarding business into the GeoLogistics Americas
business and the international household goods relocation services into the
Bekins Van Lines business and (e) revalued certain assets and deferred costs
to reflect net realizable values. The aggregate charge
14
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
for these actions is expected to be approximately $33.2 million of which $1.0
million was recorded in the first half of this year, $22.2 million has been
recorded in the third quarter of 1999, $7.1 million is expected to be
recorded in the fourth quarter of 1999, and the $2.9 million balance is
expected to be recorded in the first two quarters of 2000. The restructuring
charges include provisions for the termination of approximately 600 sales,
administrative and warehouse employees globally at a cost of approximately
$14.9 million. Of these costs $7.9, million, representing the termination of
350 employees, were recorded in the first nine months of 1999 and $7.0
million related to the termination of the remaining approximately 250
employees are expected to be recorded in the fourth quarter of 1999 and the
first half of 2000. Accrued liabilities at September 30, 1999 include
approximately $6.6 million of future severance payments related to employees
terminated prior to September 30, 1999 and approximately $1.4 million related
to future payments for the shutdown of facilities. The third quarter cash
cost of $8.7 million and non cash costs of $13.5 million have been recorded
in the accompanying financial statements as restructuring and other
non-recurring charges. The non cash costs for asset impairment charges relate
to goodwill, capitalized software and property as a result of exiting the
domestic freight forwarding portion of Americas' business, a reevaluation of
the capitalized software costs and the pending sale of certain property of
its Italian subsidiary. In addition to actions for which immediate financial
recognition is required, many additional actions have been taken including
revised incentive plans for the sales and management staffs (including the
employees who will continue to operate the international freight forwarding
operations in the United States), expansion of logistics facilities in
Thailand and expansion of facilities and logistics capabilities in China.
NOTE 6. SALE OF BUSINESS
On September 10, 1999 the Company sold substantially all of the assets of its
GLAS business unit ("GLAS Assets") to a subsidiary of FDX Corporation, for
aggregate cash consideration of approximately $116 million. The $70 million
gain on this sale has been reflected in the Condensed Consolidated Statements
of Operations for the three and nine months ended September 30, 1999 and the
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999.
The proceeds of such disposition were applied by the Company to fund a $10
million escrow account in connection with certain warranties to the purchaser,
pay fees and expenses associated with the transaction and reduce revolving debt
that was secured by the GLAS Assets.
15
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
For the three and nine months ended September 30, 1999, revenues from the GLAS
operations contributed approximately $18.6 million and $66.8 million,
respectively, to the Company's revenues and $2.5 million and $10.5 million,
respectively, of operating income to the Company's operating losses of $28.2
million and $42.3 million, respectively.
16
<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, IN THE NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS 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 CLOSURE
OF THE COMPANY'S U.S. DOMESTIC FREIGHT FORWARDING BUSINESS, THE RESTRUCTURING OF
THE COMPANY'S EUROPEAN AND OTHER BUSINESSES, OPERATING CHALLENGES FACING THE
COMPANY'S REMAINING BUSINESSES, MEETING LIQUIDITY NEEDS FOR CONTINUED OPERATION,
REFINANCING DEBT THAT MATURES IN MARCH 2000, 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 REPORTS ON FORM 10-Q (FILED MAY 14, 1999 AND AUGUST 16,
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
17
<PAGE>
operating assets and assumed certain of the liabilities ("Air Services
Acquisition") of Caribbean Air Services, Inc. and on September 10, 1999 the
Company sold the assets purchased in the Air Services Acquisition and certain
other assets. 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 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 5, 1999 the Company announced its intended restructuring of
its GeoLogistics Americas ("Americas") business as a result of a difficult
domestic freight forwarding environment. In light of lower volumes in the
European region, the Company initiated a process to reevaluate the operations of
its other business units to determine what initiatives could be taken to reduce
costs and streamline administrative operations. As part of this restructuring
process a new management team was put in place in an effort to improve the
global operating results.
In connection with this effort, the Company (a) has exited the domestic
freight forwarding portion of Americas business as of the end of the third
quarter of 1999, (b) is rationalizing personnel such that their numbers and
skill sets are suited to the ongoing services and volumes of the business, (c)
closed, or will close, unnecessary facilities in the United States and Europe,
(d) arranged for the settlement of remaining obligations to the selling
shareholders of the project forwarding and international household goods
relocation services business (GeoLogistics Services, Inc.) and integrated the
project forwarding business into the GeoLogistics Americas business and the
household goods relocation services into the Bekins Van Lines business and (e)
revalued certain assets and deferred costs to reflect net realizable values. The
aggregate charge for these actions is expected to be approximately $33.2 million
of which $1.0 million was recorded in the first half of this year, $22.2 million
has been recorded in the third quarter of 1999, $7.1 million is expected to be
recorded in the fourth quarter of 1999, and the $2.9 million balance is expected
to be recorded in the first two quarters of 2000. The restructuring charges
include provisions for the termination of approximately 600 sales,
18
<PAGE>
administrative and warehouse employees globally at a cost of approximately $14.9
million. Of these costs, $7.9 million, representing the termination of 350
employees, were recorded in the first nine months of 1999 and $7.0 million
related to the termination of the remaining approximately 250 employees are
expected to be recorded in the fourth quarter of 1999 and the first half of
2000. Accrued liabilities at September 30, 1999 include approximately $6.6
million of future severance payments related to employees terminated prior to
September 30, 1999 and approximately $1.4 million related to future payments for
the shutdown of facilities. The third quarter cash cost of $8.7 million and non
cash costs of $13.5 million have been recorded in the accompanying financial
statements as restructuring and other non-recurring charges. The non cash costs
for asset impairment charges relate to goodwill, capitalized software and
property as a result of exiting the domestic freight forwarding portion of
Americas' business, a reevaluation of the capitalized software costs and the
pending sale of certain property of its Italian subsidiary. In addition to
actions for which immediate financial recognition is required, many additional
actions have been taken including revised incentive plans for the sales and
management staffs (including the employees who will continue to operate the
international freight forwarding operations in the United States), expansion of
logistics facilities in Thailand and expansion of facilities and logistics
capabilities in China.
On September 10, 1999 the Company sold substantially all of the
assets of its GLAS business unit ("GLAS" Assets") to a subsidiary of FDX
Corporation, for aggregate cash consideration of approximately $116 million.
The $70 million gain on this sale has been reflected in the Condensed
Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 and the Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999.
The proceeds of such disposition were applied by the Company to fund a
$10 million escrow account in connection with certain warranties to the
purchaser, pay fees and expenses associated with the transaction and reduce
revolving debt that was secured by the GLAS Assets.
For the three and nine months ended September 30, 1999, revenues from
the GLAS operations contributed approximately $18.6 million and $66.8 million,
respectively, to the
19
<PAGE>
Company's revenues and $2.5 million and $10.5 million,
respectively, of operating income to the Company's operating losses of $28.2
million and $42.3 million, respectively.
The following discussion and analysis relates to the results of
operations for the Company as reported for the nine months ended September 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
1999 1998 1999 1998
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $400,020 $387,968 $1,161,119 $1,124,843
Net revenues 93,875 95,113 280,677 277,508
Selling, general and administrative expenses 94,693 91,020 284,970 265,650
Restructuring and other non-recurring charges 10,144 - 11,134 -
Asset impairment charges 12,060 - 12,060 -
Depreciation and amortization 5,128 3,847 14,829 11,560
Operating income (loss) (28,150) 246 (42,316) 298
Interest expense, net (7,316) (4,761) (18,462) (12,098)
Gain on disposition of business 69,760 - 69,760 -
Other income (expense), net (197) (32) (647) 114
Income tax provision (benefit) 34,230 (2,267) 35,261 (4,503)
Minority interest (371) (213) (958) (586)
Net loss $ (504) $(2,493) $(27,884) $(7,769)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES. The Company's revenues increased approximately $12.0 million
to $400.0 million for the three months ended September 30, 1999 from $388.0
million for the three months ended September 30, 1998. Asia/Pacific region
revenues increased $18.1 million, due primarily to increased export volumes from
new and existing customers. Also contributing additional revenue of $0.9 million
in the period was Americas and Canada which contributed $0.4 million more
revenue than the prior period. These increases were offset by a decline in the
GLAS business unit of $3.6 million, due to the sale of this operating unit in
mid-September 1999 and Europe as a result of diminished international forwarding
volumes due to regional softness. GeoLogistics Network Solutions ("GNS")
revenues declined $1.8 million primarily due to lower volumes as a result of
customer industry consolidations. Services business unit revenues decreased $1.8
million, on lower volume in both international relocation and project cargo
20
<PAGE>
product lines as a result of declining international relocations and softness in
the oil and gas industries.
NET REVENUES. Net revenues, which represent gross profit after
deducting transportation and other direct costs, decreased by approximately $1.2
million, to $93.9 million for the three months ended September 30, 1999 from
$95.1 million for the same period in 1998. Net revenues as a percentage of
revenues decreased to 23.5% in 1999 from 24.5% for the same period in 1998.
Asia/Pacific region contributed an increase of $3.4 million to net
revenues on the strength of higher volumes. This increase was offset by declines
in all other business units of the Company. The sale of GLAS in September 1999
resulted in a $1.5 million decrease in net revenues for the quarter relative to
the same period of 1998 while the softness in Europe's economy contributed an
additional $1.0 million to the decrease. GNS and Services net revenue decreased
$0.7 million and $0.6 million, respectively, as a result of lower volumes, as
previously discussed, and margin erosion. Bekins Household Goods ("Bekins HHG")
and Americas also experienced lower net revenues of $0.3 million and $0.7
million, respectively, as a result of lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $3.7 million, to $94.7
million for the three months ended September 30, 1999 from $91.0 million for
the three months ended September 30, 1998. These expenses as a percentage of
net revenues increased to 100.9% in 1999 from 95.7% for the same period in
1998. The increase in selling, general and administrative expenses occurred
partially as a result of higher expenses in Americas of approximately $1.1
million. Asia/Pacific operating expenses increased $2.6 million as well due
to the growth in the business in this region which required additional
support. Canada and Europe also experienced increases in expenses of $0.8
million each as a result of increased revenues related to new and existing
customers. The increases were partially offset by lower expenses related to
GLAS due to the sale, and Bekins HHG and Services as a result of cost control
efforts initiated in the quarter.
RESTRUCTURING, NON-RECURRING AND ASSET IMPAIRMENT CHARGES. As
previously discussed, the Company has implemented its restructuring and
reorganization plans in the third quarter which has resulted in recording $10.1
million of restructuring and non-recurring charges related to the shut down of
the domestic freight forwarding business and the streamlining of other corporate
and administrative functions. In addition, the Company has recorded asset
impairment charges of approximately $12.1 million relating to goodwill,
capitalized software and property as
21
<PAGE>
a result of exiting the domestic freight forwarding portion of Americas
business, a reevaluation of capitalized software costs and the pending sale
of certain property of its Italian subsidiary. These charges have all been
reflected in the results of operations of the Company for the three months
ended September 30, 1999. No such items existed during the same period of the
previous year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $1.3 million for the three months ended September 30, 1999 compared to
the prior year period primarily as the result of an increase in fixed assets
related to information technology.
OPERATING LOSS. The Company recorded a $28.2 million operating loss for
the three months ended September 30, 1999 compared to $0.2 million of operating
income for the three months ended September 30, 1998. The significant decrease
in operating loss is due primarily to the restructuring, non-recurring and asset
impairment charges of $22.2 million recorded in the third quarter of 1999,
higher depreciation and amortization expense, and lower operating results in all
operating units of the Company with the exception of Asia/Pacific (up $0.8
million) and Bekins HHG (up $0.1 million).
INTEREST EXPENSE, NET. Interest expense, net, increased by
approximately $2.5 million, to $7.3 million for the third quarter of 1999 from
$4.8 million for the same period of 1998. The increase resulted from the write
off of $1.5 million of deferred finance fees resulting from the amendment of the
Company's revolving line of credit in September 1999, interest associated with
borrowings incurred to finance the Air Services Acquisition in July 1998 and
higher levels of working capital-related borrowings required as a result of
lower operating results at GNS, Services and Americas.
INCOME TAXES. The income tax provision for the three months ended
September 30, 1999 increased $36.5 million to a $34.2 million provision versus a
$2.3 million tax benefit for the same period of 1998 as a result of the sale of
GLAS assets.
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 September 30, 1999 and 1998, respectively.
NET LOSS. Net loss decreased by $2.0 million to $0.5 million for the
three months ended September 30, 1999 compared to $2.5 million for the same
period of 1998. This decrease is due
22
<PAGE>
primarily to the after tax gain attributable to the sale of the GLAS assets
offset by restructuring and other non-recurring charges and operating losses
attributable to the Americas, Europe and Services, as previously discussed
and increased interest expense.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES. The Company's revenues increased by approximately $36.3
million to $1,161.1 million for the nine months ended September 30, 1999 from
$1,124.8 million for the nine months ended September 30, 1998. Contributing
additional revenue of $24.2 million in the period was GLAS. In addition, the
Asia/Pacific region revenues increased $53.8 million, due primarily to increased
export volumes and new customers. These increases were offset by a decline in
the Americas business unit of $18.1 million, due to lower volumes as a result of
a difficult freight forwarding environment. GNS revenues declined $7.4 million
primarily due to lower volumes resulting from customer industry consolidations.
Europe's revenues declined $9.0 million primarily as a result of market softness
in the region. Services' revenues decreased $8.5 million, on lower volume in
both international relocation and project cargo product lines as a result of
declining international relocations and continued delays in the commencement of
several large overseas projects, particularly by companies engaged in the oil
and gas industry. Had foreign exchange rates remained constant from 1998 to
1999, consolidated revenues would have been $2.4 million less than the actual
1999 results.
NET REVENUES. Net revenues increased by approximately $3.2 million, to
$280.7 million for the nine months ended September 30, 1999 from $277.5 million
for the same period in 1998. Net revenues as a percentage of revenues decreased
to 24.2% in 1999 from 24.7% for the same period in 1998. GLAS accounted for $6.7
million of the increase as a result of the acquisition of Caribbean Air Services
in July 1998.
The Asia/Pacific region contributed an increase of $9.1 million to net
revenues on the strength of higher volumes. These increases were offset by
declines in all other business units of the Company except Canada which
increased $0.9 million. Americas posted a decrease in net revenues of $5.1
million from the previous year as a result of the competitive freight forwarding
environment in the U.S. which has led to the planned exit from the domestic
freight forwarding market by the Company during the third quarter of 1999. The
softness in Europe's economy contributed $3.2 million to the decrease. GNS and
Services net revenues decreased $2.8 million and $2.1 million, respectively, as
a result of lower volumes as previously discussed, and margin
23
<PAGE>
erosion. Bekins HHG also experienced lower net revenues of $0.3 million a
result of lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $19.3 million, to $285.0
million for the nine months ended September 30, 1999 from $265.7 million for the
nine months ended September 30, 1998. These expenses as a percentage of net
revenues increased to 101.5% in 1999 from 95.7% for the same period in 1998.
Selling, general and administrative expenses increased over the prior year
period in all operating units of the Company. Asia/Pacific expenses increased
$7.5 million due to higher warehousing and employee costs required to support
the 26.7% increase in revenues. Selling, general and administrative expenses in
Europe increased $4.6 million as a result of initiatives to increase revenue
growth. Selling, general and administrative expenses in Canada increased $2.2
million due to additional warehousing costs required to support new business.
Expenses also include an additional $1.7 million for eight and one half months
of GLAS operations in 1999 versus two and one half months of operations in 1998
from the date of the Air Services Acquisition. Americas expenses increased by
$1.4 million as cost control initiatives implemented in early 1999 began to take
effect during the third quarter. All other operating units as a whole had a
modest combined increase of $1.9 million from the previous year.
RESTRUCTURING, NON-RECURRING AND ASSET IMPAIRMENT CHARGES. As
previously discussed, the Company has implemented its restructuring and
reorganization plans which has resulted in recording $11.1 million of
restructuring and non-recurring charges related to the shut down of the domestic
freight forwarding business and the streamlining of other corporate and
administrative functions. In addition, the Company has recorded asset impairment
charges of approximately $12.1 million relating to goodwill, capitalized
software and property as a result of exiting the domestic freight forwarding
portion of Americas business, a reevaluation of capitalized software costs and
the pending sale of certain property of its Italian subsidiary. These charges
have all been reflected in the results of operations of the Company for the nine
months ended September 30, 1999. No such items existed during the same period of
the previous year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $3.2 million for the nine months ended September 30, 1999 compared to
the prior year period primarily as the result of the Air Services Acquisition
and an increase in fixed assets related to information
technology.
24
<PAGE>
OPERATING LOSS. The Company recorded a $42.3 million operating loss for
the nine months ended September 30, 1999 compared to a $0.3 million operating
profit for the nine months ended September 30, 1998. Increased profits in
Asia/Pacific and GLAS were offset by restructuring charges and higher operating
losses in all other operating units as previously discussed.
INTEREST EXPENSE, NET. Interest expense, net, increased by
approximately $6.4 million, to $18.5 million for the first nine months of 1999
from $12.1 million for the same period of 1998. The increase was associated with
interest related to borrowings incurred to finance the Air Services Acquisition
in July 1998, higher levels of working capital-related borrowings required as a
result of the losses incurred at GNS, Services and the Americas operating units
and the write off of $1.5 million of deferred financing fees related to the
revolving credit agreement which was amended in September 1999.
INCOME TAXES. The income tax provision for the nine months ended
September 30, 1999 increased $39.8 million to a $35.3 million provision versus a
$4.5 million tax benefit for the same period of 1998. The increase for 1999
relates primarily to gains associated with the sale of the GLAS assets. 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 $1.0 million and $0.6 million for
the nine months ended September 30, 1999 and 1998, respectively.
NET LOSS. Net loss increased by $20.1 million to $27.9 million for the
nine months ended September 30, 1999 compared to $7.8 million for the same
period of 1998. This increase is due primarily to operating losses attributable
to the Americas, GNS, Europe and Services, increased interest expense, income
taxes and restructuring charges offset in part by the gain attributable to the
sale of the GLAS assets and improved operating results in Asia/Pacific and
Bekins HHG.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, net cash used by
operating activities was $53.4 million versus $45.5 million in the first nine
months of 1998. The increase was primarily due to a decrease in earnings. During
the first nine months of 1999 cash provided by investing activities was $96.8
million while cash used in investing activities was $49.2 million in
25
<PAGE>
the first nine months of 1998. This increase is primarily due to the sale of
GLAS in 1999. Cash used in investing activities in 1998 included $26.3
million related to the purchase of Caribbean Air Services. During the first
nine months of 1999 capital expenditures were $6.2 million as compared to
$22.9 million in the same period of 1998. Cash used in financing activities
in the first nine months of 1999 was $44.8 million while cash provided from
financing activities in the first nine months of 1998 was $71.1 million,
primarily as a result of repayment of revolving debt with the proceeds from
the sale of GLAS.
On February 26, 1999, the Company executed an amendment to its bank
credit facility (the "February Amendment"). The February Amendment, among other
things, (a) included covenants that were required due to pending results of the
Company, (b) provided for an additional $30.5 million commitment ("Supplemental
Commitment") by one of the Company's existing lenders, (c) required the obligors
under the bank 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 bank credit facility and (d) increased the margins
applicable to Eurodollar and base rate loans based on specified funded debt
ratios.
As a result of the disposition of GLAS (see note 6 to financial
statements) the Company, together with its guarantor subsidiaries entered
into an amendment to the revolving credit agreement. Among other changes, the
amendment provides for (a) reductions in credit availability from $100.0
million to $50.5 million in the aggregate with a sublimit of $20.0 million in
the United Kingdom, (b) reductions in the percentage of eligible accounts
receivable that qualify for the U.S. and United Kingdom borrowing base which
affect the Company's ability to incur debt under the revolving credit
facility, (c) the elimination of the interest coverage ratio covenant, (d)
the change in the maturity date to March 31, 2000, (e) the reduction of the
Supplemental Commitment from $30.0 million to $15.0 million and (f) the
amendment of the EBITDA covenant to provide that EBITDA for the three month
period ended December 31, 1999 will not be less than a deficit of $500,000.
Because the maturity date of the credit facility is March 31, 2000,
borrowings under the revolving credit facility of $1.8 million have been
classified as current liabilities in the September 30, 1999 balance sheet.
Because of the restructuring of certain of the Company's businesses and
uncertainties surrounding earnings performance the Company may have to seek
additional amendments or waivers of covenants in the credit facility.
26
<PAGE>
As a result of the change of the maturity date of the bank credit
facility to March 31, 2000 the Company does not have sufficient cash on hand
and will not generate sufficient cash from operations to repay amounts
outstanding under the bank credit facility. Accordingly, the Company will be
required to seek financing from alternative sources to repay amounts
outstanding under the bank credit facility on March 31, 2000 and to finance
working capital needs following maturity of the bank credit facility. The
Company is currently engaged in discussions with lenders regarding
alternative financing, but it has not received a commitment from any lender
to provide such financing and there can be no assurances that the Company
will be able to secure such financing on terms that are acceptable to the
Company, if at all. Failure to obtain such financing would cause an event of
default under the bank credit facility and would result in an event of
default under the indenture governing the Notes. If the Company is unable to
obtain such financing, it could be required to adopt one or more
alternatives, such as selling or leasing assets or restructuring debt. There
can be no assurances that the Company could effect these alternatives on
satisfactory terms, if at all. In addition, if the Company defaults on the
payment of amounts outstanding under the credit facility on maturity the
lenders under the credit facility may initiate their remedies under the
facility for such default, including foreclosure on the assets securing
borrowings under the 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 October 31, 1999,
the Company had a working capital borrowing base under its bank credit facility
of $50.5 million, $17.5 million of outstanding working capital related
borrowings and $9.9 million of outstanding letter of credit commitments, leaving
$23.1 of additional borrowing capacity. In addition, at October 31, 1999, the
Company had borrowings outstanding of $15.0 million pursuant to the Supplemental
Commitment. Total borrowings of foreign operations at September 30, 1999 were
approximately $19.4 million, representing a combination of short and long-term
borrowings and capital leases. The Company anticipates that it will pay
approximately $12.3 million in cash for restructuring charges during the fourth
quarter of 1999 and the first quarter of 2000. The Company expects that it will
finance such cash payments with borrowings under its credit facility. The
Company cannot, however, be certain that it will have sufficient availability
under its existing facility to finance such restructuring costs and its working
capital needs because of the limited borrowing capacity of such facility.
The indenture relating to the Company's Notes generally provides that,
subject to certain exceptions, the Company 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
27
<PAGE>
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 $115.0 million of total
indebtedness (consisting of $100.0 million of bank debt and $15.0 million of
other debt) notwithstanding the Company's inability to meet the consolidated
coverage ratio test. As of October 31, 1999, the Company had incurred $32.5
million of indebtedness under its United States and United Kingdom bank
credit facilities and, as of such date, the Company would have been able to
incur an additional $23.1 million of indebtedness pursuant to the terms of
such facilities. As of September 30, 1999, the Company had incurred $3.9
million of other debt and would have been able to incur an additional $11.1
million of other debt pursuant to the terms of the indenture. 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 September 30, 1999, the Company had
incurred $19.4 million of indebtedness under its foreign credit facilities
and as of such date, would have been able to incur an additional $10.6
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 its bank credit facility and Notes. The Company's bank credit
facility and the indenture related to the Notes contain certain restrictive
covenants. These restrictive covenants include covenants related to the
maintenance of EBITDA, limitations on indebtedness, limitations on restricted
payments, 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. It is anticipated that any replacement
financing for the Company's existing credit facility will include restrictive
covenants, some or all of which may be substantially more restrictive than the
covenants contained in the Company's existing bank credit facility. 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 bank credit facility is
limited to $16.0 million in North America and $7.1 million in the U.K. as of
September 30, 1999. The Company's ability to borrow additional funds and finance
its operations will be significantly affected by its ability to obtain
refinancing for the existing bank credit facility and additional financing,
which may be limited by the terms of the indenture and agreements governing the
28
<PAGE>
refinancing indebtedness. There can be no assurances that the Company will be
able to obtain any such financing on acceptable terms or at all. If the Company
is unable to generate sufficient cash flow, or refinance the bank credit
facility upon maturity, 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. 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 any of these alternatives could be effected on
satisfactory terms or at all. In addition, if the Company defaults on the
payment of amounts outstanding under the credit facility on maturity the lenders
under the credit facility may initiate their remedies under the facility for
such default, including foreclosure on the assets securing borrowings under the
facility.
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 key 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 North America are in compliance.
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 the end of November 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.
29
<PAGE>
The Company estimates total costs of the compliance process to be
approximately $2.0 million of which $1.9 million has been spent through October
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 the option of
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 if any unexpected system problems occur 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.
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.
30
<PAGE>
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 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.
31
<PAGE>
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.
32
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.5 Employment Agreement dated as of June 15, 1999 between
the Company and Robert Arovas.
27 Financial Data Schedule (Filed electronically only).
(b) Reports on Form 8-K
On September 17, 1999 the Company filed a current report on
Form 8-K disclosing the consummation of the sale of its
GeoLogistics Air Services, Inc. business unit to FDX Global
Logistics, Inc.
On September 27, 1999 the Company filed a current report on
Form 8-K/A disclosing the pro forma financial statements of
the Company reflecting the disposition of its GeoLogistics Air
Services, Inc. business.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEOLOGISTICS CORPORATION
Date: November 15, 1999 By: /s/ Robert Arovas
----------------- -------------------------------
Robert Arovas
President, Chief Executive Officer
Date: November 15, 1999 By: /s/ Janet D. Helvey
----------------- ------------------------------
Janet D. Helvey
Senior Vice President, Finance
Date: November 15, 1999 By: /s/ Kenneth R. Batko
----------------- -------------------------------
Kenneth R. Batko
Chief Accounting Officer
34
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT") is dated as
of June 15, 1999, between Geologistics Corporation, a Delaware corporation
(the "COMPANY"), and Robert Arovas (the "EXECUTIVE").
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. TERM. The Executive's employment by the Company will
commence on the date hereof and terminate at 12:01 a.m. on June 15, 2002 (the
"EXPIRATION DATE)" unless sooner terminated or extended as hereinafter
provided (such period, the "EMPLOYMENT PERIOD"); PROVIDED, HOWEVER, that the
initial Employment Period, and the corresponding Expiration Date, shall
automatically be extended for successive one (1) year terms if neither Party
has advised the other in writing in accordance with Section 11 at least six
(6) months prior to the end of the then current Employment Period that such
Employment Period will not be extended for an additional one (1) year period.
In the event that such notice is given, the Executive's employment will
terminate on the last business day of the then current Employment Period.
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) POSITION. The Executive hereby agrees to serve as
Executive Vice President and Chief Operating Officer of the Company reporting
to the Chief Executive Officer and the Board of Directors of the Company (the
"BOARD"). In addition, the Executive shall serve as Acting Chief Financial
Officer until such time as that position can be filled. The Executive shall
devote his best efforts and his full business time and attentio nto the
performance of services to the Company in his capacity as an officer thereof
and as may reasonably be requested by the Board, except when taking time off
for vacations, holidays, illness or such other reasons as permitted under
this Agreement or in accordance with the Company's policies, practices and
procedures, as long as such time off does not interfere with the performance
of his duties. The Company shall retain full direction and control of the
means and methods by which the Executive performs the above services.
(b) PLACE OF EMPLOYMENT. Unless the parties agree otherwise in
writing, during the term of this Agreement, the Executive shall perform the
services required by this Agreement at the Company's principal offices in
either Chicago, Illinois or Atlanta, Georgia; PROVIDED, HOWEVER, that the
Company may from time to time reasonably require the Executive to travel
temporarily to other locations on the Company's business at the Company's
expense.
(c) OTHER ACTIVITIES. Except with the prior written approval of the
Board (which the Board may grant or withhold in its sole discretion), the
Executive, during the Employment Period, will not (i) accept any other
employment, (ii) serve on the board of directors or similar body of any other
business entity, or (iii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage) that is or
may be competitive with, or that might place him in a conflicting position
with, that of the Company or any of its subsidiaries; PROVIDED, HOWEVER, that
the Executive's receipt of severance payments
<PAGE>
and benefits from any prior employer, which are not in exchange for any
services to be rendered to or on behalf of such employer during the
Employment Period, shall not be a violation of this Section 3(c).
4. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the Employment Period, the Company shall
pay the Executive an annual base salary ("SALARY") of not less than $300,000,
to be paid consistent with the standard payroll practices of the Company but
in any event in installments no less frequently than monthly.
(b) BUSINESS EXPENSES. The Company shall promptly reimburse
the Executive for reasonable business expenses incurred in connection with
the conduct of the Company's business upon presentation of sufficient
evidence of such expenditures consistent with the Company's policies as may
be in place from time to time.
(c) CASH INCENTIVE COMPENSATION. The Executive shall be
eligible to receive additional performance-based cash bonus compensation (the
"CASH INCENTIVE COMPENSATION") of up to seventy percent (70%) of the
Executive's Salary for each fiscal year upon his satisfaction of certain
financial targets and other clearly defined management objectives (the "CASH
INCENTIVE OBJECTIVES") to be established annually by the Compensation
Committee of the Board. For the Company's 1999 fiscal year, the Cash
Incentive Objectives shall be established within sixty (60) days of the date
hereof and shall be based on the plan for reorganization submitted to the
Company by the Executive on or about August 13, 1999, as the same may be
reviewed and revised by the Company and the Executive, and, for each
subsequent fiscal year, the Cash Incentive Objectives shall be established no
later than sixty (60) days following the commencement of such fiscal year.
The Executive's Cash Incentive Compensation for the Company's 1999 fiscal
year shall be payable on a prorated basis by multiplying such amount by a
fraction, the numerator being the number of days in the Employment Period
during such year and the denominator being 365.
(d) AUTOMOBILE ALLOWANCE. The Company will provide the
Executive with the use of a Company-leased automobile in accordance with
applicable Company policy.
(e) PAID TIME OFF. The Executive will be entitled to paid
time off in each calendar year in accordance with the Company's policies,
practices and procedures applicable to executives, which shall include, but
not be limited to, four weeks of vacation, all holidays observed by the
Company, personal days and sick days; PROVIDED, HOWEVER, that the Company
will permit the Executive to carry over up to two weeks of accrued but unused
vacation days for use in the following calendar year or will pay the
Executive for such vacation days, at the Company's option.
2
<PAGE>
(f) HOUSING ALLOWANCE/RELOCATION REIMBURSEMENT. The
Company will provide the Executive with the use of a Company-leased apartment
in the Atlanta, Georgia metropolitan area; PROVIDED, HOWEVER, that if, during
the first six (6) months of his employment with the Company, the Executive,
in his sole discretion, elects to relocate his primary residence from
California to Georgia or agrees to any subsequent relocation thereafter at
the request of the Company, the Company will reimburse the Executive for the
reasonable costs associated with such relocation(s), and said housing
allowance thereafter will be discontinued.
(g) PERSONAL TRAVEL ALLOWANCE. The Company will pay the
Executive's costs for up to three round-trip airline tickets per month, at
the most cost-effective rate, to his home in California.
(h) RESTRICTED STOCK GRANT. The Company shall provide the
Executive with 25,000 shares of restricted Company stock, subject to the
terms and provisions of the Geologistics Corporation 1999 Long-Term Incentive
Plan and the Restricted Share Award Agreement executed thereunder, which
agreement is attached as Exhibit A hereto.
(i) LETTER OF CREDIT. Within thirty (30) days after the
execution of this Agreement, the Executive shall receive an irrevocable bank
letter of credit (the "LETTER OF CREDIT") in the amount of $500,000, subject
to adjustment as provided below, payable to the Executive (or his heirs,
successors or assigns) in the event of the Company's failure to pay to the
Executive any amounts due and owing, or benefits due, pursuant to Section
4(a) or Section 6(d) of this Agreement, as a result of the Company's
bankruptcy or insolvency or any other reason. Commencing on the date sixteen
(16) months after the date of this Agreement, the amount of the Letter of
Credit shall be reduced by $25,000 per month for each month remaining in the
Employment Period.
(j) OTHER BENEFITS. The Executive shall be entitled to
participate in or receive group health and long-term disability insurance,
bonus plan, 401(k) plan, non-qualified plan and similar benefits as the
Company provides generally from time to time to its executives and life
insurance coverage in an aggregate amount of $750,000 through individual
and/or group policies. The Executive may elect, in lieu of participation in
the Company's group health plan, to obtain private health coverage, the cost
of which shall be reimbursed to the Executive by the Company in an amount of
up to $700 per month.
5. TERMINATION. The Executive's employment hereunder shall or may
be terminated under the following circumstances:
(a) DEATH. The Executive's employment hereunder
shall terminate upon his death.
(b) DISABILITY. The Executive's employment hereunder shall
terminate upon the Executive's "DISABILITY." Disability shall mean any
physical or mental disability or infirmity which renders the Executive unable
to perform his duties under this Agreement for more than ninety (90)
consecutive days during any 180-day period, as determined (i) in accordance
with any long-term disability plan provided by the Company of which the
Executive is a participant, or (ii) by the following procedure: The
Executive agrees to submit to medical examinations by a licensed healthcare
professional selected by the Company, in its sole discretion, to determine
3
<PAGE>
whether a Disability exists. In addition, the Executive may submit to the
Company documentation of a Disability, or lack thereof, from a licensed
healthcare professional of his choice. Following a determination of a
Disability or lack of Disability by the Company's or the Executive's licensed
healthcare professional, the other party may submit subsequent documentation
relating to the existence of a Disability from a licensed healthcare
professional selected by such other party. In the event that the medical
opinions of such licensed healthcare professionals conflict, such licensed
healthcare professionals shall appoint a third licensed healthcare
professional to examine the Executive, and the opinion of such third licensed
healthcare professional shall be dispositive.
(c) FOR CAUSE. The Company may terminate the Executive's
employment hereunder for "CAUSE" by delivery of written notice to the
Executive specifying the factual basis for the termination and the
provision(s) of this Section 5(c) believed to be applicable thereto. Cause
shall mean (i) Executive's material breach of this Agreement, (ii) his being
formally charged with any felony or any crime involving moral turpitude under
the laws of any state, the District of Columbia or of the United States,
(iii) his gross misconduct in the performance of his duties hereunder,
including without limitation, his willful failure or refusal to carry out any
proper direction by the Board with respect to the services to be rendered by
him hereunder, or his habitual neglect of his duties as an officer of the
Company (other than as a result of a disability), which misconduct or neglect
shall continue for thirty (30) days after receipt of written notice from the
Company, (iv) his engaging in any material misconduct, dishonesty,
misappropriation of the assets of the Company, its equity holders or any of
its or their affiliates, or any acts of gross negligence, in each case,
detrimental in any material respect to any of the foregoing or (v) his
engaging in any venture presented to him by virtue of his position with the
Company wherein the profits of such venture are not made available to the
Company, without having received the prior written consent of the Company.
(d) WITHOUT CAUSE. The Company may terminate the
Executive's employment for any reason upon written Notice of Termination,
given in accordance with Section 5(g), and subject to the payments provided
for in Section 6(d).
(e) VOLUNTARY RESIGNATION. The Executive may voluntarily
resign his position and terminate his employment with the Company without
Good Reason at any time by delivery of a written Notice of Resignation to the
Company, as provided for in Section 5(g), below.
(f) RESIGNATION FOR GOOD REASON. The Executive may terminate
his employment for "GOOD REASON" by delivery of a Notice of Resignation as
described in Section 5(g) below, specifying the factual basis for the
termination and the provision(s) of this Section 5(f) believed to be
applicable thereto. Good Reason shall mean (i) a change in the Executive's
title of Chief Operating Officer, (ii) a substantial diminution in the
Executive's duties and responsibilities with the Company since the date of
this Agreement, (iii) a reduction in the Executive's Salary, bonus
opportunity or benefits provided pursuant to Section 4(b), Sections (4)(d)
through (g) and Section 4(j) of this Agreement or (iv) any material breach of
this Agreement; PROVIDED, HOWEVER, that the sale of any division or business
of the Company not related to the Company's international freight forwarding
business shall not in any event constitute a diminution in the Executive's
duties and responsibilities.
4
<PAGE>
(g) NOTICE OF TERMINATION OR RESIGNATION. Any termination
of the Executive's employment by the Company shall be communicated by written
"NOTICE OF TERMINATION" to the Executive, and any resignation by the
Executive shall be communicated by written "NOTICE OF RESIGNATION" to the
Company, each of which shall set forth the date such termination or
resignation shall become effective, which date shall, in any event, be no
less than thirty (30) days from the date the notice is given, unless
otherwise provided for in Section 5(h), below. A Notice of Termination or a
Notice of Resignation shall also indicate the specific termination provision
in this Agreement relied upon.
(h) DATE OF TERMINATION. The Date of Termination shall mean
(i) if the Executive's employment is terminated by his death, the date of his
death, (ii) if the Executive's employment is terminated by reason of his
Disability, the date of the final determination of a Disability as provided
in Section 5(b), (iii) if the Executive's employment is terminated pursuant
to Section 5(c) or (d) above, the date specified in the Notice of
Termination, and (iv) if the Executive resigns pursuant to Section 5(e) or
(f), the Date of Resignation; PROVIDED, HOWEVER, that in no event shall the
Date of Termination be earlier than the date of any Notice of Termination.
(i) TERMINATION OBLIGATIONS OF EXECUTIVE. Upon termination of the
Employment Period, (i) the Executive shall be deemed to have resigned from
all offices and directorships then held with the Company or any affiliate,
(ii) the Executive will be required to return all property and Confidential
Information as provided for in Section 8, and the representations and
warranties contained herein and the Executive's obligations under Sections 8,
9, 10 and 19 shall survive termination of the Employment Period and the
expiration of this Agreement.
6. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) DEATH. If the Executive's employment is terminated by
reason of his death, the Company shall pay the Executive's estate his Salary
through the end of the month in which the Date of Termination occurs, and the
Executive's beneficiaries shall be entitled to receive any benefits due to
them as a result of any life insurance policy the Executive receives pursuant
to Section 4(j) of this Agreement. In the event that the Cash Incentive
Objectives are met at the end of the fiscal year in which the Executive's
death occurs, the Company shall also pay to the Executive's estate, within
thirty (30) days after receipt by the Company of the audited financial
statements for such fiscal year and confirmation that the Cash Incentive
Objectives have been met, a proportionate share of the Cash Incentive
Compensation due to the Executive for such fiscal year based upon the number
of days in the fiscal year that the Executive worked for the Company prior to
such termination. In addition, for a period of twelve (12) months from the
Date of Termination, the Company shall keep in force the Executive's existing
health insurance coverage on the same basis as in effect at the Date of
Termination by (i) continuing the coverage of the Executive's dependents
under the Company's group health plan, subject to the Company's right to
amend, modify or terminate any such plan, or (ii) continuing to make the
payments for the Executive's private health insurance for his eligible
dependents, in accordance with the Executive's election pursuant to Section
4(j).
5
<PAGE>
(b) DISABILITY. During any period that the Executive is
unable to perform his duties hereunder due to physical or mental illness, in
the opinion of a physician selected or approved by the Board or as determined
by any short-term disability plan provided by the Company, the Executive
shall continue to receive the Salary payable to the Executive pursuant to and
in accordance with the terms of Section 4(a) hereof until his employment is
terminated pursuant to Section 5(b) hereof, provided that any payments so
made to the Executive shall be reduced by any amounts paid to the Executive
under any disability benefit plan maintained by the Company. If the
Executive's employment is terminated by reason of a Disability, he shall be
paid his Salary through the Date of Termination. In the event that the Cash
Incentive Objectives are met at the end of the fiscal year in which the
Executive is terminated pursuant to Section 5(b), the Company shall also pay
to the Executive, within thirty (30) days after receipt by the Company of the
audited financial statements for such fiscal year and confirmation that the
Cash Incentive Objectives have been met, a proportionate share of the Cash
Incentive Compensation that may otherwise have been due to the Executive for
such fiscal year based upon the number of days in the fiscal year that the
Executive worked for the Company prior to such termination. In addition, for
a period of twelve (12) months from the Date of Termination, the Company
shall keep in force the Executive's existing health insurance coverage on the
same basis as in effect at the Date of Termination by (i) continuing the
Executive's coverage under the Company's group health plan, subject to the
Company's right to amend, modify or terminate any such plan, or (ii)
continuing to make the payments for the Executive's private health insurance
for the Executive and his eligible dependents, in accordance with the
Executive's election pursuant to Section 4(j).
(c) CAUSE. If the Executive's employment is terminated for
Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive
his Salary through the Date of Termination, and no other payments will be due
and owing.
(d) OTHER TERMINATIONS BY THE COMPANY. If the Company
terminates the Executive's employment without Cause pursuant to Section 5(d)
or if the Executive resigns for Good Reason pursuant to Section 5(f), the
Company shall pay the Executive the Salary payable pursuant to and in
accordance with Section 4(a) for the greater of (i) the period beginning on
the Date of Termination and ending on the Expiration Date or (ii) a period of
twelve (12) months from the Date of Termination (either period referred to
herein as the "SEVERANCE PERIOD"). In the event that the Cash Incentive
Objectives are met at the end of the fiscal year in which the Executive is
terminated by the Company without Cause pursuant to Section 5(d) or the
Executive resigns for Good Reason pursuant to Section 5(f), the Company shall
also pay to the Executive, within thirty (30) days after receipt by the
Company of the audited financial statements for such fiscal year and
confirmation that the Cash Incentive Objectives have been met, a
proportionate share of the Cash Incentive Compensation that may otherwise
have been due to the Executive for the fiscal year in which the Date of
Termination has occurred based upon the number of days in the fiscal year
that the Executive worked for the Company prior to such termination. In
addition, for a period of twelve (12) months from the Date of Termination,
the Company shall keep in force the Executive's existing health insurance
coverage on the same basis as in effect at the Date of Termination by (i)
continuing the Executive's coverage under the Company's group health plan,
subject to the Company's right to amend, modify or terminate any such plan,
or (ii) continuing to make the payments for the Executive's private health
insurance for the Executive and his eligible dependents, in accordance with
the Executive's election pursuant to
6
<PAGE>
Section 4(j). Notwithstanding anything to the contrary in this Agreement, no
payments to be made or benefits to be provided to the Executive upon the
termination of his employment pursuant to this Section 6(d) shall be made or
provided unless and until the Executive executes a general release releasing
the Company and its affiliates from all rights and claims arising under this
Agreement or otherwise relating to his employment or the termination thereof
and such general release becomes effective pursuant to its terms.
(e) VOLUNTARY RESIGNATION. If the Executive terminates his
employment with the Company pursuant to Section 5(e) hereof, the Company
shall pay the Executive's Salary through the Date of Resignation, and no
other payments shall be due and owing.
7. CHANGE OF CONTROL. In the event that the Executive's employment
is terminated (a) without Cause at any time during the Employment Period
after a "CHANGE OF CONTROL" or (b) with Cause within six (6) months following
a Change of Control, the Executive shall be entitled to the compensation and
benefits provided for in Section 6(d) or Section 6(c), as applicable, plus,
in each case, the compensation and benefits set forth in Section 6(d) for an
additional period of six (6) months (the payment of which shall also be
deemed to be a part of the Severance Period), subject to the same conditions
contained in Section 6. A Change of Control shall be deemed to have occurred
in the event that the "PERMITTED HOLDERS", individually or together, cease
for any reason to beneficially own at least thirty percent (30%) of the
Company's then outstanding shares of common stock or the combined voting
power of the then outstanding voting securities of the Company. As used
herein, Permitted Holders means holders of common stock of the Company on
August 12, 1999 and each other entity or person to which Oaktree Capital
Management, LLC or William E. Simons & Sons LLC, or their respective
affiliates, provides management or investment advisory services.
8. CONFIDENTIALITY, COMPANY PROPERTY AND NON-SOLICITATION COVENANTS.
(a) CONFIDENTIALITY. The Executive will not, during the
Employment Period or any period thereafter, directly or indirectly, disclose
or make available to any person, firm, corporation, association or other
entity, any "CONFIDENTIAL INFORMATION," for any reason or purpose whatsoever,
except as necessary in the course of performing his duties under this
Agreement and unless otherwise required by court order, subpoena or other
government or legal process. "CONFIDENTIAL INFORMATION" means: information
disclosed to the Executive or known by the Executive as a consequence of or
through his relationship with the Company, about the customers, employees,
business methods, public relations methods, organization, procedures or
finances, including, without limitation, information of or relating to
customer lists, of the Company and its affiliates; PROVIDED, HOWEVER, that
Confidential Information shall not include any information that (i) was
publicly known at the time of disclosure to the Executive, (ii) becomes
publicly known or available thereafter other than by any means in violation
of this Agreement or any other duty owed to the Company by any person or
entity or (iii) is lawfully disclosed to the Executive by a third party.
Upon termination of the Executive's employment with the Company, regardless
of the reason, all Confidential Information in his possession (together with
all copies or duplicates thereof, including computer files) shall be returned
to the Company and shall not be retained by the Executive or furnished to any
third party; PROVIDED, HOWEVER, that the Executive may retain personal
diaries, documents relating to his compensation and benefits, and this
Agreement.
7
<PAGE>
(b) COMPANY PROPERTY. All personal property and equipment
furnished to or prepared by the Executive in the course of or incident to his
employment belong to the Company and shall be promptly returned to the
Company upon termination of the Employment Period or at such other time as
the Company may request. Personal property includes, without limitation, all
books, manuals, records, reports, notes, contracts, lists, blueprints, and
other documents, or materials, or copies thereof (including computer files),
and all other proprietary information relating to the business of the
Company. Following termination, the Executive will not retain any written or
other tangible material containing any proprietary information of the
Company.
(c) NON-SOLICITATION. At all times during the Employment
Period and for the longer of any Severance Period or nine (9) months after
the termination of the Executive's employment by the Company for Cause or by
the Executive without Good Reason, the Executive will not, directly or
indirectly, either on his own account or jointly with or as a manager, agent,
officer, employee, consultant, partner, joint venturer, owner or shareholder
or otherwise on behalf of any other person, firm or corporation, (i) carry on
or be engaged or interested in, or solicit, the sale of physical logistics
services to any person, firm or corporation which at any time during the
Employment Period has been or is a customer of the Company, (ii) endeavor to
canvas or solicit in competition with the Company or to interfere with the
supply of orders for goods or services from or by any person, firm or
corporation which during the Employment Period has been or is a supplier of
goods or services to the Company, or (iii) solicit or attempt to solicit away
from the Company any of its officers or employees or offer employment to any
person who, during the six (6) months immediately preceding the date of such
solicitation or offer, is or was an officer or employee of the Company.
9. COVENANT NOT TO COMPETE. At all times during the Employment
Period and for the longer of any Severance Period or twelve (12) months after
termination if the Executive's employment is terminated by the Company for
Cause or by the Executive without Good Reason, the Executive will not,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, any
profit or non-profit business or organization which, directly or indirectly,
competes with, or in any way interferes with, the business of providing
physical logistics services similar to that provided by the Company or any of
its affiliates, in any part of North America. Notwithstanding the foregoing,
nothing in this Section 9 shall prohibit the Executive from working for or
providing services to any customer or supplier or former customer or supplier
of the Company or any other person or entity that is not engaged in the
business of providing physical logistics services or from owning less than
one percent (1%) of the issued and outstanding shares of a corporation the
shares of which are traded on a public stock exchange.
8
<PAGE>
10. INJUNCTIVE RELIEF AND ENFORCEMENT. In the event of any breach
by the Executive of the terms of Sections 5(i), 8 or 9, the Company shall be
entitled to institute legal proceedings to obtain damages for any such breach
and to enforce the specific performance of this Agreement by the Executive
and to enjoin the Executive from any further violation of Sections 5(i), 8 or
9 and to exercise such remedies cumulatively or in conjunction with all other
rights and remedies provided by law. The Executive acknowledges, however,
that the remedies at law for any breach by him of the provisions of Sections
5(i), 8 or 9 may be inadequate. In addition, in the event any provision of
Sections 5(i), 8 or 9 is determined by any court of competent jurisdiction to
be unenforceable by reason of extending for too great a period of time or too
great a geographical area or by reason of being too extensive in any other
respect, each such provision shall be interpreted to extend to the maximum
extent for which it may be enforceable, and enforced as so interpreted, all
as determined by such court in such action.
11. NOTICES. All notices, demands and all other communications
provided for in this Agreement shall be in writing and shall be deemed to
have been duly given when personally delivered, when transmitted by telecopy
with receipt confirmed, or one day after delivery to an overnight air courier
guaranteeing next day delivery, addressed as follows:
If to the Executive: Robert Arovas
2746 Buchanan Street
San Francisco, CA. 94123
With a copy to: Brian T. Foley
Brian Foley and Co., Inc.
One North Broadway
White Plains, New York 10604
If to the Company: Geologistics Corporation
13952 Denver West Parkway
Suite 150
Golden, Colorado 80401
Attention: General Counsel
With a copy to: Milbank, Tweed, Hadley & McCloy LLP
601 South Figueroa Street
30th Floor
Los Angeles, CA 90017
Attention: Eric H. Schunk
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
9
<PAGE>
12. ARBITRATION. Notwithstanding anything herein to the contrary,
in the event of a dispute between the parties arising out of or relating to
this Agreement, or the breach hereof, the parties agree that such dispute
shall be resolved by final and binding arbitration in Atlanta, Georgia,
administered by the American Arbitration Association ("AAA"), in accordance
with AAA's Commercial Arbitration Rules then in effect. Discovery may be
obtained during such arbitration proceedings to the extent authorized by the
arbitrator. Any award issued as a result of such arbitration shall be final
and binding between the parties thereto, and shall be enforceable by any
court having jurisdiction over the party against whom enforcement is sought.
The fees and expenses of such arbitration (including reasonable attorneys'
fees) or any action to enforce an arbitration award shall be paid by the
party incurring them, except that the arbitrator may determine that the party
that does not prevail in such arbitration may be required to pay a portion of
the prevailing party's fees and expenses.
13. LEGAL FEES. The Company will reimburse the Executive for fees
and expenses, up to a maximum amount of $7,500.00, incurred in connection
with having this Agreement reviewed by legal counsel of his own choosing
prior to execution, upon his submission of a statement for such fees and
expenses from legal counsel.
14. INDEMNIFICATION. The Company agrees to indemnify the Executive
to the fullest extent provided for in the Indemnification Agreement that is
annexed hereto as Exhibit B.
15. SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain
in full force and effect; provided, however, that if any one or more of the
terms contained in Sections 8 or 9 hereto is for any reason held to be
excessively broad with regard to time, duration, geographic scope or
activity, that term shall not be deleted but shall be reformed and construed
in a manner to enable it to be enforced to the extent compatible with
applicable law.
16. ASSIGNMENT. This Agreement may not be assigned by the
Executive, but may be assigned by the Company to any successor to its
business and will inure to the benefit and be binding upon any such
successor.
17. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but both of which together
will constitute one and the same instrument.
18. HEADINGS. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation
of this Agreement.
19. CHOICE OF LAW. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of New York (without reference to the choice of law provisions of New
York law), except with respect to matters of law concerning the internal
corporate affairs of the Company, and as to those matters the law of the
State of Delaware shall govern.
10
<PAGE>
20. LIMITATIONS ON LIABILITY.
(a) If the Executive is awarded any damages for any breach of
this Agreement, a breach of any covenant contained in this Agreement (whether
express or implied by either law or fact), or any other cause of action based
in whole or in part on his employment with the Company, such damages shall be
limited to contractual damages and shall exclude (i) punitive damages, and
(ii) consequential and/or incidental damages (E.G., lost profits and other
indirect or speculative damages). The maximum amount of damages that the
Executive may recover for any reason shall be the amount equal to all amounts
owed (but not yet paid) to the Executive pursuant to this Agreement through
its natural term or through any Severance Period.
(b) Any damages which the Company may be awarded because of
the Executive's breach of this Agreement shall not include indirect or
speculative damages or punitive damages.
21. ENTIRE AGREEMENT. This Agreement, together with Exhibits A and
B hereto, contains the entire agreement and understanding between the Company
and the Executive with respect to the employment of the Executive by the
Company as contemplated hereby, and this Agreement supersedes all prior
agreements, understandings, representations, promises, negotiations and
discussions, whether written or oral. This Agreement may not be changed
unless in writing and signed by both the Executive and a member of the Board.
22. THE EXECUTIVE'S ACKNOWLEDGMENT. The Executive acknowledges
(a) that he has consulted with or has had the opportunity to consult with
independent counsel of his own choice concerning this Agreement and has been
advised to do so by the Company, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
GEOLOGISTICS CORPORATION
/s/ Ron Jackson
-----------------------------------
Name: Ron Jackson
------------------------------
Title: VP & General Counsel
------------------------------
ROBERT AROVAS
/s/ Robert Arovas
-----------------------------------
11
<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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,719
<SECURITIES> 0
<RECEIVABLES> 277,101
<ALLOWANCES> 20,280
<INVENTORY> 0
<CURRENT-ASSETS> 316,160
<PP&E> 98,994
<DEPRECIATION> 21,784
<TOTAL-ASSETS> 469,798
<CURRENT-LIABILITIES> 315,210
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> (27,301)
<TOTAL-LIABILITY-AND-EQUITY> 469,798
<SALES> 1,161,119
<TOTAL-REVENUES> 1,161,119
<CGS> 880,442
<TOTAL-COSTS> 922,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,462
<INCOME-PRETAX> 7,377
<INCOME-TAX> 35,261
<INCOME-CONTINUING> (27,884)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,884)
<EPS-BASIC> (13.88)
<EPS-DILUTED> (13.88)
</TABLE>
