SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-42607
GEOLOGISTICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3438013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13952 DENVER WEST PARKWAY
GOLDEN, COLORADO 80401
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code:(303) 704-4400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes___ No X
On May 18, 1998, the registrant had 2,128,893 outstanding shares of common
stock, par value $.001 per share.
GEOLOGISTICS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets,
March 31, 1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statements of
Income for the three months ended
March 31, 1998 and 1997 (unaudited) 5
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 1998 and 1997 (unaudited) 6
Notes to the Condensed Consolidated Financial
Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 14
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities 20
ITEM 6. Exhibits and Reports on Form 8-K 20
2
PART I. FINANCIAL INFORMATION
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1998 1997
-------------- -------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 37,285 $ 37,909
Accounts receivable:
Trade, net 246,161 250,006
Other 11,770 11,139
Deferred income taxes 11,003 6,528
Prepaid expenses 10,577 14,150
-------- --------
Total current assets 316,796 319,732
-------- --------
Property and equipment, at cost 68,096 57,682
Accumulated depreciation (7,889) (5,875)
-------- ---------
Net property and equipment 60,207 51,807
Notes receivable, less current portion 1,838 2,329
Deferred income taxes 18,284 20,861
Goodwill, net 53,982 54,397
Intangible assets, net 21,462 19,479
Other assets 16,193 17,161
-------- --------
$488,762 $485,766
-------- --------
-------- --------
See accompanying notes to the condensed
consolidated financial statements.
3
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1998 1997
---------- ----------
(UNAUDITED)
Current liabilities:
Accounts payable $141,057 $128,138
Accrued expenses 149,311 165,098
Income taxes payable 1,981 5,993
Current portion of long term debt 3,958 2,580
--------- ----------
Total current liabilities 296,307 301,809
Long-term debt, less current portion 123,946 112,790
Other noncurrent liabilities 47,227 46,647
-------- --------
Total liabilities 467,480 461,246
------- -------
Minority interest 1,501 1,601
Stockholders' equity:
Common stock ($.001 par value 5,000,000 shares authorized,
2,129,493 and 2,074,226 shares issued) 2 2
Additional paid-in-capital 54,310 52,291
Accumulated deficit (33,230) (28,902)
Note receivable from shareholder (200) (357)
Cumulative translation adjustments (1,101) (115)
-------- ----------
Total stockholders' equity 19,781 22,919
-------- --------
$488,762 $485,766
-------- --------
-------- --------
See accompanying notes to the condensed
consolidated financial statements.
4
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE-MONTH PERIODS
ENDED
MARCH 31, MARCH 31,
1998 1997
---------- ---------
Revenues $ 365,664 $ 162,742
Transportation and other direct costs 276,626 125,876
--------- ---------
Net revenues 89,038 36,866
Selling, general and administrative expenses 87,905 35,292
Depreciation and amortization 3,813 7,294
--------- ---------
Operating loss (2,680) (5,720)
Interest expense, net (3,434) (1,774)
Other income (expense) (13) 3
--------- ---------
Loss before income taxes and minority interest (6,127) (7,491)
Income tax benefit (1,957) (2,047)
--------- ---------
Loss before minority interest (4,170) (5,444)
Minority interest (158) -
--------- ---------
Net loss $ (4,328) $ (5,444)
--------- ---------
--------- ---------
Basic loss per common share $ (2.06) $ (2.69)
--------- ---------
--------- ---------
Diluted loss per common share $ (2.06) $ (2.69)
--------- ---------
--------- ---------
Weighted average number of common and
common equivalent shares outstanding 2,101,026 2,026,116
--------- ---------
--------- ---------
See accompanying notes to the condensed
consolidated financial statements.
5
GEOLOGISTICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE-MONTH PERIODS
ENDED
--------------------------
MARCH 31, MARCH 31,
1998 1997
---------- --------
Cash flows from operating activities:
Net loss $ (4,328) $ (5,444)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 3,813 7,294
Amortization of deferred items 297 164
Deferred income tax benefit (1,898) (1,518)
Changes in current assets and liabilities, net (5,436) (11,161)
Other, net (375) 603
-------- --------
Net cash from operating activities (7,927) (10,062)
Cash flows from investing activities:
Purchases of property, equipment and software (3,607) (1,099)
Other (633) 7
-------- --------
Net cash from investing activities (4,240) (1,092)
Cash flows from financing activities:
Proceeds from revolving line of credit 34,500 31,000
Proceeds from long-term debt 1,799 -
Payments on revolving line of credit (25,700) (20,100)
Payments on long-term debt (838) (776)
Proceeds from issuance of common stock 1,658 1,074
Repurchase of common stock - (461)
Other, net 124 (26)
-------- --------
Net cash from financing activities 11,543 10,711
-------- --------
Net decrease in cash and cash equivalents (624) (443)
Cash and cash equivalents, beginning of period 37,909 3,424
-------- --------
Cash and cash equivalents, end of period $ 37,285 $ 2,981
-------- --------
-------- --------
Supplemental cash flow information:
Interest paid during the period $ 891 $ 1,527
Income taxes paid during the period $ 646 $ 401
Noncash warrant transactions $ 360 -
New capital leases $ 1,884 -
See accompanying notes to the condensed consolidated financial statements
6
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 (formerly known as
International Logistics Limited) ("Company") Registration Statement on Form S-4
as filed with the Securities and Exchange Commission on April 28, 1998. 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 prior years have been
reclassified to conform with current year financial statement presentations.
Significant accounting policies followed by the Company are included in Note 1
to the audited consolidated financial statements in the Company's Form S-4 filed
on April 28, 1998. Results of operations for the three months ended March 31,
1998 may not be indicative of the results to be expected for the full year.
PRINCIPLES OF CONSOLIDATION: The accompanying condensed consolidated financial
statements include the accounts of the Company and its majority owned
subsidiaries. The Company records its investment in each unconsolidated
affiliated company (20 to 50 percent ownership) using the equity method of
accounting. Other investments (less than 20 percent ownership) are recorded at
cost. Intercompany accounts and transactions have been eliminated. The financial
statements reflect minority interests in foreign affiliates acquired in
connection with the acquisition of LEP International Worldwide Limited ("LIW").
USE OF ESTIMATES: The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and judgments of management. Actual results could differ from
those estimates. Accounts affected by significant estimates include accounts
receivable and accruals for transportation and other direct costs, tax
contingencies, insurance claims, cargo loss and damage claims.
7
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
COMMON STOCK
In February, 1998 the Company sold 55,267 shares of its Common stock to
employees, pursuant to an employee stock purchase plan for an aggregate purchase
price of $1.7 million or $30 per share. The proceeds of the sales were used for
general corporate purposes. These shares were not required to be registered with
the Securities and Exchange Commission pursuant to Rule 701 promulgated under
the Securities Act of 1933.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128 ("FAS
128"), Earnings Per Share at December 31, 1997. All prior period earnings per
common share data have been restated to conform to the provisions of this
statement. Basic earnings per common share is computed using the weighted
average number of shares outstanding. Diluted earnings per common share is
computed under the treasury stock method using the weighted average number of
shares outstanding adjusted for the incremental shares attributed to outstanding
warrants to purchase common stock. Incremental shares were not used in the
calculation of diluted loss per common share due to their antidilutive effect.
NOTE 2. ACQUISITIONS
In January 1998 the Company purchased additional shares in its Italian affiliate
which increased its investment to 51%. As a result the Company has consolidated
the financial statements of Italy (which include approximately $13 million in
property and equipment and $2.0 million of long term debt) in the first quarter
of 1998 and recorded a liability related to the minority interest it does not
own. It is the Company's intention to complete the purchase of the remaining 49%
of the Italian operations over the next two years.
8
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
On September 30, 1997, the Company increased its holdings of LIW's common stock,
a United Kingdom based international freight forwarder with operations primarily
in Europe and Asia, from 33.3% to 75.2%. In December 1997, the Company acquired
LIW's remaining outstanding common stock and acquired and retired LIW's
outstanding preferred stock. The transaction has been accounted for under the
purchase method of accounting and the operating results of LIW have been
included in the consolidated statements of operations since September 30, 1997.
NOTE 3. LONG-TERM DEBT
In October 1997, the Company issued and sold $110.0 million in aggregate
principal amount of its 9 3/4% senior notes (the "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.
9
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 3. LONG-TERM DEBT (CONTINUED)
The following is condensed combined financial information of guarantor and
non-guarantor subsidiaries:
Balance Sheet as of March 31, 1998
---------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
---------- ------------ ------------- ------------ --------
Cash and cash equivalents................... $ 161 $ 2,170 $ 34,954 $ - $ 37,285
Accounts receivable--trade, net............. - 104,277 154,789 (12,905) 246,161
Property, net............................... 1,112 9,007 50,088 - 60,207
Intangible assets, net...................... 14,817 56,792 4,396 (561) 75,444
Other assets................................ 3,246 30,069 36,350 - 69,665
Investments in subsidiaries................. 62,017 - - (62,017) -
--------- --------- --------- -------- --------
Total assets.............................. $81,353 $202,315 $280,577 $(75,483) $488,762
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Current liabilities......................... $ 8,470 $105,094 $209,533 $(26,790) $296,307
Long-term debt.............................. 119,214 621 4,111 - 123,946
Other noncurrent liabilities................ - 6,126 42,602 - 48,728
Intercompany accounts....................... (94,000) 74,606 6,070 13,324 -
Stockholders' equity........................ 47,669 15,868 18,261 (62,017) 19,781
--------- --------- --------- -------- --------
Total liabilities and stockholders' equity $ 81,353 $202,315 $280,577 $(75,483) $488,762
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
Statement of Operations for the Three Months Ended March 31, 1998
-----------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
---------- ------------ ------------- ------------ --------
Revenues.................................... $ - $152,907 $267,102 $(54,345) $365,664
Transportation and other direct costs....... - 117,073 213,898 (54,345) 276,626
Operating expenses.......................... 2,245 38,103 51,370 - 91,718
--------- --------- --------- --------- ---------
Operating profit (loss)................... (2,245) (2,269) 1,834 - (2,680)
Interest and other, net..................... (680) (2,635) (132) - (3,447)
Income tax provision (benefit).............. (868) (1,634) 545 - (1,957)
Minority interest........................... - - (158) - (158)
--------- --------- --------- --------- ---------
Net (loss) income......................... $(2,057) $(3,270) $ 999 $ - $ (4,328)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
10
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
Statement of Cash Flows for the Three Months Ended March 31, 1998
-------------------------------------------------------------------
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Combined
---------- ------------ ------------- ------------ ---------
Cash flows from:
Operating activities....................... $(15,307) $ 1,693 $ 8,820 $(3,133) $ (7,927)
Investing activities....................... (1,929) (1,105) (801) (405) (4,240)
Financing activities....................... 9,819 (694) (1,120) 3,538 11,543
-------- ------- ------ ------- ------
Net decrease in cash and cash equivalents.... (7,417) (106) 6,899 - (624)
Cash and cash equivalents, beginning of
period..................................... 7,578 2,276 28,055 - 37,909
------- ------- ------- ----------- -------
Cash and cash equivalents, end of period..... $ 161 $ 2,170 $ 34,954 $ - $ 37,285
------- ------- ------- ----------- -------
------- ------- ------- ----------- -------
11
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 4. SEGMENT INFORMATION
The Company operates in a single business segment providing worldwide logistics
solutions to meet customers' specific requirements for transportation and
related services by arranging and monitoring all aspects of material flow
activities utilizing advanced information technology systems.
Information regarding the Company's operations by geographic region is
summarized below.
U.S and
Canada Europe Asia Corporate Eliminations Consolidated
-------- -------- ------- --------- ------------ ------------
THREE MONTHS ENDED MARCH 31, 1998
Total revenue......................... $176,844 $180,320 $62,845 - $(54,345) $365,664
Transactions between regions.......... 15,418 24,148 14,779 - (54,345) -
Revenues from customers............... 161,426 156,172 48,066 - - 365,664
Net revenue........................... 39,906 37,749 11,383 - - 89,038
Income (loss) from operations......... (1,769) 702 632 $(2,245) - (2,680)
Long-lived assets..................... 14,816 39,950 3,879 6,743 - 65,388
THREE MONTHS ENDED MARCH 31, 1997
Total revenue......................... $162,742 -- -- -- -- $162,742
Transactions between regions.......... -- -- -- -- -- --
Revenues from customers............... 162,742 -- -- -- -- 162,742
Net revenue........................... 36,866 -- -- -- -- 36,866
Loss from operations.................. (5,255) -- -- $ (465) -- (5,720)
Long-lived assets..................... 22,572 -- -- 25 -- 22,597
Revenue from transfers between regions represents approximate amounts that would
be charged if the service were provided by an unaffiliated company. Total
regional revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue.
12
GEOLOGISTICS CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
NOTE 5. OTHER COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which established standards for reporting and
display of comprehensive income and its components in the financial statements.
Comprehensive income is comprised of all changes to stockholders' equity,
including net income, except those changes resulting from investments by owners
and distributions to owners. Other comprehensive income in the financial
statements of the Company represents the change in foreign currency translation
adjustments resulting from the conversion of the financial statements for
foreign subsidiaries from local currency to U.S. dollars.
NOTE 6. SUBSEQUENT EVENT
On April 28, 1998 the Company filed a Registration Statement on Form S-4 with
the Securities and Exchange Commission to exchange its issued 9 3/4% Senior
Notes Due 2007 ("Old" notes) for an equal amount of newly issued and registered
9 3/4% Senior Notes Due 2007 ("New" notes). The exchange offer commenced April
30, 1998 and will expire on May 30, 1998 unless extended by the Company. The
form and term of the New notes will be substantially identical to those of the
Old notes except that the New notes will have been registered under the
Securities Act of 1933.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis relates to the results of operations for
the Company for the three months ended March 31, 1998 and 1997, and should be
read in conjunction with the condensed consolidated financial statements of the
Company included elsewhere in this report.
The Company is one of the largest non-asset-based providers of worldwide
logistics and transportation services headquartered in the United States based
on revenues for 1997 and after giving pro forma effect to the LIW Acquisition.
The Company's primary business operations involve obtaining shipment or material
orders from customers, creating and delivering a wide range of logistics
solutions to meet customers' specific requirements for transportation and
related services, and arranging and monitoring all aspects of material flow
activity utilizing advanced information technology systems. The logistics
solutions include domestic and international freight forwarding and door-to-door
delivery services using a wide range of transportation modes, including air,
ocean, truck and rail. The Company also provides value-added services such as
warehousing, inventory management, assembly, customs brokerage, distribution and
installation for manufacturers and retailers of commercial and consumer products
such as copiers, computers, pharmaceutical supplies, medical equipment, consumer
durables and aviation products. The Company also specializes in arranging for
the worldwide transportation of goods for major infrastructure projects, such as
power plants, oil refineries, oil fields and mines, to lesser developed
countries and remote geographic locations. In addition, the Company provides
international and domestic relocation services through the HHG divisions of
Bekins and Matrix.
In February 1998, the Company announced its new brand name: GeoLogistics. The
corporation changed its identity March 1, 1998 and the business units will adopt
the new name during the next eighteen months. Costs associated with the branding
strategy include registration expenses and legal fees, collateral material and
advertising and promotional expense. A Logistics Consulting Team has also been
established in conjunction with the branding strategy to design, plan and
implement supply chain programs for our most valued customers and other
strategic business opportunities. This team of supply chain technicians and
project managers, has already had a positive impact on the development of
logistics services contracts which are expected to materialize into additional
revenue in the second half of 1998. An integral component of the Company's
strategic plan is to provide improved information technology to its' customers
as well
14
as improved systems for its own operational and financial management
purposes. The Company expects to spend approximately $30 million (which will
be funded through a combination of cash provided from operations and
borrowings under the New Credit Facility) over the next three years to
conclude the implementation and integration of FAST 400 and its related
BUSINESS 400 systems globally, purchase additional information systems
equipment and software upgrades and integrate the system capabilities of its
subsidiaries. Related to these projects, the Company will also incur
incremental expense related to these capital projects for maintenance fees
and additional systems programmers and technicians. Costs related to these
three initiatives were initially incurred in the fourth quarter of 1997
following the LIW Acquisition, but further expansion, and expenditures, of
all three initiatives were increased in 1998. These costs will be reported
within the Selling, General and Administrative Expenses line on the Statement
of Operations.
This Quarterly Report on form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Discussions
containing such forward-looking statements may be found in the material set
forth herein as well as within this Quarterly Report generally (including any
document incorporated by reference herein). Also, documents subsequently filed
by the Company with the Securities and Exchange Commission may contain
forward-looking statements. Actual results could differ materially from those
projections in the forward-looking statements as a result of the risk factors
identified herein or in other public filings by the Company, including but not
limited to, the Company's Registration Statement on Form S-4 (File No.
333-42607).
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
REVENUES. The Company's revenues increased by approximately $203.0 million,
to $365.7 million for the three months ended March 31, 1998 from $162.7 million
for the three months ended March 31, 1997. Approximately $191.3 million of the
increase related to the LIW Acquisition. In addition, Bekins HVP/Logistics
revenues increased $7.1 million, or 34%, due primarily to increased volume from
new customers as well as moderately higher prices. Matrix revenues also
increased $2.6 million, or 16%, on higher volume in both project cargo and
international relocation product lines.
15
NET REVENUES. Net revenues increased by approximately $52.1 million, to
$89.0 million for the three months ended March 31, 1998 from $36.9 million for
the three months ended March 31, 1997. Net revenues as a percentage of revenues
increased to 24.3% in 1998 from 22.7% for the same period in 1997 primarily due
to a shift in product offerings to higher margin value-added services in LIW.
Net revenue increases are primarily the result of the LIW Acquisition ($49.1
million). In addition, Bekins HVP/Logistics net revenues increased $2.0 million,
or 44%, due to higher revenue and improved capacity utilization on its Timelok
logistics distribution system.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately $52.6 million, to $87.9
million for the three months ended March 31, 1998 from $35.3 million for the
three months ended March 31, 1997. These expenses as a percentage of net
revenues in 1998 increased to 98.7% from 95.7% for the same period in 1997 due
to the higher expenses at Matrix and for general corporate purposes in addition
to specific corporate initiatives relating to the new branding strategy, the
planned logistics consulting infrastructure team and strategic information
technology projects. These corporate initiatives are in support of the new
strategic focus of global branded integrated logistics solutions. Excluding the
costs related to the strategic corporate initiatives, other operating expenses
as a percentage of net revenues increased in the period to 98.0% from 95.7%.
Selling, general and administrative expenses relating to the LIW Acquisition
amounted to $47.1 million of the increase from 1997. The remaining $5.5 million
increase was primarily due to the strategic corporate initiatives previously
discussed and sales and administrative infrastructure improvements and additions
at LEP and Bekins HVP/Logistics.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased to $3.8 million, or 47.7%, for the three months ended March 31, 1998
compared to $7.3 million for the three months ended March 31, 1997. This
decrease was despite an additional $.8 million of depreciation and amortization
from the LIW Acquisition. The remaining $4.3 million decrease was due to
amortization of intangible assets (acquired in the 1996 acquisitions) that was
completed by the end of 1997.
OPERATING LOSS. The Company recorded a $2.7 million loss for the three
months ended March 31, 1998 compared to a $5.7 million operating loss for the
three months ended March 31, 1997. These improved results were due to lower
amortization expense ($3.5 million) and increased
16
operating results at Bekins HVP/Logistics ($0.8 million), offset by increased
Corporate operating expenses ($1.7 million) in support of the strategic
initiatives previously discussed.
Operating loss, excluding depreciation and amortization, and corporate expenses,
improved $1.3 million to income of $3.3 million for the three months ended March
31, 1998 compared to the three months ended March 31, 1997. This improvement was
primarily due to the LIW Acquisition and improved Bekins HVP/Logistics results.
INTEREST EXPENSE, NET. Interest expense, net, increased by approximately
$1.6 million, to $3.4 million for 1998 from $1.8 million for the three months
ended March 31, 1997. The increase was associated with the issuance of the Notes
in October 1997 and higher levels of working capital-related borrowings.
INCOME TAX BENEFIT. Income tax benefit remained unchanged at $2.0 million
for the first three months of 1998 and 1997. The tax benefit for 1998 produced
an effective benefit rate of 31.9% versus 27.3% in 1997 as a result of more
favorable benefits generated by LIW in 1998.
MINORITY INTERESTS. Interests held by minority shareholders in certain
subsidiaries of LIW were $.2 million for the three months ended March 31, 1998,
the period of LIW ownership by the Company.
NET LOSS. Net loss improved by $1.1 million to $4.3 million for the first
three months of 1998 compared to $5.4 million for the same period of 1997. This
improvement is due primarily to lower amortization partially offset by increased
interest expense and slightly higher operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, net cash used by operating
activities was $8.0 million. Cash used in investing activities was $4.2 million,
which primarily consisted of strategic information technology related capital
expenditures including the new Peoplesoft financial systems introduced to
replace the multiple legacy systems at LEP Profit. Cash provided by financing
activities was $11.5 million which primarily consisted of additional borrowings
under the U.S. revolving line of credit and certain foreign subsidiaries.
17
Within North America, the Company has utilized cash flows from operations
and borrowings under its credit facilities to meet working capital requirements
and to fund capital expenditures principally related to the improvement of
information systems in support of the strategic information technology plan. At
March 31, 1998, the Company had a working capital borrowing base under its
credit facility of $88.1 million, $8.8 million outstanding working capital
related borrowings and $33.0 million outstanding letter of credit commitments.
Total borrowings of LIW at March 31, 1998 were approximately $6.2 million,
representing a combination of short and long-term borrowings and capital leases
in local currencies in countries where LIW operates. Funding requirements have
historically been satisfied by cash generated from operations and borrowings
under various bank credit facilities. In connection with the LIW Acquisition and
the Company's new credit facility, a certain amount of borrowing capacity is
provided to LIW based upon the level of accounts receivable in the United
Kingdom. The Company believes that this borrowing ability and revenues from
operations will be sufficient to meet the liquidity needs of LIW in the future.
RECENT ACCOUNTING PRONOUNCEMENTS: In January 1998, the American
Institute of Certified Public Accountants (AICPA) issued SOP-98-1 (SOP)
"Accounting for the Costs of Computer Software Developed or Planned for Internal
Use" which sets forth standards for the capitalization of computer software
costs as they relate to the development of internal systems. The SOP requires
capitalization of computer software costs relating to direct costs of materials
purchased and services consumed in developing internal use computer software and
payroll and payroll related costs for employees who are directly associated with
these projects. As part of the Company's strategic plan it expects to spend
approximately $30 million on such internal systems related to the implementation
and integration of its proprietary system for real time management of shipments
and purchase of additional information systems hardware and software to enhance
financial reporting and other operational activities. Approximately $3 million
of such costs have been incurred in the three months ended March 31, 1998 and
have been capitalized in accordance with SOP 98-1. Costs of these projects will
be amortized over their useful lives in accordance with the pronouncement.
FOREIGN CURRENCY RISK MANAGEMENT. The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes and allow management to
focus its attention on its core business issues and
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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 of its existing foreign assets, liabilities,
commitments and anticipated foreign earnings. The Company may use a
combination of financial instruments to manage these risks, including forward
contracts or option related instruments. The principal currencies hedged are
the British pound, German mark, Canadian dollar and some Asian currencies
such as the Hong Kong dollar and Singapore dollar. By policy, the Company
maintains hedge coverage between minimum and maximum percentages of its
anticipated foreign exchange exposures for the next year. The gains and
losses on these contracts are offset by changes in the value of the related
exposures. At March 31, 1998 the Company had approximately $8.3 million in
forward contracts and options outstanding. The credit and market risks under
these agreements are not considered to be significant since the
counterparties have high credit ratings.
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above. The
Company does not enter into foreign currency transactions for speculative
purposes.
YEAR 2000. As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 problem.
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. 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. The Company is
in the process of obtaining assurances from vendors that timely updates will be
made available to make all remaining purchased software Year 2000 compliant.
The Company will utilize both internal and external resources to reprogram
or replace and test all of its software for Year 2000 compliance, and the
Company expects to complete the project in late 1999. The estimated cost for
this project is approximately $1 million excluding the cost of new systems which
will be capitalized. This cost is being funded through a combination of cash
provided from operations and borrowings under the New Credit Facility and will
be expensed in the period incurred. Failure by the company and/or vendors and
customers to complete Year 2000 compliance work in a timely manner could have a
material adverse effect on the Company's operations.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In February, 1998 the Company sold 55,267 shares of its Common stock to
employees, pursuant to an employee stock purchase plan for an aggregate purchase
price of $1.7 million or $30 per share. The proceeds of the sales were used for
general corporate purposes. These shares were not required to be registered with
the Securities and Exchange Commission pursuant to Rule 701 promulgated under
the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (Filed electronically only).
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEOLOGISTICS CORPORATION
Date: May 29, 1998 By: /s/ Roger E. Payton
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Roger E. Payton
President, Chief Executive Officer and Director
Date: May 29, 1998 By: /s/ Gary S. Holter
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Gary S. Holter
Chief Financial Officer
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