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UNITED STATES
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, 2001
--------------
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ -----
COMMISSION FILE NUMBER 0-27288
EGL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0094895
------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
15350 VICKERY DRIVE, HOUSTON, TEXAS 77032
(281) 618-3100
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(Address of Principal Executive Offices, Including Registrant's
Zip Code, and Telephone Number, Including Area Code)
N/A
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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
--- ---
At May 1, 2001, the number of shares outstanding of the registrant's common
stock was 47,501,028 (net of 1,161,125 treasury shares).
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EGL, INC.
INDEX TO FORM 10-Q
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of 1
March 31, 2001 and December 31, 2000
Condensed Consolidated Statement of Operations for the Three 2
Months ended March 31, 2001 and 2000
Condensed Consolidated Statement of Cash Flows for 3
the Three Months ended March 31, 2001 and 2000
Condensed Consolidated Statement of Stockholders' 4
Equity for the Three Months ended March 31, 2001
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II. OTHER INFORMATION 17
SIGNATURES 20
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EGL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUES)
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 54,761 $ 60,001
Short-term investments 13,432 13,056
Trade receivables, net of allowance of $12,889 and $14,115 458,169 497,461
Other receivables 11,450 9,626
Deferred income taxes 30,599 17,167
Other current assets 17,133 10,996
--------- ---------
Total current assets 585,544 608,307
Property and equipment, net 164,601 153,345
Investments in unconsolidated affiliates 52,430 52,717
Goodwill, net 79,983 76,254
Other assets, net 9,947 9,123
--------- ---------
Total assets $ 892,505 $ 899,746
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 132,908 $ 3,429
Trade payables and accrued transportation costs 224,769 260,802
Accrued salaries and related costs 25,547 29,068
Accrued merger and integration costs 19,586 24,976
Other liabilities 49,354 54,027
--------- ---------
Total current liabilities 452,164 372,302
Deferred income taxes 18,377 18,864
Long-term notes payable 1,372 91,051
Other noncurrent liabilities 11,728 2,980
--------- ---------
Total liabilities 483,641 485,197
--------- ---------
Minority interests 10,931 10,782
--------- ---------
Commitments and contingencies (Note 7) Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares authorized,
no shares issued
Common stock, $0.001 par value, 200,000 shares authorized;
49,781 and 49,803 shares issued; 48,620 and 48,411 shares outstanding 49 48
Additional paid-in capital 153,352 150,131
Retained earnings 295,838 304,889
Accumulated other comprehensive loss (32,100) (27,729)
Unearned compensation (1,153) (1,300)
Treasury stock, 1,161 and 1,392 shares held (18,053) (24,195)
Obligation to deliver common stock -- 1,923
--------- ---------
Total stockholders' equity 397,933 403,767
--------- ---------
Total liabilities and stockholders' equity $ 892,505 $ 899,746
========= =========
See notes to unaudited condensed consolidated financial statements.
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EGL, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
-------------------------
2001 2000
--------- ---------
Revenue $ 422,319 $ 404,912
Cost of transportation 263,129 243,210
--------- ---------
Net revenues 159,190 161,702
Operating expenses:
Personnel costs 94,541 90,517
Other selling, general and administrative expenses 71,413 58,382
Merger related restructuring and integration costs (Note 5) 7,545
--------- ---------
Operating income (loss) (14,309) 12,803
Nonoperating income (expense), net (961) 975
--------- ---------
Income (loss) before provision (benefit) for income taxes (15,270) 13,778
Provision (benefit)for income taxes (6,219) 5,322
--------- ---------
Net income (loss) $ (9,051) $ 8,456
========= =========
Basic earnings (loss) per share $ (0.19) $ 0.18
Basic weighted-average common shares outstanding 47,081 46,306
Diluted earnings (loss) per share $ (0.19) $ 0.18
Diluted weighted-average common equivalent
shares outstanding 47,081 47,713
See notes to unaudited condensed consolidated financial statements.
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EGL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (9,051) $ 8,456
Adjustments to reconcile net income (loss) to net cash used by operation
activities
Depreciation and amortization 7,176 7,170
Provision for doubtful accounts, net of write offs (1,226) 1,995
Amortization of unearned compensation 147 146
Deferred income tax expense (benefit) (13,919) 74
Tax effect of stock options exercised 1,284 776
Equity in earnings (losses) of affiliates, net of dividends received 287 40
Minority interests, net of dividends paid 149 (55)
Other (674) (413)
Net effect of changes in working capital (9,155) 12,559
--------- ---------
Net cash provided by (used in) operating activities (24,982) 30,748
--------- ---------
Cash flows from investing activities:
Capital expenditures (17,327) (16,622)
Proceeds from sales/maturities of marketable securities -- 5,901
Proceeds from sales of other assets -- 911
Net proceeds from sales (purchases) of short-term investments (376) 4,702
Acquisitions of businesses, net of cash acquired (639) (23,270)
Cash from newly consolidated subsidiary -- 5,582
Other -- (133)
--------- ---------
Net cash used in investing activities (18,342) (22,929)
--------- ---------
Cash flows from financing activities:
Increase in borrowings on notes payable 39,799 1,489
Issuance of common stock, net of related costs 717 4,203
Proceeds from exercise of stock options 1,938 702
Treasury stock purchases -- (1,695)
Dividends paid -- (2,360)
--------- ---------
Net cash provided by financing activities 42,454 2,339
--------- ---------
Effect of exchange rate changes on cash (4,370) 538
--------- ---------
Increase (decrease) in cash and cash equivalents (5,240) 10,696
Cash and cash equivalents, beginning of the period 60,001 78,685
--------- ---------
Cash and cash equivalents, end of the period $ 54,761 $ 89,381
========= =========
See notes to unaudited condensed consolidated financial statements.
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EGL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
Common stock Additional Compre- Accumulated Obligation to
-------------- paid-in Retained hensive other compre- deliver common Unearned
Shares Amount capital earnings (loss) hensive loss stock Compensation Treasury stock Total
------ ------ ---------- -------- ------- ------------- -------------- ------------ -------------- -----
Balance at
December 31,
2000 48,411 $48 $150,131 $304,889 $(27,729) $1,923 $(1,300) $(24,195) $403,767
Comprehensive
income:
Net loss (9,051) $ (9,051) (9,051)
Change in value
of marketable
securities, net (26) (26) (26)
Foreign currency
translation
adjustments (4,345) (4,345) (4,345)
--------
Comprehensive
loss $(13,422)
========
Issuance of
shares under
stock purchase
plan 717 717
Issuance of
common stock
for acquisition (1,923) 5,425 3,502
Exercise of stock
options,
including tax
benefit 209 1 3,221 3,222
Amortization of
unearned
compensation 147 147
------ --- -------- -------- -------- ------ ------- -------- --------
Balance at
March 31,
2001 48,620 $49 $153,352 $295,838 $(32,100) $ -- $(1,153) $(18,053) $397,933
====== === ======== ======== ======== ====== ======= ======== ========
See notes to unaudited condensed consolidated financial statements.
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EGL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared by EGL, Inc. (EGL or the Company) in accordance with the
rules and regulations of the Securities and Exchange Commission (the SEC) for
interim financial statements and accordingly do not include all information and
footnotes required under generally accepted accounting principles for complete
financial statements. The financial statements have been prepared in conformity
with the accounting principles and practices disclosed in, and should be read in
conjunction with, the annual financial statements of the Company included in the
Company's Annual Report on Form 10-K (File No.0-27288). In the opinion of
management, these interim financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial position at March 31, 2001 and the
results of its operations for the three months ended March 31, 2001. Results of
operations for the three months ended March 31, 2001 are not necessarily
indicative of the results that may be expected for EGL's full fiscal year.
NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES:
EGL is an international transportation and logistics company. The
Company's principal lines of business are air freight forwarding, ocean freight
forwarding, customs brokerage and other value-added services such as
warehousing, distribution and insurance. The Company provides services through
offices around the world as well as through its worldwide network of exclusive
and nonexclusive agents. In October 2000, the Company acquired Circle
International Group, Inc. (Circle) in a merger transaction and expanded its
operations to over 100 countries on six continents (Note 4). The principal
markets for all lines of business are North America, Europe and Asia with
significant operations in the Middle East, South America and South Pacific (Note
8).
The Company has reclassified certain prior period amounts to conform
with the current period presentation.
NOTE 2 - EARNINGS PER SHARE:
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share includes potential
dilution that could occur if securities to issue common stock were exercised.
Stock options are the only potentially dilutive share equivalents the Company
had outstanding for the periods presented. Incremental shares of 1.4 million
were used in the calculation of diluted earnings per share for the three months
ended March 31, 2000. No shares related to options were included in diluted
earnings per share for the three months ended March 31, 2001 because their
effect would have been antidilutive as the Company incurred a net loss during
that period.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133,"Accounting for Derivative Instruments and Hedging Activities," which was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the effective date of FASB Statement No. 133". SFAS
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and on the type of hedge transaction. The ineffective portion of all hedges will
be recognized in earnings. The Company adopted SFAS 133 during the three months
ended March 31, 2001, and it did not have a material impact on its results of
operations and financial position.
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EGL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 - BUSINESS COMBINATIONS:
On October 2, 2000, EGL completed its merger with Circle pursuant to
the terms and conditions of the Agreement and Plan of Merger dated as of July 2,
2000. EGL issued approximately 17.9 million shares of EGL common stock in
exchange for all issued and outstanding shares of Circle common stock and
assumed Circle options exercisable for approximately 1.1 million shares of EGL
common stock. The exchange ratio of one share of EGL common stock for each share
of Circle common stock was determined by arms-length negotiations between EGL
and Circle. The merger qualified as a tax-free reorganization for U.S. federal
income tax purposes and as a pooling of interests for accounting and financial
reporting purposes as such, the Company's financial statements have been
restated to include the operations of Circle for all periods presented.
NOTE 5 - MERGER TRANSACTION, RESTRUCTURING AND INTEGRATION COSTS:
Transaction and integration costs
As a result of the merger with Circle, as discussed in Note 4, the
Company paid $7.8 million of transaction and integration costs during the three
months ended March 31, 2001 of which $3.4 million was accrued as of December 31,
2000. Integration costs of approximately $4.4 million incurred and expensed
during the three months ended March 31, 2001 included personnel costs for
redundant employees at the former Circle's headquarters, the costs of legal
registrations in various jurisdictions, changing signs and logos at major
facilities around the world, and other integration costs.
Restructuring charges
During the fourth quarter of 2000, the Company established a plan (the
Reorganization Plan or the Plan) to integrate the former EGL and Circle
operations and to eliminate duplicate facilities as a result of the merger. The
principal components of the Reorganization Plan involve the termination of
certain employees at the former Circle's headquarters and various international
locations, elimination of duplicate facilities in the United States and certain
international locations, and the termination of selected joint venture and
agency agreements at certain of the Company's international locations. With the
exception of payments to be made for remaining future lease obligations, it is
anticipated that the terms of the Plan will be substantially completed by the
end of the third quarter of 2001.
The charges incurred under the Reorganization Plan for the three months
ended March 31, 2001 and the remaining portion of the unpaid charges as of March
31, 2001 are as follows:
Accrued Income Accrued
liability statement liability
December 31, charge March 31,
2000 Q1 2001 Payments 2001
------------ --------- -------- ---------
(in thousands)
Severance costs $ 6,267 $ 3,091 $ (4,311) $ 5,047
Future lease obligations 10,063 -- (660) 9,403
Termination of joint venture/agency agreements 5,212 -- (76) 5,136
-------- -------- -------- --------
$ 21,542 $ 3,091 $ (5,047) $ 19,586
======== ======== ======== ========
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EGL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Severance costs
Severance costs have been recorded for certain employees at the former
Circle headquarters and former Circle management at certain international
locations who were terminated or notified of their termination under the Plan
prior to December 31, 2000. At December 31, 2000 approximately 60 of the 150
employees included in the Reorganization Plan were no longer employed by the
Company. The termination of substantially all of the remaining 90 employees
occurred in the first quarter of 2001 and severance costs of approximately $2.9
million were recorded.
Also, during January 2001 the Company announced an additional reduction
in the Company's workforce of approximately 125 additional employees. The charge
for this workforce reduction is approximately $0.1 million and was recorded
during the first quarter of 2001.
Future lease obligations
Future lease obligations consist of the Company's remaining lease
obligations under noncancelable operating leases at domestic and international
locations that the Company is in the process of vacating and consolidating due
to excess capacity resulting from the Company having multiple facilities in
certain locations. Amounts recorded for future lease obligations under the Plan
are net of approximately $28.0 million in anticipated future recoveries from
actual or expected sublease agreements. Sublease income has been anticipated
under the Plan only in locations where sublease agreements have been executed as
of December 31, 2000 or are likely to be executed during the first half of 2001.
The provisions of the Plan include the consolidation of facilities at
approximately 80 of the Company's operating locations. As of March 31, 2001
consolidation of facilities has been completed at 19 of these locations with the
remaining locations expected to be completed by the fourth quarter of 2001. In
addition, the Company expects further consolidation at some of its other
locations in the future. Costs for the consolidation at these locations has not
been included in the Plan as of March 31, 2001 as the Company has not yet been
able to determine the estimated consolidation dates for these facilities. It is
expected that the plans to consolidate these locations will be finalized during
the first half of 2001. All lease costs for facilities being consolidated are
charged to operations until the date that the Company vacates each facility. The
charges recorded under the Plan include provisions for closing Circle's
logistics facility in Los Angeles, California.
Termination of joint venture/agency agreements
Costs to terminate joint venture/agency agreements represent
contractually obligated costs incurred to terminate selected joint
venture/agency agreements with certain of the Company's former business partners
along with assets that are not expected to be fully recoverable as a result of
the Company's decision to terminate these agreements. In conjunction with the
Company's Reorganization Plan, the Company is currently terminating certain of
its joint venture/agency agreements in Brazil, Chile, Panama, Venezuela, Taiwan
and South Africa.
NOTE 6 - REVOLVING CREDIT FACILITY:
On January 5, 2001, the Company entered into an agreement (the Credit
Facility) with various financial institutions, with the Bank of America, N.A.
(the Bank) serving as administrative agent, to replace its then - existing
credit facility. The Credit Facility provides a $150 million revolving line of
credit and includes a $30 million sublimit for the issuance of letters of credit
and a $15 million sublimit for a swing line loan. The Credit Facility matures on
January 5, 2004.
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EGL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For each tranche of principal obtained under the revolving line of
credit, the Company elects an interest rate calculation on either LIBOR plus an
applicable margin based on a ratio of consolidated debt to consolidated EBITDA
(a Libor Tranche) or the greater of the prime rate announced by the Bank or the
federal funds rate plus 50 basis points (a Prime Rate Tranche). The interest for
a LIBOR Tranche is due at the earlier of three months from inception of the
LIBOR Tranche, as selected by the Company, or the expiration of the LIBOR
Tranche, whichever is earlier. The interest for a Prime Rate Tranche is due
quarterly.
The Company is subject to certain covenants under the terms of the new
Credit Facility, including, but not limited to, maintenance at the end of any
fiscal quarter of (a) minimum specified consolidated net worth, (b) a ratio of
consolidated funded debt to total capitalization of no greater than 0.40 to
1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no
greater than 2.00 to 1.00 and (d) a consolidated fixed charge coverage ratio of
no less than 2.00 to 1.00. The new Credit Facility also places restrictions on
additional indebtedness, liens, investments, change of control and other matters
and is secured by an interest in substantially all of the Company's assets.
As of March 31, 2001 the Company's results did not satisfy the
requirements of certain of these covenants. The Company has received a waiver
letter from the banks to waive the event of default until June 30, 2001. The
Company and the banks intend to enter into discussions to determine if they can
agree by June 30, 2001, on mutually acceptable terms for the banks to continue
to provide credit under the Credit Facility to the Company. Although the Company
fully expects to be able to reach an agreement with the banks, There can be no
assurance the Company will be successful in its negotiations; therefore, the
debt has been classified as short-term.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
In December 1997, the U.S. Equal Employment Opportunity Commission
(EEOC) issued a Commissioner's Charge pursuant to Sections 706 and 707 of Title
VII of the Civil Rights Act of 1964, as amended (Title VII). The Company
continues to vigorously defend against allegations contained in the
Commissioner's Charge. In the Commissioner's Charge, the EEOC charged the
Company and certain of its subsidiaries with violations of Section 703 of Title
VII, as amended, the Age Discrimination in Employment Act of 1967, and the Equal
Pay Act of 1963, resulting from (i) engaging in unlawful discriminatory hiring,
recruiting and promotion practices and maintaining a hostile work environment,
based on one or more of race, national origin, age and gender, (ii) failures to
investigate, (iii) failures to maintain proper records and (iv) failures to file
accurate reports. The Commissioner's Charge states that the persons aggrieved
include all Blacks, Hispanics, Asians and females who are, have been or might be
affected by the alleged unlawful practices.
On May 12, 2000, four individuals filed suit against EGL alleging
gender, race and national origin discrimination, as well as sexual harassment.
This lawsuit was filed in the United States District Court for the Eastern
District of Pennsylvania in Philadelphia, Pennsylvania. The EEOC was not
initially a party to the Philadelphia litigation. In July 2000, four additional
individual plaintiffs were allowed to join the Philadelphia litigation. The
Company filed an Answer in the Philadelphia case and extensive discovery is
underway. The individual plaintiffs are seeking to certify a class of
approximately 1,000 current and former EGL employees and applicants. The
plaintiff's initial motion for class certification was denied in November 2000.
On December 29, 2000, the EEOC filed a Motion to Intervene in the
Philadelphia litigation. That motion was granted by the Court in Philadelphia on
January 31, 2001 and could allow claims to be brought with respect to a class of
individuals. In addition, the Philadelphia Court also granted EGL's motion that
the case be transferred to the United States District Court for the Southern
District of Texas -- Houston Division where EGL had previously initiated
litigation against the EEOC due to what EGL believes to have been inappropriate
practices by the EEOC in the issuance of the Commissioner's Charge and in the
subsequent investigation. EGL intends to continue to
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EGL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vigorously pursue its lawsuit against the EEOC alleging agency bias and
misconduct. EGL is currently in the midst of active discovery on this matter and
will be requesting an appropriate remedy from the Court.
The Company intends to continue to vigorously defend itself against the
allegations made by the EEOC, as well as the private plaintiffs. The Company has
recognized a pre-tax charge of $7.5 million in its consolidated statement of
operations during the year ended December 31, 2000 for the expected cost of its
litigation efforts related to this matter. The Company currently expects to
prevail in its defense of this matter. There can be no assurance, however, as to
what the amount of time it will take to resolve the Commissioner's Charge, the
other lawsuits and related issues or the degree of any adverse effect these
matters may have on our financial condition and results of operations. A
substantial settlement payment or judgment could result in a significant
decrease in our working capital and liquidity. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and "Part II, Item 1. Legal Proceedings."
NOTE 8 - BUSINESS SEGMENT INFORMATION:
EGL's reportable segments are geographic segments that offer similar
products and services. They are managed separately because each segment requires
close customer contact and each segment is affected by similar economic
conditions. Certain information regarding EGL's operations by region is
summarized below.
(in thousands)
Europe & Asia &
North South Middle South
America America East Pacific Eliminations Consolidated
--------- --------- --------- --------- ------------ ------------
Three months ended March 31, 2001:
Total revenue $ 272,775 $ 16,125 $ 59,084 $ 87,536 $ (13,201) $ 422,319
Transfers between regions (5,969) (1,154) (3,429) (2,649) 13,201
--------- --------- --------- --------- --------- ---------
Revenues from customers $ 266,806 $ 14,971 $ 55,655 $ 84,887 $ -- $ 422,319
========= ========= ========= ========= ========= =========
Net revenue $ 108,662 $ 3,475 $ 26,441 $ 20,612 $ 159,190
========= ========= ========= ========= =========
Income (loss) from operations $ (23,380) $ (257) $ 2,633 $ 6,695 $ (14,309)
========= ========= ========= ========= =========
Three months ended March 31, 2000:
Total revenue $ 266,281 $ 10,037 $ 51,817 $ 84,498 $ (7,721) $ 404,912
Transfers between regions (1,987) (921) (2,218) (2,595) 7,721
--------- --------- --------- --------- --------- ---------
Revenues from customers $ 264,294 $ 9,116 $ 49,599 $ 81,903 $ -- $ 404,912
========= ========= ========= ========= ========= =========
Net revenue $ 115,793 $ 3,607 $ 23,239 $ 19,063 $ 161,702
========= ========= ========= ========= =========
Income (loss) from operations $ 7,605 $ (598) $ 3,231 $ 2,565 $ 12,803
========= ========= ========= ========= =========
Revenue from transfers between regions represents approximate amounts that would
be charged if the services were provided by an unaffiliated company. Total
regional revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue.
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected certain aspects of the Company's
financial position and operating results during the periods included in the
accompanying unaudited condensed consolidated financial statements. This
discussion should be read in conjunction with the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the annual financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 2000 (File No. 0-27288).
RESULTS OF OPERATIONS
EGL's principal services are international air freight forwarding,
ocean freight forwarding, and customs brokerage and other value-added logistics
services. The following table provides the revenue and net revenue attributable
to EGL's principal services during the periods indicated. Revenue for air
freight and ocean freight consolidations (indirect shipments) includes the cost
of transporting such freight, whereas net revenue does not. Revenue for air
freight and ocean freight agency or direct shipments, customs brokerage and
import services, includes only the fees or commissions for these services. A
comparison of net revenue best measures the relative importance of EGL's
principal services.
The following table presents certain statement of operations data for
the periods indicated
Three Months Ended March 31,
--------------------------------------------------------------
2001 2000
--------------------------- --------------------------
% of % of
Amount Revenues Amount Revenues
--------- --------- --------- ---------
(in thousands, except percentages)
Revenues:
Air freight forwarding $ 327,289 77.5 $ 315,916 78.0
Ocean freight forwarding 44,021 10.4 40,449 10.0
Customs brokerage and other 51,009 12.1 48,547 12.0
--------- --------- --------- ---------
Revenues $ 422,319 100.0 $ 404,912 100.0
========= ========= ========= =========
% of Net % of Net
Amount Revenues Amount Revenues
--------- --------- --------- ---------
Net revenues:
Air freight forwarding $ 95,317 59.9 $ 105,053 65.0
Ocean freight forwarding 12,864 8.1 12,176 7.5
Customs brokerage and other 51,009 32.0 44,473 27.5
--------- --------- --------- ---------
Net revenues $ 159,190 100.0 $ 161,702 100.0
========= ========= ========= =========
Operating expenses:
Personnel costs 94,541 59.4 90,517 55.9
Other selling, general and
administrative expenses 71,413 44.9 58,382 36.1
Merger related, restructuring
and integration costs 7,545 4.7 -- --
--------- --------- --------- ---------
Operating income (loss) (14,309) 9.0 12,803 8.0
Nonoperating income (expense), net (961) 0.6 975 0.6
Net income (loss) $ (9,051) -- $ 8,456 5.2
========= ========= ========= =========
10
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Revenue. Revenue increased $17.4 million, or 4.3%, to $422.3 million in the
three months ended March 31, 2001 compared to $404.9 million in the three months
ended March 31, 2000 primarily due to increases in air freight forwarding
revenue. Net revenue, which represents revenue less freight transportation
costs, decreased $2.5 million, or 1.5%, to $159.2 million in the three months
ended March 31, 2001 compared to $161.7 million in the three months ended March
31, 2000 due to a decrease in air freight forwarding net revenue.
Air freight forwarding revenue. Air freight forwarding revenue increased
$11.4 million, or 3.6%, to $327.3 million in the three months ended March 31,
2001 compared to $315.9 million in the three months ended March 31, 2000
primarily as a result of volume increases in Asia Pacific and North America and,
to a lesser extent, Europe. Air freight forwarding net revenue decreased $9.8
million, or 9.3%, to $95.3 million in the three months ended March 31, 2001
compared to $105.1 million in the three months ended March 31, 2000. The air
freight forwarding margin declined to 29.1% for the three months ended March 31,
2001 compared to 33.3% for the three months ended March 31, 2000 primarily due
to a softening of the U.S. economy primarily in the technology and automotive
industries and the resulting shift from air expedited shipments to economy
ground deferred shipments which generate lower revenue at lower margins, but
with a similar cost structure.
Ocean freight forwarding revenue. Ocean freight forwarding revenue
increased $3.6 million, or 8.9%, to $44.0 million in the three months ended
March 31, 2001 compared to $40.4 million in the three months ended March 31,
2000, while ocean freight forwarding net revenue increased $0.7 million, or
5.7%, to $12.9 million in the three months ended March 31, 2001 compared to
$12.2 million in the three months ended March 31, 2000. The increases were
principally due to volume increases in South America and Europe. The ocean
freight forwarding margin declined to 29.2% in the three months ended March 31,
2001 compared to 30.1% in the three months ended March 31, 2000 primarily due to
the conversion of direct shipments to consolidations and higher carrier costs.
Customs brokerage and other revenue. Customs brokerage and other revenue,
which includes warehousing, distribution and other logistics services, increased
$2.5 million, or 5.2%, to $51.0 million in the three months ended March 31, 2001
compared to $48.5 million in the three months ended March 31, 2000, while net
customs brokerage and other revenue increased $6.5 million, or 14.6%, to $51.0
million in the three months ended March 31, 2001 compared to $44.5 million in
the three months ended March 31, 2000. Customs brokerage revenue increased due
to increased inbound traffic in North America and Asia Pacific. Warehousing and
distribution revenues increased in North America as a result of expanded
warehousing facilities and new projects with major customers.
Operating expenses. Personnel costs include all compensation expenses,
including those relating to sales commissions and salaries and to headquarters
employees and executive officers. Personnel costs increased $4.0 million, or
4.4%, to $94.5 million in the three months ended March 31, 2001 compared to
$90.5 million in the three months ended March 31, 2001. As a percentage of net
revenue, personnel costs were 59.4% in the three months ended March 31, 2001
compared to 55.9% in the three months ended March 31, 2000. This increase was
due to increased staffing needs associated with the opening of new terminals,
the effect of acquisitions, expanded operations at existing terminals and
increased commissions resulting from higher revenues and expanded corporate
infrastructure.
Our history of rapid revenue growth has historically required us to grow
our headcount at a fast pace to match the level of activity to maintain our high
level of customer service. When freight shipments began to slow during the first
quarter of 2001, we attempted to alleviate the impact of the slowdown by
implementing a furlough program in March 2001. With no strong signs of a
near-term economic rebound, we plan to reduce our headcount to bring it in line
with activity levels during the second quarter of 2001.
11
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
During the first quarter of 2001 and through May 5, 2001, over 450 regular
full-time and contract employees were released, including the former Circle
headquarters employees. We have initiated plans to further reduce headcount by
an additional 400 regular full-time employees. The majority of these reductions
are in the United States and, in total, represent approximately 15% of EGL's
U.S. workforce.
Other selling, general and administrative expenses, excluding transaction,
restructuring and integration costs, increased $13.0 million, or 22.3%, to $71.4
million in the three months ended March 31, 2001 compared to $58.4 million in
the three months ended March 31, 2000. As a percentage of net revenue, other
selling, general and administrative expenses, excluding transaction,
restructuring and integration costs, were 44.9% in the three months ended March
31, 2001 compared to 36.1% in the three months ended March 31, 2000. This
increase is due to an overall increase in the level of our activities during
2000 and the first quarter of 2001 without the corresponding net revenue growth
in the first quarter of 2001 due to the shift from air expedited shipments to
economy ground deferred shipments which generate lower revenue at lower margins,
but with a similar cost structure.
Nonoperating income (expense), net. For the three months ended March 31,
2001, we had nonoperating expense, net of $1.0 million compared to nonoperating
income, net of $1.0 million for the three months ended March 31, 2000. The $2.0
million change is due to a lower level of interest income resulting from reduced
short-term investments that were liquidated to fund expansion activity and
higher interest expense from increased borrowings.
Effective tax rate. The effective income tax rate for the three months
ended March 31, 2001 was 40.7% compared to 38.6% for the three months ended
March 31, 2000. Our effective tax rate fluctuates primarily due to changes in
the level of pre-tax income in foreign countries that have different rates.
LIQUIDITY AND CAPITAL RESOURCES
General
We make significant disbursements on behalf of our customers for
transportation costs and customs duties. The billings to customers for these
disbursements, which are several times the amount of revenue and fees derived
from these transactions, are not recorded as revenue and expense on our
statement of operations; rather, they are reflected in our trade receivables and
trade payables. Growth in the level of this activity or lengthening of the
period of time between incurring these costs and being reimbursed by our
customers for these costs may negatively affect our liquidity.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Cash used in operating activities. Net cash used in operating activities
was $25.0 million in the three months ended March 31, 2001 compared to cash
provided by operating activities of $30.7 million in the three months ended
March 31, 2000. The decrease in the three months ended March 31, 2001 was
primarily due to the loss incurred in the three months ended March 31, 2001 and
transaction, integration and restructuring costs paid in the first quarter of
2001 as discussed under "Other factors affecting our liquidity and capital
resources."
Cash used in investing activities. Cash used in investing activities in the
three months ended March 31, 2001 was $18.3 million compared to $22.9 million in
the three months ended March 31, 2000. We incurred capital expenditures of $17.3
million during the three months ended March 31, 2001. These expenditures were
mainly due to information technology initiatives and general facilities
expansion in North America. Cash paid for acquisitions in the three months ended
March 31, 2001, net of cash acquired, was $0.6 million.
12
15
EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
Cash provided by financing activities. Cash provided by financing
activities in the three months ended March 31, 2001 was $42.5 million compared
to $2.3 million in the three months ended March 31, 2000. Notes payable
increased $39.8 million due primarily to a $49.4 million increase in the
revolving line of credit, which had a balance of $130.4 million at March 31,
2001 compared to $81.0 million at December 31, 2000. Proceeds from the exercise
of stock options were $1.9 million in the three months ended March 31, 2001
compared to $0.7 million in the three months ended March 31, 2000.
Other factors affecting our liquidity and capital resources
Transaction, restructuring and integration costs. As a result of the merger
with Circle, the Company paid $7.8 million of transaction and integration costs
during the three months ended March 31, 2001 of which $3.4 million was accrued
as of December 31, 2000. Integration costs of approximately $4.4 million
incurred and expensed during the three months ended March 31, 2001 included
personnel costs for redundant employees at the former Circle's headquarters, the
costs of legal registrations in various jurisdictions, changing signs and logos
at major facilities around the world, and other integration costs.
During the fourth quarter of 2000, the Company established a plan (the
Reorganization Plan or the Plan) to integrate the former EGL and Circle
operations and to eliminate duplicate facilities as a result of the merger. The
principal components of the Reorganization Plan involve the termination of
certain employees at the former Circle's headquarters and various international
locations, elimination of duplicate facilities in the United States and certain
international locations, and the termination of selected joint venture and
agency agreements at certain of the Company's international locations.
The charges incurred under the Reorganization Plan for the three months
ended March 31, 2001 include severance cost of approximately $2.9 million for
the termination of substantially all of the remaining 90 employees at the former
Circle headquarters. Also, during January 2001 we announced an additional
reduction in our workforce of approximately 125 additional employees. The charge
for this workforce reduction is approximately $0.1 million and was recorded
during the first quarter of 2001.
Credit agreements. In January 2001, we entered into a new credit agreement
with several banks with respect to a $150 million revolving line of credit. The
revolving line of credit provides a $150 million revolving line and includes a
$30 million sublimit for the issuance of letters of credit and a $15 million
sublimit for a swing line loan. The revolving line of credit terminates in
January 2004. For each tranche of principal obtained under the revolving line of
credit, we elect an interest rate based on either LIBOR plus an applicable
margin based on a ratio of consolidated debt to consolidated earnings before
interest, taxes, depreciation and amortization, known as EBITDA (a LIBOR
Tranche) or the greater of the prime rate announced by Bank of America, N.A. or
the federal funds rate plus 50 basis points (a Prime Rate Tranche). The interest
for a LIBOR Tranche is due at the earlier of three months from inception of the
LIBOR Tranche, as selected by us, or the expiration of the LIBOR Tranche,
whichever is earlier. The interest for a Prime Rate Tranche is due quarterly.
We are subject to certain covenants under the terms of the revolving line
of credit, including, but not limited to, maintenance at the end of any fiscal
quarter of (a) minimum specified consolidated net worth, (b) a ratio of
consolidated funded debt to total capitalization of no greater than 0.40 to
1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no
greater than 2.00 to 1.00 and (d) a consolidated fixed charge coverage ratio of
no less than 2.00 to 1.00. In addition, the revolving line of credit generally
prohibits additional indebtedness, except pursuant to the following: (a) the
revolving line of credit, (b) interest hedge agreements not entered into for
13
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
speculative purposes, (c) off balance sheet synthetic leases up to $35.0 million
in the aggregate, (d) any other agreement or agreements up to an aggregate of
$40.0 million, and (e) reimbursement obligations to sureties issuing payment and
performance bonds in the ordinary and usual course of our business. The
revolving line of credit also limits our ability to make distributions to our
shareholders, whether through the repurchase of stock, in cash or in kind, for
any rolling four fiscal quarter period to an amount not in excess of 50% of our
consolidated net income over such period. The revolving line of credit also
places restrictions on liens, investments, changes of control and other matters
and is secured by an interest in substantially all of our assets.
As of March 31, 2001, our results did not satisfy the requirements of
certain of these covenants. On May 15, 2001, we received a waiver letter from
the banks to waive the event of default until June 30, 2001. EGL and the banks
intend to enter into discussions to determine if we can agree by June 30, 2001,
on mutually acceptable terms for the banks to continue to provide credit under
the Credit Facility to us. Although the Company fully expects to be able to
reach agreement with the banks, there can be no assurance we will be successful
in our negotiations; therefore, the debt has been classified as short-term.
As of April 30, 2001, $126.3 million was outstanding under the revolving
line of credit. The terms of the revolving credit facility would permit
borrowings thereunder to be used to finance future acquisitions, joint venture
operations or capital expenditures or for other corporate purposes. We believe
that operating cash flows, our current financial structure and borrowing
capacity will be adequate to fund our operations and finance capital
expenditures and acquisitions over the coming year.
Bank lines of credit and letters of credit. We maintain a $10 million bank
line of credit, in addition to the $30 million sublimit under our revolving
line of credit, to secure customs bonds and bank letters of credit to guarantee
certain transportation expenses in foreign locations. At March 31, 2001, we were
contingently liable for approximately $19.5 million, under outstanding letters
of credit and guarantees related to these obligations. Our ability to borrow
under bank lines of credit and to maintain bank letters of credit is subject to
the limitations on additional indebtedness contained in our revolving line of
credit discussed above.
Agreement with charter airlines. We currently have agreements with certain
charter airlines which provide us with full access to regularly scheduled
chartered aircraft on a monthly basis. These agreements contain guaranteed
monthly minimum use requirements of the aircraft by us. Certain of these
agreements contain provisions which allow for early termination or modification
of the agreements to provide for an increase in or reduction of the amount of
aircraft available for our use at our discretion. One of these charter
agreements is with Miami Air International, Inc., a related party. Based on the
charter agreements presently in place and aircraft presently being used, we
expect to incur average minimum guaranteed charges of approximately $6.4
million, $3.0 million and $0.4 million on a monthly basis under these charter
agreements during the years ended December 31, 2001, 2002 and 2003,
respectively. These charter agreements are generally cancelable with a minimum
notice period. We are currently negotiating with several industry partners to
outsource all of our dedicated leased planes before the end of 2001 to increase
our flexibility and enhance our cost structure.
Operating lease agreements. On January 10, 1997, we entered into a
five-year operating lease agreement with two unrelated parties for financing the
construction of our Houston terminal, warehouse and headquarters facility (the
"Houston facility"). The cost of the Houston facility was approximately $8.5
million. Under the terms of the lease agreement, average monthly lease payments
are approximately $59,000, which includes monthly interest costs based upon
LIBOR plus 145 basis points beginning on July 1, 1998 through January 2, 2002. A
balloon payment equal to the outstanding lease balance, which was initially
equal to the cost of the facility, is due on January 2, 2002. As of March 31,
2001, the lease balance was approximately $8.1 million.
14
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
On April 3, 1998, we entered into a five-year $20 million master operating
lease agreement with two unrelated parties for financing the construction of
terminal and warehouse facilities throughout the United States designated by us.
Under the terms of the master operating lease agreement, average monthly lease
payments, including monthly interest costs based upon LIBOR plus 145 basis
points, begin upon the completion of the construction of each financed facility.
The monthly lease obligations continue for a term of 52 months and currently
approximate $150,000 per month. A balloon payment equal to the outstanding lease
balances, which were initially equal to the cost of the facility, is due at the
end of each lease term. Construction began during 1999 on five terminal
facilities. As of March 31, 2001, the aggregate lease balance was approximately
$15.3 million under the master operating lease agreement.
The operating lease agreements contain restrictive financial covenants
requiring the maintenance of a fixed charge coverage ratio of at least 1.5 to
1.0 and specified amounts of consolidated net worth and consolidated tangible
net worth. In addition, the master operating lease agreement as amended on
October 20, 2000 restricts us from incurring debt in an amount greater than $30
million, except pursuant to a single credit facility involving a commitment of
not more than $150 million.
We have an option, exercisable at anytime during the lease term, and under
particular circumstances may be obligated, to acquire the Houston terminal and
each of our other financed facilities for an amount equal to the outstanding
lease balance. If we do not exercise the purchase option, and do not otherwise
meet our obligations, we are subject to a deficiency payment computed as the
amount equal to the outstanding lease balance minus the then current fair market
value of each financed facility within limits. We expect that the amount of any
deficiency payment would be expensed.
Commitments to construct warehouse and terminal facilities. As of March 31,
2001, we had entered into commitments to construct warehouse and terminal
facilities for an aggregate cost of approximately $18.6 million. Payment for the
construction of the facilities is being made from cash balances. Construction of
the facilities is estimated to be completed during 2001.
Stock options. As of March 31, 2001, we had outstanding non-qualified stock
options to purchase an aggregate of 5.8 million shares of common stock at
exercise prices equal to the fair market value of the underlying common stock on
the dates of grant (prices ranging from $0.83 to $33.81). At the time a
non-qualified stock option is exercised, we will generally be entitled to a
deduction for federal and state income tax purposes equal to the difference
between the fair market value of the common stock on the date of exercise and
the option price. As a result of exercises for the three months ended March 31,
2001 of non-qualified stock options to purchase an aggregate of 0.2 million
shares of common stock, we are entitled to a federal income tax deduction of
approximately $3.4 million. We have recognized a reduction of our federal and
state income tax liability of approximately $1.3 million in the three months
ended March 31, 2001. Accordingly, we recorded an increase to additional paid-in
capital and a reduction to current taxes payable pursuant to the provisions of
SFAS No. 109, "Accounting for Income Taxes." Any exercises of non-qualified
stock options in the future at exercise prices below the then fair market value
of the common stock may also result in tax deductions equal to the difference
between those amounts. There is uncertainty as to whether the exercises will
occur, the amount of any deductions, and our ability to fully utilize any tax
deductions.
COMMISSIONER'S CHARGE
As discussed in "Part II, Item 1. Legal Proceedings", the Company has
received a Letter of Determination and Conciliation Proposal from the EEOC
relating to the Commissioner's Charge described in that section. Following the
issuance of the EEOC's Determination in May 2000, a lawsuit was filed in
Philadelphia, Pennsylvania by three former EGL employees and one individual who
had unsuccessfully applied for a position. Four additional plaintiffs joined the
suit in late July 2000. The lawsuit alleges discrimination and adopts in their
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EGL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- (CONTINUED)
entirety the EEOC's conclusions. Although the named plaintiffs on the
Philadelphia lawsuit seek to represent a class of individuals, no class action
has yet been approved by the Court, although the EEOC has been allowed to
intervene, which could allow claims to be brought with respect to a class of
individuals. The lawsuit seeks unspecified damages. Any relief sought in these
lawsuits would be in addition to and not limited by the relief sought by the
EEOC. There can be no assurance as to what will be the amount of time it will
take to resolve the Commissioner's Charge, the other lawsuits and related issues
or the degree of any adverse effect these matters may have on our financial
condition and results of operations. A substantial settlement payment or
judgment could result in a significant decrease in our working capital and
liquidity.
RELATED PARTY TRANSACTIONS
In connection with the Miami Air investment, we entered into an
aircraft charter agreement with Miami Air. Under this agreement Miami Air agreed
to convert certain of its passenger aircraft to cargo aircraft and to provide
aircraft charter services to us for a three-year term. We issued a $7.0 million
standby letter of credit in favor of certain creditors of Miami Air to enhance
Miami Air's borrowing capacity to assist in this aircraft conversion. Miami Air
has agreed to pay us an annual fee equal to 3.0% of the face amount of the
letter of credit and to reimburse us for any payments owed by us in respect of
the letter of credit.
Additionally, during the three months ended March 31, 2001, we paid
Miami Air $2.2 million under the aircraft charter agreement. There were no
unpaid balances related to this agreement as of March 31, 2001. Additionally,
Miami Air, each of the private investors and the continuing Miami Air
stockholders also entered into a stockholders agreement under which Mr. Crane
(Chairman, President and CEO) and Mr. Hevrdejs (a director of the Company) are
obligated to purchase up to approximately $1.7 million and $.5 million,
respectively, worth of Miami Air's Series A preferred stock upon demand by the
board of directors of Miami Air. The Company and Mr. Crane both have the right
to appoint one member of Miami Air's board of directors. Additionally, the other
private investors in the stock purchase transaction, including Mr. Hevrdejs,
collectively have the right to appoint one member of Miami Air's board of
directors. The Series A preferred stock, if issued, will (i) not be convertible,
will have a 15.0% annual dividend rate and will be mandatorily redeemable in
July 2006 or upon the prior occurrence of specified events.
In conjunction with our business activities, we periodically utilize
aircraft owned by entities controlled by Mr. Crane. On October 30, 2000, our
Board of Directors approved a change in this arrangement whereby we would
reimburse Mr. Crane for the $112,000 monthly lease obligation and other related
costs on this aircraft and we would bill Mr. Crane for any use of this aircraft
unrelated to company business on an hourly basis. For the three months ended
March 31, 2001, we reimbursed Mr. Crane for $0.4 million in monthly lease
payments and related costs on the aircraft.
The Company subleases a portion of its warehouse space in Houston,
Texas and London, England to a customer pursuant to a five-year sublease. The
customer is partially owned by Mr. Crane. Rental income was approximately $0.1
million for the three months ended March 31, 2001. In addition the Company
billed this customer approximately $75,000 for freight forwarding services for
the three months ended March 31, 2001.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 3 of the notes to condensed consolidated financial statements
and management's discussion and analysis of new accounting pronouncements for a
description.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in exposure to market risk from
that discussed in EGL's Annual Report on Form 10-K for the year ended December
31, 2000.
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EGL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In December 1997, the U.S. Equal Employment Opportunity Commission
("EEOC") issued a Commissioner's Charge against us and some of our subsidiaries
(the "Commissioner's Charge") pursuant to Sections 706 and 707 of Title VII of
the Civil Rights Act of 1964, as amended (Title VII). In the Commissioner's
Charge, the EEOC charged us and some of our subsidiaries with violations of
Section 703 of Title VII, as amended, the Age Discrimination in Employment Act
of 1967, and the Equal Pay Act of 1963, resulting from (1) engaging in unlawful
discriminatory hiring, recruiting and promotion practices and maintaining a
hostile work environment, based on one or more of race, national origin, age and
gender, (2) failures to investigate, (3) failures to maintain proper records and
(4) failures to file accurate reports. The Commissioner's Charge states that the
persons aggrieved include all Blacks, Hispanics, Asians and females who are,
have been or might be affected by the alleged unlawful practices.
In May 2000, the Houston District Office of the EEOC provided us with
its "Letter of Determination and Conciliation Proposal" with respect to the
investigation pertaining to the Commissioner's Charge and made a final
determination that there is a sufficient evidentiary basis to sustain all
allegations in the Commissioner's Charge, except as to certain charges relating
to Asian Americans.
The Conciliation Proposal "invites [EGL] to actively engage in
conciliation to resolve this matter," and proposes certain monetary and
non-monetary remedies to "serve to facilitate confidential discussions which,
hopefully, will eventuate in an appropriate settlement." That proposed relief
includes (1) backpay and benefits for a class of minorities in the amount of
$6,000,000 (this is a $950,000 reduction from the amount claimed under the
preliminary assessment), (2) compensation for certain incumbent minorities and
women who were allegedly underpaid relative to white male counterparts in the
amount of $5,000,000, (3) compensation for certain minority and female employees
who were allegedly not promoted at rates comparable to their respective
employment rates in the amount of $2,950, 000, and (4) financial compensation
for certain other employees as a result of alleged "disparate discipline" in the
amount of $745, 000, all of which is exclusive of interest, compensatory and
punitive damages and costs.
The specific monetary relief as outlined above is $950,000 less than
that amount proposed in its preliminary assessment. The Conciliation Proposal
stated, however, that "the EEOC agreed that his claim [for monetary relief]
could be resolved for $20,000,000." The EEOC also sought non-monetary relief,
including hiring 244 minority employees, certain upward adjustments to salaries,
reinstatement of up to 15 employees and required promotion of 30 employees. The
Conciliation Proposal also sought other non-monetary relief, including (1)
reformation of our policies and practices with respect to record keeping,
recruiting, hiring and placement, reinstatement, promotion and transfer, and
corporate governance, (2) revision of certain job descriptions, (3) institution
of employee and supervisory training, and (4) the institution of specified
procedures and steps with respect to such matters.
We believe that the Houston District Office's May 2000 Determination
finding systemic discrimination is unsupported by any credible evidence and was
rendered by the agency in part due to agency bias against us and our Chief
Executive Officer because of our vigorous defense of this matter. We accepted
the EEOC's offer to conciliate this matter and have participated in numerous
conciliation conferences with the EEOC during the past few months.
Certain individual employees have brought charges of this nature
against us in the ordinary course of business. Additionally, following the
issuance of the EEOC's Determination in May 2000, a lawsuit was filed on May 12,
2000 in the U.S. District Court for the Eastern District of Pennsylvania (Civil
Action No. 00-CV-2461) by
17
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EGL, INC.
Augustine Dube, Noelle Davis, Kshanti Morris and Ruben Capaletti, who are former
employees or individuals who had unsuccessfully applied for a position with us.
Four additional plaintiffs joined the suit in late July 2000. the lawsuit
alleges discrimination and adopts the EEOC's conclusions in their entirety.
Although the named plaintiffs on this lawsuit seek to represent a class of
individuals, no class action has yet been approved by the court, and the
plaintiff's request for class certification has been preliminarily denied. In
January 2001, the EEOC was allowed to intervene in the case, which could allow
claims to be brought with respect to a class of individuals. At that time, the
court in Philadelphia also granted our request that the case be transferred to
the U.S. District Court for the Southern District of Texas in Houston.
The lawsuit seeks unspecified damages that are not limited by the
relief sought by the EEOC in the Conciliation Proposal. Because the lawsuit is
essentially based upon the contested EEOC allegations described above, we fully
intend to defend ourselves in both matters but would consider a settlement with
both the plaintiffs and the EEOC that we believe is reasonable in both monetary
and non-monetary terms. We initiated a mediation process with both the EEOC and
the plaintiffs in the lawsuit in a effort to resolve this matter but results to
date have been unsuccessful. There can be no assurance as to what will be the
amount of time it will take to resolve the Commissioner's Charge, the other
lawsuits and relate issues or the degree of any adverse effect these matters may
have onus and our financial condition and results of operation. A substantial
settlement payment or judgment could result in a significant decrease in working
capital and liquidity. See Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations " and note 7 of the notes to our
condensed consolidated financial statements for a discussion of commitments and
contingencies.
From time to time we are a party to various legal proceedings arising
in the ordinary course of business. Except as described above, we are not
currently a party to any material litigation and are not aware of any litigation
threatened against us, which we believe would have a material adverse effect on
our business.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS
NONE
ITEM 5. OTHER INFORMATION
FORWARDING LOOKING STATEMENTS
The statements contained in all parts of this document that are not
historical facts are, or may be deemed to be, forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements include, but
are not limited to, those relating to the following: the effect and benefits of
the Circle merger; accounting treatment of the merger; the expected completion
and/or effects of the Reorganization Plan; the termination of joint
venture/agency agreements and the Company's ability to recover assets in
connection therewith; the Company's plans to reduce costs (including the scope,
timing, impact and effects thereof); past and planned headcount reductions
(including the scope, timing, impact and effects thereof); potential annualized
cost savings; changes in the Company's dedicated charter fleet strategy
(including the scope, timing, impact and effects thereof); the Company's plans
to outsource leased planes, the Company's ability to improve its cost structure;
consolidation of field offices (including the scope, timing and effects
thereof), the Company's ability to restructure the debt covenants in its credit
facility, if at all; anticipated future recoveries from actual or expected
sublease agreements; the sensitivity of demand for the Company's services to
domestic and global economic conditions; cost management efforts;
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EGL, INC.
expected growth; construction of new facilities; the results, timing, outcome or
effect of matters relating to the Commissioner's Charge or other litigation and
our intentions or expectations of prevailing with respect thereto; future
operating expenses; future margins; use of credit facility proceeds;
fluctuations in currency valuations; fluctuations in interest rates; future
acquisitions and any effects, benefits, results, terms or other aspects of such
acquisitions; ability to continue growth and implement growth and business
strategy; the ability of expected sources of liquidity to support working
capital and capital expenditure requirements; the tax benefit of any stock
option exercises; future expectations and outlook and any other statements
regarding future growth, cash needs, terminals, operations, business plans and
financial results and any other statements which are not historical facts. When
used in this document, the words "anticipate," "estimate," "expect," "may,"
"plans," "project," and similar expressions are intended to be among the
statements that identify forward-looking statements.
The Company's results may differ significantly from the results
discussed in the forward-looking statements. Such statements involve risks and
uncertainties, including, but not limited to, those relating to costs, delays
and difficulties related to the Circle merger, including the integration of its
systems, operations and other businesses; the Company's dependence on its
ability to attract and retain skilled managers and other personnel; the intense
competition within the freight industry; the uncertainty of the Company's
ability to manage and continue its growth and implement its business strategy;
the Company's dependence on the availability of cargo space to serve its
customers; the potential for liabilities if certain independent owner/operators
that serve the Company are determined to be employees; effects of regulation;
results of litigation (including the results and outcome of the Commissioner's
Charge); the Company's vulnerability to general economic conditions and
dependence on its principal customers; the control by the Company's principal
shareholder; the Company's potential exposure to claims involving its local
pickup and delivery operations; risk of international operations; risks relating
to acquisitions; the Company's future financial and operating results, cash
needs and demand for its services; and the Company's ability to maintain and
comply with permits and licenses; as well as other factors detailed in the
Company's filings with the Securities and Exchange Commission including those
detailed in the subsection entitled "Factors That May Affect Future Results and
Financial Condition" in the Company's Form 10-K for the year ended December 31,
2000. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated. The Company undertakes no responsibility to update for changes
related to these or any other factors that may occur subsequent to this filing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS.
None
(b) REPORTS ON FORM 8-K.
EGL did not file any reports on Form 8-K during the three months ended
March 31, 2001.
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EGL, INC.
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.
EGL, INC.
--------------------------
(Registrant)
Date: May 15, 2001 BY: /s/ James R. Crane
---------------------------
James R. Crane
Chairman, President and
Chief Executive Officer
Date: May 15, 2001 BY: /s/ Elijio V. Serrano
---------------------------
Elijio V. Serrano
Chief Financial Officer
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