10-Q 1 0001.txt SECOND QUARTER REPORT 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 JULY 1, 2000, 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 0-19791 USFREIGHTWAYS CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-3790696 (State of Incorporation) (IRS Employer Identification No.) 8550 W. Bryn Mawr Ave., Chicago, Illinois 60631 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (773) 824-1000 Not applicable (Former name or former address, if changed since the 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of July 31, 2000, 26,280,575 shares of common stock were outstanding. PART I: FINANCIAL INFORMATION Item 1. Financial Statements. USFreightways Corporation Condensed Consolidated Balance Sheets Unaudited (Dollars in thousands)
July 1, December 31, 2000 1999 ----------------------------------------------------------------------------------------------------- Assets Current assets: Cash $ 7,012 $ 6,862 Accounts receivable, net 313,048 293,989 Other 67,364 62,077 ----------------- ------------------- Total current assets 387,424 362,928 ----------------- ------------------- Net property and equipment 725,587 660,510 Net intangible assets 175,760 174,538 Other assets 20,571 14,191 ----------------- ------------------- Total assets $ 1,309,342 $ 1,212,167 ----------------- ------------------- Liabilities and Stockholders' Equity Current liabilities: Current bank debt $ 14,354 $ 20,561 Notes payable - 100,000 Accounts payable 97,644 89,193 Other current liabilities 189,605 160,590 ----------------- ------------------ Total current liabilities 301,603 370,344 ----------------- ------------------ Long-term liabilities: Long-term bank debt 6,280 33,137 Notes payable 250,000 100,000 Other long-term liabilities 156,130 149,827 ----------------- ------------------ Total long-term liabilities 412,410 282,964 ----------------- ------------------ Minority interest 238 - Common stockholders' equity 595,091 558,859 ----------------- ------------------ Total liabilities and stockholders' equity $ 1,309,342 $ 1,212,167 ----------------- ------------------
USFreightways Corporation Consolidated Statements of Income Unaudited (Dollars in thousands, except per-share amounts)
Three months ended Six months ended ------------------------------------- ---------------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ----------------------------------------------------------------------------- ----------------------------- Operating revenue LTL Trucking $ 473,340 $ 436,721 $ 934,144 $ 847,518 TL Trucking 20,173 10,579 39,661 20,865 Logistics 65,190 48,695 132,315 89,717 Freight Forwarding 63,176 52,861 123,980 103,985 ----------------- ---------------- ------------ ------------ Total operating revenue $ 621,879 $ 548,856 $1,230,100 $ 1,062,085 Operating expenses: LTL Trucking 425,966 392,784 848,587 773,437 TL Trucking 18,578 9,708 37,121 19,309 Logistics 61,135 44,185 124,018 82,476 Freight Forwarding 62,987 51,324 123,075 100,998 Corporate and other 2,620 3,068 5,947 5,847 ----------------- ---------------- ------------ ------------ Total operating expenses 571,286 501,069 1,138,748 982,067 ----------------- ---------------- ------------ ------------ Income from operations 50,593 47,787 91,352 80,018 ----------------- ---------------- ------------ ------------ Non-operating income (expense): Interest expense (5,342) (3,483) (9,913) (6,295) Interest income 316 361 508 593 Other, net 9 (365) 502 (341) ---------------- --------------- ------------- ----------- Total non-operating expense (5,017) (3,487) (8,903) (6,043) ---------------- --------------- ------------- ----------- Net income before income taxes 45,576 44,300 82,449 73,975 Income tax expense (18,523) (18,029) (33,346) (30,196) Minority interest 445 - 711 - ----------------- --------------- ------------ ----------- Net income $ 27,498 $ 26,271 $ 49,814 $ 43,779 ----------------- --------------- ------------ ----------- Average shares outstanding - basic 26,590,173 26,404,635 26,549,585 26,358,773 Average shares outstanding - diluted 27,297,662 27,428,613 27,372,280 27,231,669 Basic earnings per common share: $ 1.03 $ 0.99 $ 1.88 $ 1.66 Diluted earnings per common share: $ 1.01 $ 0.96 $ 1.82 $ 1.61 ----------------- ------------------ ------------ -----------
USFreightways Corporation Condensed Consolidated Statements of Cash Flows Unaudited (Dollars in thousands)
Six months ended ---------------------------- July 1, July 3, 2000 1999 -------------------------------------------------------------------------------------- Cash flows from operating activities: Net Income $ 49,814 $ 43,779 Adjustments to net income: Depreciation and amortization 54,279 45,822 Other items affecting cash 2,656 10,795 from operating activities -------------- ------------- Net cash provided by operating activities 106,749 100,396 -------------- ------------- Cash flows from investing activities: Capital expenditures (107,460) (82,990) Proceeds on sales 5,810 2,407 Acquisitions (7,300) (38,600) -------------- ------------- Net cash used in investing activities (108,950) (119,183) -------------- ------------- Cash flows from financing activities: Dividends paid (4,948) (4,910) Proceeds from sale of Notes 149,025 98,452 Payments on Notes (100,000) - Proceeds from sale/(repurchase) of treasury stock (8,662) 3,521 Proceeds from long-term debt 60,000 30,000 Payments on long-term debt (86,857) (75,274) Net change in short-term debt (6,207) (10,941) -------------- ------------- Net cash provided by (used in) financing activities 2,351 40,848 -------------- ------------- Net increase/(decrease) in cash 150 22,061 -------------- ------------- Cash at beginning of period 6,862 5,548 -------------- ------------- Cash at end of period $ 7,012 $ 27,609 -------------- -------------
Notes to Condensed Consolidated Financial Statements (Dollars in thousands, except per share amounts) (Unaudited) 1. General The consolidated financial statements include the accounts of USFreightways and its wholly owned subsidiaries (the Company). The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements are unaudited but, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company's results of operations are affected by the seasonal aspects of the trucking and air freight industries. Therefore, operating results for the three and six months ended July 1, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. 2. Earnings per share Basic earnings per share are calculated on net income divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing net income by this weighted-average number of common shares outstanding plus the shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares. Unexercised stock options, calculated under the treasury stock method, is the only reconciling item between the Company's basic and diluted earnings per share. The number of options included in the denominator, used to calculate diluted earnings per share are 707,489 and 1,023,978 for the second quarters of 2000 and 1999 respectively and 822,695 and 872,896 for year to date 2000 and 1999 respectively. 3. Acquisitions On January 10, 2000, USF Glen Moore, the Company's truckload (TL) carrier, acquired (for approximately $7 million in cash) all of the shares of Tri-Star Transportation, Inc, a Tennessee based TL carrier. Tri-Star operates 170 tractor/trailer units and while not included in the Company's Fiscal 1999 revenue, generated $28 million in revenue for 1999. 4. Debt The Company's debt includes $100 million of guaranteed notes due May 1, 2009 and $150 million of guaranteed notes due April 15, 2010. On January 31, 2000, the Company filed a Form S-3 registration statement that allowed for the sale of up to $400 million in additional guaranteed notes. The guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, on an unsecured senior basis, by all of the Company's direct and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is a holding company and during the period presented substantially all of the assets were the stock of the Subsidiary Guarantors, and substantially all of the operations were conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors were substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis. Management of the Company believes that separate financial statements of, and other disclosures with respect to, the Subsidiary Guarantors are not meaningful or material to investors. On April 19, 2000, the Company sold $150 million in 8 1/2% guaranteed notes due April 15, 2010 as part of the $400 million Form S-3 registration statement filed on January 31, 2000. The net proceeds from the sale of the guaranteed notes, after deducting underwriting fees and other expenses were approximately $149 million were used to repay $100 million in 6 5/8% notes that matured May 1, 2000, to reduce other unsecured lines of credit and to purchase an interest rate hedge. 5. Other On June 7, 2000, the Company announced the authorized repurchase of up to 500 thousand shares of its common stock. This buyback program was completed on June 30, 2000. 6. Subsequent events On July 24, 2000, the Company announced the authorized buyback of up to 1 million additional shares of its common stock in either public market or private transactions. This repurchase program is not yet completed.
6. Segment Reporting Three Months Ended Six Months Ended Unaudited (dollars in thousands) July 1, July 3, July 1, July 3, 2000 1999 2000 1999 ------------------------------------------------------------------------------- ---------------------------- Revenue LTL Group: USF Holland $ 248,938 $ 226,830 $ 495,555 $ 446,780 USF Reddaway 69,144 61,136 131,676 116,271 USF Red Star 67,658 61,861 132,842 115,635 USF Dugan 49,946 49,606 100,535 96,703 USF Bestway 37,654 37,288 73,536 72,129 ------------------------------------------------------------------------------- ------------------------------ Sub total LTL Group 473,340 436,721 934,144 847,518 Truckload - Glen Moore 20,173 10,579 39,661 20,865 Logistics subsidiaries 65,190 48,695 132,315 89,717 Freight forwarding 63,176 52,861 123,980 103,985 Corporate and other - - - - ------------------------------------------------------------------------------- ------------------------------ Total Revenue $ 621,879 $ 548,856 $ 1,230,100 $ 1,062,085 Income From Operations LTL Group: USF Holland $ 27,530 $ 27,350 $ 53,331 $ 48,608 USF Reddaway 9,226 7,275 13,876 10,779 USF Red Star 2,658 1,905 4,013 2,210 USF Dugan 3,553 2,814 6,265 4,001 USF Bestway 4,407 4,593 8,072 8,483 ------------------------------------------------------------------------------- ------------------------------ Sub total LTL Group 47,374 43,937 85,557 74,081 Truckload - Glen Moore 1,595 871 2,540 1,556 Logistics subsidiaries 4,055 4,510 8,297 7,241 Freight forwarding 189 1,537 905 2,987 Corporate and other (938) (1,404) (2,596) (2,821) Amortization of intangibles (1,682) (1,664) (3,351) (3,026) ------------------------------------------------------------------------------- ------------------------------ Total Income from Operations $ 50,593 $ 47,787 $ 91,352 $ 80,018 ------------------------------------------------------------------------------- ------------------------------
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations. Results of Operations USFreightways Corporation ("the Company") reported net income for the thirteen weeks ended July 1, 2000 of $27,498,000, a 5% increase over the $26,271,000 which was reported for the thirteen weeks which ended July 3, 1999. There were 64 working days in the current and previous year's quarter. Net income per share for the current year's quarter was equivalent to $1.01 diluted earnings per share. Net income per share for the 1999 quarter amounted to 96 cents diluted earnings per share. Net income for the current year's quarter was negatively impacted by the results at USF Worldwide and USF Processors. Revenue for the 2000 quarter increased by 13.3% to $621,879,000 from $548,856,000 for the second quarter of 1999. Revenue increases in new return logistics business, new distribution service centers and additional truckload revenue from an acquisition in early January 2000 accounted for approximately $17 million of the revenue increase. Less-than-truckload (LTL) revenue for the current quarter at the regional trucking subsidiaries increased 8.1%, excluding the fuel surcharges, over the 1999 second quarter; LTL shipments increased 5.9% and LTL tonnage increased 5.4%. LTL revenue per shipment increased from $109.08 to $111.32 and the weight per shipment decreased from 1,150 pounds to 1,145 pounds. Revenue for the regional trucking subsidiaries in the last week of the quarter was the highest in the history of the Company. Year to date revenue increased by 10.2% to $934,144,000 from $847,518,000 last year. Operating earnings in the current year's quarter increased 8% to $47,374,000 compared to $43,937,000 for the same period of 1999. The consolidated operating ratio for the LTL group deteriorated slighlty to 90.0 from 89.9 last year. USF Red Star and USF Dugan continued to improve their operating ratios and USF Reddaway reported a significant improvement in its operating ratio to 86.7 compared to 88.1 last year. Improvements in costs occurred in Workers' Compensation, Purchased Transportation, Insurance and claims, but were offset by increases in Labor and Maintenance. Year to date operating earnings increased by 15.5% to $85,557,000 from $74,081,000 last year. Fuel costs, net of surcharge recoveries, in the first six months are comparable to the same period of 1999. USF Glen Moore, the Company's truckload (TL) carrier reported operting earnings of $1,595,000 at an operating ratio of 92.1 compared to $871,000 and an operating ratio of 91.8 in 1999. Improvements in Purchased Transportation, and Operating costs were offset by increases in Labor, Insurance and Claims and Workers' Compensation costs. Glen Moore's recent acquisition contributed the majority of the $9.6 million revenue increase compared to last year's quarter. Revenue in the Logistics group increased by 33.9% to $65,190,000 in the current quarter from $48,695,000 in the prior year. USF Processors contributed revenue in the 2000 quarter amounting to approximately $17.0 million compared to approximately $11.7 million in last year's quarter. USF Distribution Services increased revenue by approximately $6.2 million of which expansion into its centers in Dallas, Kansas City, Montgomery, Fontana and Oklahoma City (that were not open in the 1999 second quarter) contributed approximately $4.8 million while other existing distribution centers increased revenue by $1.4 million. Earnings in the Logistics group decreased by 10% compared to the prior year's quarter to $4.1 million from $4.5 million as USF Processors, despite a 46% increase in revenue, incurred an operating loss of $478,000 compared to an operating income of $2,159,000 in the 1999 quarter. The addition of several new accounts and the resultant opening of new facilities to process this business resulted in additional costs well in excess of additional revenue. Unprofitable business is being reviewed and cost reductions became effective in the early part of the third quarter. Operating earnings in the Logistics group, excluding Processors, increased by 92.8% to $4.5 million from $2.4 million last year. Year to date earnings in the Logistics group increased by 14.6% to $8,297,000 from $7,241,000 last year. Revenue in the Freight Forwarding group increased 19.5% to $63,176,000 from $52,861,000 in the prior year's quarter. Year to date revenue increased by 19.2% to $123,980,000 from $103,985,000 last year. The group's operating earnings decreased to $189,000 from $1,537,000 in the 1999 quarter.Results in the Freight Forwarding group include USF Asia, the trading name given to a joint venture formed in October 1999 of which USF Worldwide(a wholly owned subisidiary in the Freight Forwarding group)is a partner. USF Asia recorded second quarter revenue of approximately $1.9 million and an operating loss before tax of $890,000 (due to network expansion costs) before reduction for minority interest. Additionally, in the second quarter, USF Worldwide incurred significant costs for the integration and transformation of its major gateway branches from separate domestic and international locations into single branch locations. Year to date profits for the Freight Forwarding group decreased to $905,000 from $2,987,000 last year. Liquidity and Capital Resources Cash flows from operating activities contributed $106.7 million during the six months compared to $100.4 million during the same period last year. Net capital expenditures for the 2000 six months amounted to approximately $108.9 million including $80.8 million for revenue equipment, $13.9 million for terminal facilities, and the balance for other capital items plus the acquistion of Tri-Star Transportation. Last year for the same period, net capital expenditures amounted to approximately $119 million, including $53.4 million for revenue equipment, $18.8 million for terminal facilities, $38.6 million for the acquisitions of USF Processors, CBL and three freight forwarding companies and the balance for other capital items. Bank borrowings decreased by $33.1 million during the first half of 2000. The Company's debt includes $100 million of guaranteed notes due May 1, 2009 and $150 million of guaranteed notes due April 15, 2010. On January 31, 2000, the Company filed a Form S-3 registration statement that allowed for the sale of up to $400 million in additional guaranteed notes. The guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, on an unsecured senior basis, by all of the Company's direct and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is a holding company and during the period presented substantially all of the assets were the stock of the Subsidiary Guarantors, and substantially all of the operations were conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors were substantially equivalent to the assets, liabilities, earnings and equity of the Company on a consolidated basis. Management of the Company believes that separate financial statements of, and other disclosures with respect to, the Subsidiary Guarantors are not meaningful or material to investors. On April 19, 2000, the Company sold $150 million in 8 1/2% guaranteed notes due April 15, 2010 as part of the $400 million Form S-3 registration statement filed on January 31, 2000. The net proceeds from the sale of the guaranteed notes, after deducting underwriting fees and other expenses was approximately $149 million, was used to repay $100 million in 6 5/8% notes that matured May 1, 2000, to reduce other unsecured lines of credit and to purchase an interest rate hedge. On June 7, 2000, the Company announced the authorized repurchase of up to 500 thousand shares of its common stock. This buyback program was completed on June 30, 2000. On July 24, 2000, the Company announced the authorized buyback of up to 1 million additional shares of its common stock in either public market or private transactions. This repurchase program is not yet completed. A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on July 7, 2000 to shareholders of record on June 23, 2000. Market Risk The Company is exposed to the impact of interest rate changes. The Company's exposure to changes in interest rates is limited to borrowings under a line of credit agreement which has variable interest rates tied to the LIBOR rate. The average annual interest rates on borrowings under this credit agreement were approximately 6.1% in the first six months of 2000. In addition, the Company had $100 million of unsecured notes with a 6 5/8% fixed annual interest rate (these notes were paid in full on May 1, 2000), $100 million of guaranteed notes with a 6 1/2% fixed annual interest rate and $150 million of guaranteed notes with an 8 1/2% interest rate at July 1, 2000. The Company estimates that the carrying value of the notes approximated their market value at July 1, 2000. The Company has no hedging instruments outstanding. From time to time, the Company invests excess cash in overnight money market accounts. PART II: OTHER INFORMATION Item 1. Legal Proceedings. The Company is a party to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, (CERCLA). The Company has been made a party to these proceedings as an alleged generator of waste disposed of at hazardous waste disposal sites. In each case, the Government alleges that the parties are jointly and severally liable for the cleanup costs. Although joint and several liability is alleged, these proceedings are frequently resolved on the basis of the quantity of waste disposed of at the site by the generator. The Company's potential liability varies greatly from site to site. For some sites the potential liability is de minimis and for others the costs of cleanup have not yet been determined. While it is not feasible to predict or determine the outcome of these proceedings or similar proceedings brought by state agencies or private litigants, in the opinion of management, the ultimate recovery or liability, if any, resulting from such litigation, individually or in the aggregate, will not materially adversely affect the Company's financial condition or results of operations and, to the Company's best knowledge, such liability, if any, will represent less than 1% of its revenues. Also, the Company is involved in other litigation arising in the ordinary course of business, primarily involving claims for bodily injuries and property damage. In the opinion of management, the ultimate recovery or liability, if any, resulting from such litigation, individually or in the aggregate, will not materially adversely affect the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. (a) On April 28, 2000, the annual meeting of stockholders of USFreightways Corporation was held pursuant to notice. (b) Robert V. Delaney and Samuel K. Skinner were elected directors at the meeting. The following directors' term of office continued after the meeting: John Campbell Carruth John W. Puth Morley Koffman Neil A. Springer Anthony J. Paoni William N. Weaver, Jr. (c) Election of Directors Robert V. Delaney FOR: 23,471,793 WITHHOLD: 139,884 ABSTENTIONS: 0 BROKER NON VOTES: 0 Samuel K. Skinner FOR: 23,305,432 WITHHOLD: 306,245 ABSTENTIONS: 0 BROKER NON VOTES: 0 (d) N/A Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 1. Exhibit 10.1-Employment Agreement with Samuel K. Skinner, dated June 5, 2000. 2. Exhibit 27-Financial Data Schedule. (b) Current Reports on Form 8-K were filed: 1. A Current Report on Form 8-K was filed on April 26, 2000 regarding the issuance of $150,000,000 of 8-1/2% Guaranteed Notes due April 15, 2010. 2. A Current Report on Form 8-K was filed on June 9, 2000 announcing that (a) Samuel K. Skinner has been elected President and Chief Executive Officer and (b) its Board of Directors authorized a stock repurchase program of up to 500,000 shares of its common stock. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated the 9th day of August, 2000. USFREIGHTWAYS CORPORATION By: /s/ Christopher L. Ellis Christopher L. Ellis Senior Vice President, Finance and Chief Financial Officer By: /s/ Robert S. Owen Robert S. Owen Controller and Principal Accounting Officer