0000881791-01-500019.txt : 20011112 0000881791-01-500019.hdr.sgml : 20011112 ACCESSION NUMBER: 0000881791-01-500019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USFREIGHTWAYS CORP CENTRAL INDEX KEY: 0000881791 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 363790696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19791 FILM NUMBER: 1774854 BUSINESS ADDRESS: STREET 1: 8550 W BRYN MAWR AVE STREET 2: SUITE 700 CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 8476960200 MAIL ADDRESS: STREET 1: 9700 HIGGINS ROAD SUITE 570 CITY: ROSEMONT STATE: IL ZIP: 60018 FORMER COMPANY: FORMER CONFORMED NAME: TNT FREIGHTWAYS CORP DATE OF NAME CHANGE: 19930328 10-Q 1 f10q3q01-a.txt THIRD QUARTER 10-Q 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 SEPT. 29, 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 0-19791 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.,Suite 700 60631 Chicago, Illinois (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 November 2, 2001, 26,393,967 shares of common stock were outstanding. PART I: FINANCIAL INFORMATION Item 1. Financial Statements. USFreightways Corporation Condensed Consolidated Balance Sheets Unaudited (Dollars in thousands)
Sept. 29, December 31, 2001 2000 ----------------------------------------------------------------------------------------------------- Assets Current assets: Cash $ 70,594 $ 5,248 Accounts receivable, net 323,434 323,517 Other 71,512 67,596 ----------------- ------------------- Total current assets 465,540 396,361 ----------------- ------------------- Net property and equipment 725,572 750,485 Net intangible assets 176,809 181,978 Other assets 24,724 22,250 ----------------- ------------------- Total assets $ 1,392,645 $ 1,351,074 ----------------- ------------------- Liabilities and Stockholders' Equity Current liabilities: Current bank debt $ 1,122 $ 28,991 Accounts payable 88,606 90,741 Other current liabilities 206,790 172,443 ----------------- ------------------ Total current liabilities 296,518 292,175 ----------------- ------------------ Long-term liabilities: Long-term bank debt 2,734 10,137 Notes payable 250,000 250,000 Other long-term liabilities 171,831 163,047 ----------------- ------------------ Total long-term liabilities 424,565 423,184 ----------------- ------------------ Minority interest 1,592 539 Common stockholders' equity 669,970 635,176 ----------------- ------------------ Total liabilities and stockholders' equity $ 1,392,645 $ 1,351,074 ----------------- ------------------
USFreightways Corporation Consolidated Statements of Income Unaudited (Dollars in thousands, except per-share amounts)
Three months ended Nine months ended ------------------------------------- ------------------------------ Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 ----------------------------------------------------------------------------- ----------------------------- Operating revenue LTL Trucking $ 461,391 $ 484,192 $1,385,719 $1,440,030 TL Trucking 24,534 21,808 74,794 62,399 Logistics 67,663 69,802 205,737 202,117 Freight Forwarding 64,992 66,428 197,595 190,408 ----------------- ---------------- ---------- ---------- Total operating revenue $ 618,580 $ 642,230 $1,863,845 $1,894,954 Operating expenses: LTL Trucking 430,692 438,950 1,302,178 1,308,177 TL Trucking 24,169 20,694 72,709 58,745 Logistics 63,223 65,647 196,282 189,665 Freight Forwarding 73,840 68,113 212,629 191,188 Corporate and other 4,728 3,138 14,024 9,085 ----------------- ---------------- ---------- ---------- Total operating expenses 596,652 596,542 1,797,822 1,756,860 ----------------- ---------------- ---------- ---------- Income from operations 21,928 45,688 66,023 138,094 ----------------- ---------------- ---------- ---------- Non-operating income (expense): Interest expense (5,236) (5,632) (16,218) (15,545) Interest income 322 203 710 711 Other, net (199) (4) 18 (556) ---------------- --------------- ---------- ---------- Total non-operating expense (5,113) (5,433) (15,490) (15,390) ---------------- --------------- ---------- ---------- Net income before income taxes 16,815 40,255 50,533 122,704 Income tax expense (6,763) (16,410) (20,090) (49,756) Minority interest (321) 502 (838) 1,213 ----------------- --------------- ---------- --------- Net income $ 9,731 $ 24,347 $ 29,605 $ 74,161 ----------------- --------------- ---------- --------- Average shares outstanding - basic 26,335,517 26,286,058 26,267,763 26,462,064 Average shares outstanding - diluted 26,912,541 26,520,231 26,765,551 27,086,804 Basic earnings per common share: $ 0.37 $ 0.93 $ 1.13 $ 2.80 Diluted earnings per common share: $ 0.36 $ 0.92 $ 1.11 $ 2.74 ----------------- ------------------ ---------- ----------
USFreightways Corporation Condensed Consolidated Statements of Cash Flows Unaudited (Dollars in thousands)
Nine months ended ---------------------------- Sept. 29, Sept. 30, 2001 2000 -------------------------------------------------------------------------------------- Cash flows from operating activities: Net Income $ 29,605 $ 74,161 Adjustments to net income: Depreciation and amortization 83,552 82,313 Other items affecting cash 33,292 (12,332) from operating activities -------------- ------------- Net cash provided by operating activities 146,449 144,142 -------------- ------------- Cash flows from investing activities: Capital expenditures (58,802) (151,869) Proceeds on sales 7,677 9,198 Acquisitions - (16,419) -------------- ------------- Net cash used in investing activities (51,125) (159,090) -------------- ------------- Cash flows from financing activities: Dividends paid (7,318) (7,393) Proceeds from sale of notes - 149,025 Payments on notes - (100,000) Proceeds from sale/(repurchase) of treasury stock 12,612 (8,778) Proceeds from long-term debt 10,000 70,000 Payments on long-term debt (17,403) (92,409) Net change in short-term debt (27,869) 2,463 -------------- ------------- Net cash provided by (used in) financing activities (29,978) 12,908 -------------- ------------- Net increase/(decrease) in cash 65,346 (2,040) -------------- ------------- Cash at beginning of period 5,248 6,862 -------------- ------------- Cash at end of period $ 70,594 $ 4,822 -------------- -------------
USFreightways Corporation Condensed Consolidated Statements of Changes in Common Stockholders' Equity Unaudited (Dollars in thousands)
Nine Months Ended ----------------- Sept. 29, Sept. 30, 2001 2000 Balance as of December 31 2000 and 1999 respectively $ 635,176 $ 558,859 Net income 29,605 74,161 Foreign currency translation adjustments (57) - -------- ------- Comprehensive income $ 29,548 $ 74,161 Proceeds from sale/ (repurchase) of treasury stock 12,612 5,740 Dividends declared (7,366) (7,374) Common shares repurchased (14,520) ---------- ---------- Balance as of Sept. 29, 2001 and Sept. 30, 2000 $ 669,970 $ 616,866 respectively ========== ==========
Notes to Condensed Consolidated Financial Statements (Dollars in thousands, except per share amounts) (Unaudited) 1. Summary of significant accounting policies 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 consolidated statements of operations for prior periods have been reclassified to conform with the current presentation. 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 nine months ended Sept. 29, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. 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 577,024 and 234,173 for the third quarters of 2001 and 2000 respectively and 497,788 and 624,740 for years to date 2001 and 2000 respectively. 3. Debt The Company's debt includes $100 million of unsecured guaranteed notes due May 1, 2009 and $150 million of unsecured 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. On April 25, 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 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. 4. Stock repurchases 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. There have been no shares repurchased in the first nine months of 2001. As of Sept. 29, 2001, the Company had repurchased 454,200 shares. 5. USF Worldwide In the 2001 third quarter USF Worldwide, the Company's domestic and international air frieght forwarder, reported a charge amounting to $5.9 million relating to severance and other expenses as USF Worldwide downsizes its operations due to decreased revenue, brought on by the current business environment, and expenses associated with the implementation of a new freight management system in the fourth quarter. 6. Recent Accounting Pronouncemnts Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets" in July 2001. Among other provisions in these two statements, all future business combinations will be accounted for using the purchase method of accounting and use of the pooling-of-interest method is prohibited. For acquisitions completed after July 1, 2001, goodwill will not be amortized. In addition, effective January 1, 2002, previously recorded goodwill and other intangible assets with indefinite lives will no longer be amortized but will be subject to impairment tests annually. Intangible assets with finite lives are required to be amortized over their estimated useful lives. For the three and nine month periods ended Sept. 29, 2001, the Company recorded amortization of $2.0 million and $5.7 million, respectively. Management is currently reviewing the final release of these statements to evaluate the impact on the results of operations and financial statements. In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. The standard is effective for 2003. The Company is currently reviewing the requirements of this new standard and has not yet determined its impact,if any, on the Company's financial position or results of operations. In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The standard is effective for 2002 and generally is to be applied prospectively. The Company is currently reviewing the requirements of this new standard and has not yet determined its impact,if any, on the Company's financial position or results of operations.
7. Segment Reporting Three Months Ended Nine Months Ended Unaudited (dollars in thousands) Sept. 29, Sept. 30, Sept. 29, Sept. 30, 2001 2000 2001 2000 ------------------------------------------------------------------------------- ---------------------- Revenue LTL Group: USF Holland $ 237,030 $ 250,891 $ 717,410 $ 756,784 USF Reddaway 68,872 72,502 201,832 206,714 USF Red Star 64,488 69,685 194,409 206,440 USF Dugan 53,384 51,143 156,491 154,380 USF Bestway 37,617 39,971 115,577 115,712 ------------------------------------------------------------------------------- --------------------------- Sub total LTL Group 461,391 484,192 1,385,719 1,440,030 Truckload - Glen Moore 24,534 21,808 74,794 62,399 Logistics subsidiaries 67,663 69,802 205,737 202,117 Freight forwarding 64,992 66,428 197,595 190,408 Corporate and other - - - - ------------------------------------------------------------------------------- --------------------------- Total Revenue $ 618,580 $ 642,230 $ 1,863,845 $ 1,894,954 Income (Loss) From Operations LTL Group: USF Holland $ 20,064 $ 27,437 56,826 81,822 USF Reddaway 7,768 9,399 18,476 23,275 USF Red Star (599) 2,661 (2,389) 6,674 USF Dugan 1,219 2,504 4,602 8,769 USF Bestway 2,247 3,241 6,026 11,313 ------------------------------------------------------------------------------- --------------------------- Sub total LTL Group 30,699 45,242 83,541 131,853 Truckload - Glen Moore 365 1,114 2,085 3,654 Logistics subsidiaries 4,440 4,155 9,455 12,452 Freight forwarding (8,848) (1,685) (15,034) (780) Corporate and other (2,753) (1,391) (8,312) (3,987) Amortization of intangibles (1,975) (1,747) (5,712) (5,098) ------------------------------------------------------------------------------- --------------------------- Total Income from Operations $ 21,928 $ 45,688 $ 66,023 $ 138,094 ------------------------------------------------------------------------------ ---------------------------
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 quarter ended September 29, 2001 of $9.7 million, a 60% decrease compared to $24.4 million that was reported for the quarter that ended September 30, 2000. Included in the current quarter's net income is a $5.9 million pre-tax charge at USF Worldwide. There were 63 working days in the current quarter and last year's third quarter. Net income per share for the current year's quarter was equivalent to 36 cents diluted earnings per share (49 cents diluted earnings per share before the USF Worldwide charge mentioned above). Net income per share for the 2000 quarter amounted to 92 cents diluted earnings per share. Net income for the current year's quarter, as in the 2001 second quarter, was negatively impacted by the continuing economic slowdown and the terrorist attacks of September 11th that affected results in all the Company's lines of businesses, and continued losses at USF Worldwide, the Company's domestic and international freight forwarding business. Revenue for the 2001 quarter decreased by 3.7% to $618.6 million from $642.2 million for the third quarter of 2000. Revenue increases in the distribution service centers, the UK freight forwarder, USF Asia and truckload revenue were offset by decreases in the regional trucking subsidiaries group, the return logistics business and USF Worldwide. Less-than-truckload (LTL) revenue for the current quarter at the regional trucking subsidiaries decreased 3.9%, including the fuel surcharges , compared to the 2000 third quarter; LTL shipments decreased 4.1% and LTL tonnage decreased 6.1%. LTL revenue per shipment increased from $115.78 to $115.93 and the weight per shipment decreased 2.1% from 1,137 pounds to 1,113 pounds. While all of the LTL trucking companies were affected by the slowdown in the economy, USF Holland, the Company's largest regional trucking subsidiary, had decreases in revenue and tonnage of 5.5% and 8.2% respectively compared to last year's quarter due to a continuing significant slowdown in the automotive industry and other heavy manufacturing industries based in the central United States. USF Red Star, the Company's Northeastern regional trucking subsidiary, was more directly impacted by the terrorits attacks on September 11th and incurred decreases in revenue and tonnage amounting to 7.5% and 10.6%, respectively. In the last week of the second quarter, the regional trucking subsidiaries increased rates to their non-contractual customers by an average 5.9%. As a result, revenue per hundredweight increased by 2.3% compared to the 2000 third quarter. A similar rate increase was taken on August 28, 2000. The non-contractual customer base is approximately one half of the total customers. Operating earnings for the regional trucking subsidiaries, in the current year's quarter, decreased 32.1% to $30.7 million compared to $45.2 million for the same period of 2000. The consolidated operating ratio for the LTL group increased to 93.3 (one half point less than the 93.8 operating ratio recorded in the 2001 second quarter) from 90.7 in the third quarter of 2000. Due to current economic conditions, the regional trucking subsidiaries continue to monitor and maintain a reduced work force. When compared to November of 2000 which is normally one of the strongest parts of the year, the work force is approximately 3.8% lower (amounting to 700 workers). Since the end of the third quarter, the work force has been further reduced bringing total reductions, compared to September 2000, to approximately 1,000. Despite the work force reductions, labor and fringe related benefits increased due to annual contractual increases at the Company's unionized carriers (USF Holland and USF Red Star). Additionally, the regional trucking subsidiaries continue to experience increases in group health costs ranging from 12% to 30%. The combined effect from increases in labor and fringes expenses resulted in an increase in the operating ratio of approximately 2.7 points. Workers' compensation expenses increased as a percentage of revenue compared to last year's quarter especially at USF Bestway, USF Holland and USF Dugan. Whereas fuel expense improved in the current year's quarter compared to last year. USF Glen Moore, the Company's truckload (TL) carrier reported operating earnings of $0.4 million at an operating ratio of 98.5 compared to $1.1 million and an operating ratio of 94.9 in the 2000 quarter as increases in labor, depreciation and claims expenses were only partially offset by decreases in fuel costs. Revenue in the Logistics group decreased by 3.1% to $67.7 million in the current quarter from $69.8 million in the prior year. USF Processors contributed lower revenue in the 2001 quarter amounting to approximately $13.4 million compared to approximately $17.4 million in last year's quarter as volumes from a major customer were significantly reduced. USF Distribution Services increased revenue by approximately $1.9 million of which expansion into its new centers in San Francisco, Orlando and Houston (that were not open in the third quarter of 2000) amounted to $0.9 million, while growth in existing centers in Baltimore, Irwindale, Fontana and Jersey City contributed approximately $1.0 million. USF Logistics revenue remained constant in each quarter as gains in Food, and International business sectors were offset by reductions in its Health and Technology and Metals sectors. Earnings in the Logistics group increased by 6.9% compared to the prior year's quarter to $4.4 million from $4.2 million as USF Logistics reported improved profits due to lower overhead costs and an improved mix of business in its Retail and Consumer sectors offset by declines in Metals, Health and International sectors. USF Distribution, despite incurring startup costs at its San Francisco, Orlando and Houston centers that were not opened in last year's third quarter, reported slightly higher profits, and USF Processors reported a 94.2 operating ratio for the quarter despite lower revenue (see paragraph above). Revenue in the Freight Forwarding group declined 2.2% to $65.0 million from $66.4 million in the prior year's quarter. The group reported an operating loss of $8.8 million (compared to a $2.9 million loss in the 2001 second quarter) in 2001 compared to an operating loss of $1.7 million in the 2000 quarter. Results in the Freight Forwarding group include USF Worldwide, USF Asia, the Company's joint venture operation and USF Worldwide Logistics Limited ("Limited"), a UK freight forwarder. USF Asia continued to grow its operations and recorded third quarter revenue of approximately $7.3 million and an operating loss of $0.6 million compared to revenue of $4.0 million and an operating loss of $1.0 million last year. Limited, which was acquired in August 2000, recorded revenue of approximately $7.8 million and an operating profit of $0.3 million. USF Worldwide reported an operating loss of $8.6 million in the 2001 third quarter compared to a loss of $0.7 million in the 2000 third quarter as revenue declined by $10.6 million. Included in Worldwide's third quarter loss was a charge amounting to $5.9 million relating to severance and other expenses as Worldwide downsizes its operations due to decreased revenue, brought on by the current business environment, and expenses associated with the implementation of a new freight management system in the fourth quarter. Worldwide's third quarter 2001 loss was slightly less than the 2001 second quarter loss, before the $5.9 million charge, and gross margins on air freight forwarding activities were comparable in both quarters. Corporate and other expenses increased by $1.6 million compared to the 2000 third quarter. Intangible amortization increased by $0.2 million while the majority of the remaining balance was due to continued efforts to enhance the Company's information technology. Liquidity and Capital Resources Cash flows from operating activities contributed $146.5 million during the 2001 nine months compared to $144.1 million during the same period last year. Net capital expenditures for the 2001 nine months amounted to approximately $51.1 million including additions of $7.8 million for revenue equipment, $24.5 million for terminal facilities, $17.0 million for information technology and for other capital items. Last year for the same period, net capital expenditures amounted to approximately $159.1 million, including additions of $110.6 million for revenue equipment, $22.2 million for terminal facilities, $9.8 million for information technology and for other capital items and the acquisitions of Tri-Star Transportation and USF Worldwide Limited (the UK freight forwarder). Cash flows provided by financing activities included $12.6 million of proceeds from the sale of treasury stock that resulted primarily from the exercise of stock options occurring mainly in the first quarter. Total borrowings decreased by $35.3 million during the first nine months of 2001 and the Company's net debt to capital ratio improved to 22.1% compared to 31.3% at December 31, 2000. The Company's debt includes $150 million of unsecured guaranteed notes that were floated in late April, 2000 and are due on April 15, 2010 and $100 million of unsecured guaranteed notes due May 1, 2009. 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. On April 25, 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. 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 July 24, 2000, the Company announced the authorized buyback of up to 1 million additional shares of its common stock. This repurchase program is not yet completed. There have been no shares repurchased in the first nine months of 2001. As of Sept. 29, 2001, the Company had repurchased 454,200 shares. A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on October 5, 2001 to shareholders of record on Sept. 21, 2001. 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 6.2% in the first quarter of 2001.The Company had no borrowings under this credit agreement in the third quarter of 2001. In addition, the Company has $100 million of unsecured guaranteed notes with a 6 1/2% fixed annual interest rate and $150 million of unsecured guaranteed notes with an 8 1/2% interest rate at Sept. 29, 2001. The Company estimates that the carrying value of the notes approximated their market value at Sept. 29, 2001. The Company has no hedging instruments outstanding. From time to time, the Company invests excess cash in overnight money market accounts. At the end of the third quarter, the Company had approximately $64 million invested in overnight money market accounts that yielded approximately 3.3%. Recent Accounting Pronouncements In the 2000 fourth quarter, the Company reclassified fuel surcharges invoiced to customers as revenue according to guidelines established under the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial Statements". Prior to the 2000 fourth quarter, the fuel surcharges were presented as a reduction of fuel costs. The Company, therefore, has restated the fourth quarter 1999 and the first three quarters of 2000 revenue and expenses in accordance with SAB No. 101. The implementation of SAB No. 101 had no effect on income from operations or net income. Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets" in July 2001. Among other provisions in these two statements, all future business combinations will be accounted for using the purchase method of accounting and use of the pooling-of-interest method is prohibited. For acquisitions completed after July 1, 2001, goodwill will not be amortized. In addition, effective January 1, 2002, previously recorded goodwill and other intangible assets with indefinite lives will no longer be amortized but will be subject to impairment tests annually. Intangible assets with finite lives are required to be amortized over their estimated useful lives. For the three and nine month periods ended Sept. 29, 2001, the Company recorded amortization of $2.0 million and $5.7 million, respectively. Management is currently reviewing the final release of these statements to evaluate the impact on the results of operations and financial statements. In August 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the obligation is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. The standard is effective for 2003. The Company is currently reviewing the requirements of this new standard and has not yet determined its impact, if any, on the Company's financial position or results of operations. In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Statement 144 requires that long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The standard is effective for 2002 and generally is to be applied prospectively. The Company is currently reviewing the requirements of this new standard and has not yet determined its impact, if any, on the Company's financial position or results of operations. 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 6. Exhibits and Reports on Form 8-K. (a) Exhibits 1. Exhibit 10.1 - Promissory Note of Gerard M. Klaisle,dated July 31, 2001. (b) Current Reports on Form 8-K were filed: 1. None. 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 5th day of November, 2001. 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 EX-10 2 klaisle.txt KLAISLE NOTE EXHIBIT 10.1 PROMISSORY NOTE OF GERARD M. KLAISLE Effective as of July 31, 2001 $100,000.00 For value received, Gerard M. Klaisle (the "Borrower") promises to pay to the order of USFreightways Corporation, a Delaware corporation, with its principal place of business at 8550 West Bryn Mawr Avenue, Suite 700, Chicago, Illinois 60631 (the "Lender"), the principal amount of One Hundred Thousand Dollars ($100,000) due as set forth below. The unpaid principal amount of this Note outstanding from time to time shall bear interest at the applicable federal mid-term rate under Section 1274(d) of the Internal Revenue Code of 1986, as amended, as announced from time to time, computed on the basis of a 360-day year of twelve thirty-day months, which interest shall be due and owing as set forth below. I. Payment. A. Principal and accrued and unpaid interest due under this Note shall be immediately due and payable upon the termination of the Borrower's employment with the Lender or any of its affiliates, in the event that the Borrower voluntarily terminates his employment. B. Payment of any principal and interest amount stated above shall be made to the Lender at its principal offices at 8550 West Bryn Mawr Avenue, Suite 700, Chicago, Illinois 60631, or at such other place as the Lender may designate to the Borrower. Receipt by the Lender of a check of the Borrower in the amount of any payment due and owing shall be deemed to constitute payment hereunder, provided that such check is processed and paid in full by the institution against which the check is drawn within a commercially reasonable and customary time. II. Prepayment. The unpaid principal balance of this Note and interest accrued thereon may be prepaid by the Borrower at any time, in whole or in part, without premium or penalty, in minimum increments of not less than Five Thousand Dollars ($5,000). III. Forgiveness of Note. A. On each July 1, beginning on July 1, 2002 and ending on July 1, 2006, provided the Borrower is an employee of the Lender or any of its affiliates on each such July 1 (and has not provided the Lender or any of its affiliates with notice of the Borrower's intent to voluntarily terminate his employment), the Lender shall forgive $20,000 of the total principal amount under this Note, plus an amount equal to the interest accrued on the unpaid principal amount as of such July 1. B. The Lender shall forgive the unpaid principal balance of this Note and interest accrued upon the occurrence of the following: (1) Death. If the Borrower dies while in the employ or service of the Lender. (2) Disability. If the Borrower terminates his employment with the Lender by reason of "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code). Whether a termination of employment is to be considered by reason of "permanent and total disability" shall be determined by the Lender, which determination shall be final and conclusive. C. The Borrower acknowledges that such forgiveness of principal and interest by the Lender shall constitute ordinary income to the Borrower and the Lender shall report such forgiveness of indebtedness to the Internal Revenue Service in accordance with any statutory, regulatory or administrative guidelines. IV. Default. If the Borrower shall fail to promptly pay to the Lender all sums when due hereunder or under any other agreement, instrument or document heretofore, now or at any time hereafter delivered to the Lender by or for the benefit of the Borrower, which default or event of default is not cured within the time, if any, specified therefor in such agreement, instrument or document, then the Lender may declare all sums owed by the Borrower hereunder immediately due and payable, without notice unless otherwise required by applicable statute, and may take any action at law or in equity to collect the amounts due and owing hereunder, or to request any other available remedy, together with any damages resulting from such nonpayment. V. Assigns. All of the covenants, stipulations, promises and agreements in this Note shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. VI. Costs. The Borrower promises to pay all costs and collection of every kind, including, but not limited to, all reasonable attorneys' fees, court costs and expenses of every kind incurred by the Lender, in connection with such collection. VII. Miscellaneous. A.Failure of the Lender, for any period of time or on one or more occasions, to exercise its option to accelerate the payment of this Note pursuant to Section IV above shall not constitute a waiver of the right to exercise the same at any time thereafter or in the event of any subsequent default under Section IV above. No act of omission or commission of the Lender, including specifically any failure to exercise any right, remedy or recourse, shall be deemed to be a waiver or release of the same; any such waiver or release is to be effected only through a written document executed by the Lender, and then only to the extent specifically recited therein. A waiver or release with reference to any one event shall not be construed as a waiver or release of any subsequent event or as a bar to any subsequent exercise of the Lender's rights or remedies hereunder. B.This Note and the obligations of the Borrower hereunder shall not be modified except in writing to be consented to by the Lender. C. Upon the voluntary termination of the Borrower's employment with the Lender or in the event of default, the Borrower hereby authorizes the Lender to deduct the entire remaining principal and interest due and owing under this Note from the Borrower's wages. Pursuant to 820 ILCS Section 115/9, the Borrower acknowledges that this authorization is being freely given and further acknowledges and affirms that he will enter into an authorization similar to this one at the time of the deduction. D.THIS NOTE HAS BEEN DELIVERED FOR ACCEPTANCE BY LENDER IN CHICAGO, ILLINOIS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS) OF THE STATE OF ILLINOIS. BORROWER HEREBY (i) IRREVOCABLY SUBMITS, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN CHICAGO, ILLINOIS OVER ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS NOTE; (ii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT BORROWER MAY EFFECTIVELY DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT; (iii) AGREES THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW; (iv) TO THE EXTENT PERMITTED BY APPLICABLE LAW, AGREES NOT TO INSTITUTE ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THIS NOTE IN ANY COURT OTHER THAN ONE LOCATED IN COOK COUNTY, ILLINOIS; and (v) WAIVES PRESENTMENT OF PAYMENT, PROTEST, NOTICE OF PROTEST AND DISHONOR AS PREREQUISITES TO THE ENFORCEMENT HEREOF. NOTHING IN THIS SECTION SHALL AFFECT OR IMPAIR THE LENDER'S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR THE LENDER'S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR BORROWER'S PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. E.TO THE EXTENT PERMITTED BY LAW, BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN CONNECTION HEREWITH. BORROWER HEREBY EXPRESSLY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN EVIDENCED HEREBY. /s/ Gerard M. Klaisle _______________________________ Gerard M. Klaisle