-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CHbm/yBsQym4+xqSRP+QXBYsPn88Da88lhyPDd2FAT+yREVRZix9/O43v0k2Sw49 WOqX9PqF1DN/r5fF0MQzjg== 0000881791-97-000004.txt : 19970708 0000881791-97-000004.hdr.sgml : 19970708 ACCESSION NUMBER: 0000881791-97-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970325 DATE AS OF CHANGE: 19970707 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: USFREIGHTWAYS CORP CENTRAL INDEX KEY: 0000881791 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 363790696 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19791 FILM NUMBER: 97562536 BUSINESS ADDRESS: STREET 1: 9700 HIGGINS RD STE 570 CITY: ROSEMONT STATE: IL ZIP: 60018 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-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 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 or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9700 Higgins Rd., Ste. 570, Rosemont, Il. 60018 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (847) 696-0200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange of which registered Common Stock $.01 Par Value NASDAQ Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: 6 5/8 % Notes Due May 1, 2000 (Title of Class) 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. __X____ Yes________No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K ___. The number of shares of common stock outstanding at March 21, 1997 was 25,757,912. The aggregate market value of the voting stock of the registrant as of March 21, 1997 was approximately $631,068,844. DOCUMENTS INCORPORATED BY REFERENCE 1) 1996 Annual Report to Shareholders for the Fiscal Year Ended December 28, 1996 (Only those portions referenced herein are incorporated in this Form 10-K). 2) Proxy Statement dated March 24, 1997 (Only those portions referenced herein are incorporated in this Form 10-K). Page 2 USFreightays Corporation Form 10-K Fiscal Year Ended December 28, 1996 PART I Item 1. Business Background USFreightways Corporation, whose name was changed by shareholder approval on May 3, 1996 (hereafter referred to as the "Company"), operates a group of regional less than truckload ("LTL") general commodities motor carriers. The main focus of the Company's regional trucking subsidiaries is on overnight and second day freight delivery, with service throughout the continental United States, Hawaii, Alaska, and to certain points in Canada. The Company's logistics subsidiaries provide solutions to customers' logistics and distribution requirements. The Company's truckload subsidiary provides premium, long-haul, sleeper-team service between major markets in the United States. The Company traces its origins to 1984 when TNT Limited, through its wholly owned subsidiary TNT Transport Group ("Transport Group"), embarked on a strategy to establish, through acquisition, a nationwide network of quality regional LTL carriers. During the same period, the group of businesses that now constitute the Company also grew as a result of internal expansion and increased penetration of existing markets. In April 1991 the Company was incorporated as a holding company for regional trucking companies of Transport Group. During February 1992 the shareholders of the Company sold 19,593,750 shares of common stock through an initial public offering for which the proceeds were paid to Transport Group. In a subsequent transaction, the Company purchased from Transport Group all its remaining shares in the Company. On May 6, 1993 the Company issued, through a public offering, 6 5/8% Notes in the principal amount of $100,000,000 due May 1, 2000. The proceeds from this issuance were, in part, used to repay borrowings under existing revolving lines of credit which were partially used to acquire the common stock from Transport Group. On January 1, 1996, the Company increased density in the Southeast by acquiring the general commodities business of Transus, Inc. and merged this operation into the Company's subsidiary, USF Dugan. On July 1, 1996, the Company acquired the Interamerican Group, a third party logistics provider primarily in the contract warehousing business. PAGE 3 Regional LTL Trucking LTL shipments are defined as shipments of less than 10,000 pounds. Typically, LTL carriers transport freight along scheduled routes from multiple shippers to multiple consignees utilizing a network of terminals together with fleets of line-haul and pickup and delivery tractors and trailers. Freight is picked up from customers by local drivers and consolidated for shipment. The freight is then loaded into intercity trailers and transferred by line-haul drivers to the terminal servicing the delivery area. There, the freight is transferred to local trailers and delivered to its destination by local drivers. LTL operators are generally categorized as either regional, interregional or long-haul carriers, depending on the distance freight travels from pickup to final delivery. Regional carriers usually have average lengths of haul of 500 miles or less and tend to provide either overnight or second day service. Regional LTL carriers usually are able to load freight for direct transport to a destination terminal, thereby avoiding the costly and time-consuming use of breakbulk terminals (where freight is rehandled and reloaded to its ultimate destination). In contrast, long-haul LTL carriers (average lengths of haul in excess of 1,000 miles) operate networks of breakbulk and satellite terminals (hub-spoke systems) and rely heavily on interim handling of freight. Interregional carriers (500 to 1,000 miles per average haul) also rely on breakbulk terminals but to a lesser degree than long-haul carriers. Regional LTL carriers, including the Company's trucking subsidiaries, principally compete against other regional LTL carriers. To a lesser extent, they compete against interregional and long-haul LTL carriers. To an even lesser degree, regional LTL transporters compete against truckload carriers, overnight package companies, railroads and airlines. Significant barriers to entry into the regional LTL market exist as a result of the substantial capital requirements for terminals and revenue equipment and the need for a large, well-coordinated and skilled work force. In the competitive environment of each of the Company's trucking subsidiaries, most LTL carriers have adopted discounting programs that severely reduce prices paid by some shippers. Additionally, when new LTL competitors enter a geographic region, they often utilize discounted prices to lure customers away from the Company's trucking subsidiaries. Such attempts to gain market share through price reduction programs exert downward pressure on the industry's price structure and profit margins and have caused many LTL carriers to cease operations. The Trucking Subsidiaries The following is a brief description of the Company's LTL regional trucking subsidiaries. Statistical information for subsidiary's operations is reported in the Company's 1996 Annual Report to the Shareholders, and is incorporated by reference in this Form 10-K as page 15 of Exhibit 13 . USF Holland is the largest of the Company's operating subsidiaries, transporting LTL shipments interstate throughout the central United States and into the Southeast. USF Holland uses predominantly single 48 foot trailers. The average length of line-haul in the year ended December 28, 1996 was approximately 375 miles. USF Red Star operates in the eastern United States, as well as to and from eastern Canada. USF Red Star uses a combination of single and double trailers. The average length of line-haul in the year ended December 28, 1996 was approximately 285 miles. USF Red Star operates in an environment characterized by intense price competition. USF Bestway operates throughout the southwest region of the United States from Texas to California. USF Bestway uses double trailers in its operations. For the year ended December 28, 1996 the average length of line-haul for USF Bestway was approximately 420 miles. USF Reddaway provides LTL carriage along the I-5 corridor from California to Washington, throughout the northwest United States and into western Canada and Alaska. The average length of line-haul for the year ended December 28, 1996 was approximately 430 miles. USF Reddaway operates double trailers and, where possible, triple trailer combinations. USF Dugan provides service to the Plains states and into the southern states from Texas to Florida. USF Dugan operates with double and triple trailers, and the average length of line-haul for the year ended December 28, 1996 was approximately 265 miles which was considerably less than the prior year due to the inclusion of short hauls within the former Transus system which was acquired on January 1, 1996. PAGE 4 The Logistics Subsidiaries The Company is engaged in business of providing logistics, interregional and distribution services. These activities are conducted through Logix, which provides complete supply chain management services from supplying raw materials to delivering products to customers, Interamerican which provides contract warehousing services and USF Distribution Services which collects and ships components to manufacturers and receives, sorts and moves merchandise from suppliers to retail stores. The Company is engaged, through its subsidiary Comet Transport, in providing premium, long-haul, sleeper-team truckload service between major markets in the United States. The Company is also engaged, through its subsidiaries USF Coast Consolidators and USF Caribbean Services, in providing direct freight transportation service from the mainland to all points in Hawaii/ Guam and Puerto Rico, respectively. Terminals The Company's 239 terminals are a key element in the operation of its regional trucklines. The terminals vary significantly in size according to the markets served. Sales personnel at each terminal are responsible for soliciting new business. Each terminal maintains a team of dispatchers who communicate with customers and coordinate local pickup and delivery drivers. Terminals also maintain teams of dock workers, line-haul drivers and administrative personnel. The larger terminals also have maintenance facilities and mechanics. Each terminal is directed by a terminal manager who has general supervisory responsibilities and also plays an important role in monitoring costs and service quality. Revenue Equipment At December 28, 1996 the Company operated 6,524 tractors and 15,550 trailers. Each trucking subsidiary selects its own revenue equipment to suit the conditions prevailing in its region, such as terrain, climate, and average length of line-haul. Tractors and trailers are built to standard specifications and generally are not modified to fit special customer situations. Each trucking subsidiary has a comprehensive preventive maintenance program for its tractors and trailers to minimize equipment downtime and prolong equipment life. Repairs and maintenance are performed regularly at the subsidiaries' facilities and at independent contract maintenance facilities. The Company replaces tractors and trailers based on factors such as age and condition, the market for equipment and improvements in technology and fuel efficiency. At December 28, 1996 the average age of the Company's line-haul tractors was 2.8 years and the average age of its line-haul trailers was 6.0 years. Older line-haul tractors are often assigned to pickup and delivery operations, which are generally operated at lower speeds and over shorter distances, allowing the Company to extend the life of line-haul tractors and improve asset utilization. The average age of the Company's pickup and delivery tractors at December 28, 1996 was 6.9 years. PAGE 5 Sales and Marketing Sales personnel as well as senior management at each subsidiary are responsible for soliciting new business and maintaining good customer relations. In addition, the Company maintains a national account sales department consisting of 18 professionals who are assigned major accounts within specified geographic regions of the continental United States. These national account managers solicit business for the regional trucklines from distribution and logistics executives of large shippers. In many cases, targeted corporations maintain centralized control of multiple shipping and receiving locations. Seasonality The Company's results, consistent with the trucking industry in general, show seasonal patterns with tonnage and revenue declining during the winter months and, to a lesser degree, during vacation periods in the summer. Furthermore, inclement weather in the winter months can further negatively affect the Company's results. Customers The Company is not dependent upon any particular industry and provides services to a wide variety of customers including many large, publicly held companies. During the year ended December 28, 1996 no single LTL customer accounted for more than two percent of the Company's operating revenue and the Company's ten largest customers as a group accounted for approximately eight percent of total operating revenue. Many of the national account customers use more than one of the Company's regional trucklines for their transportation requirements. Cooperation Among Trucklines The Company's subsidiaries cooperate with each other to market and provide services along certain routes running between their regions. In such circumstances, the trucklines jointly price their service and then divide revenue in proportion to the amount of carriage provided by each company or based on predetermined formulae. Information Technology Each of the Company's regional trucklines maintains its own management information systems and freight tracking and data processing capabilities. These systems vary in sophistication in accordance with the size of each truckline's operations and the demands of its customers. Software systems are shared among the regional trucklines where sharing is efficient and appropriate. Fuel The motor carrier industry is dependent upon the availability of diesel fuel. Shortages of fuel, increases in fuel costs or fuel taxes, or rationing of petroleum products could have a material adverse effect on the profitability of the Company. During 1996, the Company implemented a fuel surcharge to partially offset an increase in fuel price. The Company has not experienced any difficulty in maintaining fuel supplies sufficient to support its operations. PAGE 6 Regulation In August 1994, two pieces of legislation passed the Congress and were signed into law that greatly affected the trucking industry. The Trucking Industry Regulatory Reform Act ("TIRRA") reduced the ICC's authority over motor carriers by eliminating the tariff-filing requirement for motor common carriers using individually determined rates, classifications, rules or practices. Under TIRRA, motor carriers are still required to provide shippers, if requested, with a copy of the rate, classification, rules or practices of the carrier. Also, Title VI of the Federal Aviation Administration Authorization Act of 1994 ("the 1994 Act") effectively prohibited state economic regulation of all trucking operations for motor carriers. The 1994 Act does allow the states to continue regulation of safety and insurance programs, including carrier inspections. On December 29, 1995, President Clinton signed the Interstate Commerce Commission Termination Act of 1995 ("ICCTA") which abolished the ICC as of January 1, 1996 and transferred its residual functions to the Federal Highway Administration and a newly created Surface Transportation Board within the U. S. Department of Transportation. Congress has prescribed a transition period during which regulations implementing the ICCTA including insurance and safety issues must be promulgated by the Secretary of Transportation. The trucking industry remains subject to the possibility of regulatory and legislative changes that can influence operating practices and the demands for and the costs of providing services to shippers. Interstate motor carrier operations are subject to safety requirements prescribed by the U.S. Department of Transportation ("DOT"), while such matters as the weight and dimensions of equipment are also subject to Federal and state regulations. Effective April 1, 1992, truck drivers were required to be commercial vehicle licensed in compliance with the DOT, and legislation subjects them to strict drug testing standards. These requirements increase the safety standards for conducting operations, but add administrative costs and have affected the availability of qualified, safety conscious drivers throughout the trucking industry. Insurance and Safety One of the risk areas in the Company's businesses is cargo loss and damage, bodily injury, property damage and workers' compensation. The Company is effectively self-insured on its significant operations up to $2 million per occurrence for cargo loss and damage, bodily injury and property damage. The Company is also predominantly self-insured for workers' compensation for amounts to $1 million per occurrence. Additionally, the Company insures workers' compensation for amounts in excess of $1 million per occurrence and all other losses in excess of $2 million. Each operating subsidiary employs safety specialists and maintains safety programs designed to meet its specific needs. In addition, the Company employs specialists to perform compliance checks and conduct safety tests throughout the Company's operations. The Company's safety record to date has been good. Employees At December 28, 1996 the Company employed 15,403 persons, of whom 9,348 were drivers, 1,583 were dock workers, and the balance support personnel, including office workers, managers and administrators. Approximately 51 percent of all employees were members of unions. Approximately 88 percent of these union workers were employed by USF Holland or USF Red Star and belonged to the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (the "IBT"). Members of the IBT at USF Holland and USF Red Star are presently working under the terms of a four-year, industry-wide labor agreement that expires in 1998. PAGE 7 Item 2. Properties The Company's executive offices are located at 9700 Higgins Road, Suite 570, Rosemont, IL 60018. The Company's 16,000 square foot facility is occupied under a lease terminating in November 2002. Each of the Company's operating subsidiaries also maintains a head office as well as numerous operating facilities. Of the 239 terminal facilities used by the Company as of December 28, 1996, 76 were owned and 163 were leased. These facilities range in size according to the markets served. The Company has not experienced and does not anticipate difficulties in renewing existing leases on favorable terms or obtaining new facilities as and when required. Item 3. 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. 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. On January 7, 1997, the Company filed an 8-K reporting a recent development in a legal proceeding. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. PAGE 8 PART II Item 5. Market for the Company's Common Stock and related Stockholder Matters The Company's common stock trades on The Nasdaq National Market under the symbol: USFC. On March 11, 1997 there were approximately 6,250 beneficial holders of the Company's common stock. The high and low sales prices for the common stock for each full calendar quarterly period for fiscal year 1995 and 1996, is presented on page 14 of the "Financial Statements" insert portion of the Company's Annual Report to the Shareholders and is incorporated by reference under Exhibit 13 herein. Since July 2, 1992, the Company has paid a quarterly dividend of $.093333 per share. Although it is the present intention of the Company to continue paying quarterly dividends, the timing, amount and form of future dividends will be determined by the board of directors and will depend, among other things, on the Company's results of operations, financial condition, cash requirements, certain legal requirements and other factors deemed relevant by the board of directors. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" on page 3 of the "Financial Statements" insert portion of the Company's Annual Report to the Shareholders, incorporated by reference under Exhibit 13 herein. Item 6. Selected Financial Data The information set forth under the caption "Selected Consolidated Financial Data" is presented on page 1 of the "Financial Statements" insert portion of the Company's Annual Report to the Shareholders for the year ended December 28, 1996, and is incorporated by reference under Exhibit 13 herein. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations "Management's Discussion and Analysis of Financial Condition and Results of Operations" is presented on pages 2 and 3 of the "Financial Statements" insert portion of the Company's Annual Report to the Shareholders for the year ended December 28, 1996, and is incorporated by reference under Exhibit 13 herein. Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements and Auditors' Report are presented on pages 4 through 14 of the "Financial Statements" insert portion of the Company's Annual Report to the Shareholders for the year ended December 28, 1996, and are incorporated by reference under Exhibit 13 herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PAGE 9 PART III Item 10. Directors and Executive Officers of the Company The information for directors is reported on pages 2 through 4 of the Company's definitive proxy statement,dated March 24, 1997, filed pursuant to Regulation 14A, and is incorporated by reference. The following table sets forth certain information as of December 28, 1996 concerning the registrant's executive officers: Name Age Position John Campbell Carruth 66 Chief Executive Officer, President and Director Christopher L. Ellis 51 Senior Vice President, Finance and Chief Financial Officer John Campbell Carruth, 66, was appointed as the Company's Chief Executive Officer and President in June of 1991 and has been a director of the Company since December of 1991. Mr. Carruth was Chief Executive Officer and President of TNT Transport Group, Inc., a subsidiary of TNT Limited, the Company's former parent corporation, from 1985 to 1992. Christopher L. Ellis, 51, has been Senior Vice President, Finance and Chief Financial Officer of the Company since June 1991. Mr. Ellis served as Vice President, Finance of TNT Transport Group, Inc., a subsidiary of TNT Limited, the Company's former parent corporation, from 1985 to 1992. Item 11. Executive Compensation This information is reported on pages 5 and 15 of the Company's definitive proxy statement, dated March 24, 1997, entitled "Management Compensation" and "Compensation Committee Interlocks and Insider Participation" respectively filed pursuant to Regulation 14A, and is incorporated by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management This information is reported on page 2 of the Company's definitive proxy statement, dated March 24, 1997,entitled "Security Ownership of Principal Holders and Management" filed pursuant to Regulation 14A, and is incorporated by reference. Item 13. Certain Relationships and Related Party Transactions This information is reported on page 14 of the Company's definitive proxy statement, dated March 24, 1997, entitled "Certain Relationships and Related Transactions" filed pursuant to Regulation 14A, and is incorporated by reference. PAGE 10 PART IV Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K (a) (1) Financial Statements The following consolidated financial statements appearing in the Company's Annual Report to the Shareholders for the year ended December 28, 1996 is incorporated by reference in this Annual Report on Form 10-K as Exhibit 13: Page No. of Exhibit 13 Selected Consolidated Financial Data 1 Management's Discussion and Analysis of Financial Condition and Results of Operations 2 Independent Auditors' Report 4 Consolidated Financial Statements 5 Notes to Consolidated Financial Statements 9 (2) Financial Statement Schedules: Independent Auditors' Report The Board of Directors and Stockholders USFreightways Corporation Under date of January 22, 1997, except for note 12, which is as of February 10, 1997, we reported on the consolidated balance sheets of USFreightways Corporation and subsidiaries as of December 28, 1996 and December 30, 1995 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 28, 1996. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 28, 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Chicago, Illinois January 22, 1997 except for note 12 to the consolidated financial statements, which is as of February 10, 1997. Schedule II - Valuation and Qualifying Accounts USFREIGHTWAYS CORPORATION THREE YEARS ENDED DECEMBER 28, 1996 (dollars in thousands)
Additions ------------------------- Balance at Charges to Charged to Balance at Beginning Costs and Other End Description of Period Expenses Accounts Deductions (1) of Period - - ----------- ---------- ---------- ---------- ---------- ---------- Fiscal year ended December 31, 1994 Accounts receivable allowances - for $3,278 $4,232 $0 $1,743 $5,767 revenue adjustments and doubtful accounts Deferred tax asset valuation account $ 174 $0 $0 $ 174 $0 Fiscal year ended December 30, 1995 Accounts receivable allowances - for $5,767 $2,843 $0 $3,004 $5,606 revenue adjustments and doubtful accounts Fiscal year ended December 28, 1996 Accounts receivable allowances - for $5,606 $4,868 $0 $3,288 $7,186 revenue adjustments and doubtful accounts (1) Primarily uncollectible accounts written off- net of recoveries for Accounts receivable allowances.
PAGE 11 (3) Exhibits Exhibit Document Number Description 3(a) Amended and Restated Certificate of Incorporation of USFreightways Corporation (incorporated by reference from Exhibit 3.1 to USFreightways Corporation Transition Report on Form 10-K, from June 29, 1991 to December 28, 1991); December 28, 1991); Certificate of Designation for Series A Junior Participating Cumulative Preferred Stock (incorporated by reference from Exhibit 3(a) to USFreightways Corporation Annual Report on Form 10-K for the year ended January 1, 1994); Certificate of Amendment of Restated Certificate of Incorporation of USFreightways Corporation (incorporated by reference from Exhibit 3(i) to USFreightways Corporation Report on Form 10-Q for the quarter ended June 29, 1996). 3(b) Bylaws of USFreightways Corporation, as restated May 3, 1996 (incorporated by reference from Exhibit 3(ii) to USFreightways Corporation Report on Form 10-Q for the quarter ended June 29, 1996). Exhibit Document Number Description 4(a) Form of Rights Agreement, dated as of February 4, 1994, between USFreightways Corporation and Harris Trust and Savings Bank, as Rights Agent (incorporated by reference to USFreightways Corporation's registration statement on Form 8-A filed with the Securities and Exchange Commission on March 18, 1994). 4(b) Form of Indenture, dated as of May 1, 1993 between USFreightways Corporation and Harris Trust and Savings Bank, as Trustee (incorporated by reference from USFreightways Corporation's Registration Statement on Form S-1, filed on April 16, 1993, Registration No. 33-61134). 10(b) Restricted Stock Agreement with John Campbell Carruth dated January 20, 1992 (incorporated by reference from Exhibit 10.5 to USFreightways Corporation Transition Report on Form 10-K from June 29, 199 to December 28, 1991). 10(d) USFreightways Stock Option Plan (incorporated by reference from Exhibit 10.18 to USFreightways Corporation Transition Report on Form 10-K from June 29, 1991 to December 28, 1991). 10(e) Agreement dated March 5, 1993 Supplementing the Tax Indemnification Agreement between USFreightways Corporation and TNT Transport Group (incorporated by reference from Exhibit 10 to USFreightways Corporation Annual Report on Form 10-K for the year ended January 2, 1993). PAGE 12 10(f) Stock Option Plan for Non-Employee Directors dated October 29, 1993 (incorporated by reference from Exhibit 10(f) to USFreightways Corporation Annual Report on Form 10-K for the year ended January 1, 1994). 10(g) Employment Agreement of Christopher L. Ellis dated December 16, 1991 (incorporated by reference from Exhibit 10(g) to USFreightways Corporation Annual Report on Form 10-K for the year ended January 1, 1994). 10(i) Form of Election of Deferral (incorporated by reference from Exhibit 10(h) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 1994). 13 1996 USFreightways Corporation "Financial Statements" insert portion of the Annual Report to Shareholders plus a statistics report excerpted from the Annual Report to Shareholders and included as page 15 of Exhibit 13. 21 Subsidiaries of USFreightways Corporation. 23 Consent of KPMG Peat Marwick LLP 24 Powers of Attorney 27 Financial Data Schedule Exhibits 2, 9, 11, 12, 16, 18, 22 and 28 are not applicable to this filing. (b) Reports on Form 8-K No reports on Form 8-K were filed in the last quarter of fiscal year 1996. However, on January 7, 1997 the Company filed an 8-K reporting a subsequent event. PAGE 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated March 24, 1997. USFREIGHTWAYS CORPORATION By: /s/Christopher L. Ellis Christopher L. Ellis Senior Vice President, Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date /s/ Morley Koffman * Chairman of the Board March 24, 1997 - - ------------------------------------ of Directors -------------- Morley Koffman /s/ John Campbell Carruth Chief Executive Officer, March 24, 1997 - - --------------------------- President and Director -------------- John Campbell Carruth /s/ William N. Weaver, Jr. * Director March 24, 1997 - - ------------------------------------ -------------- William N. Weaver, Jr. /s/ Robert P. Neuschel * Director March 24, 1997 - - --------------------------- -------------- Robert P. Neuschel /s/ Neil A. Springer * Director March 24, 1997 - - ------------------------------------ -------------- Neil A. Springer /s/ Robert V. Delaney * Director March 24, 1997 - - --------------------------- -------------- Robert V. Delaney /s/ John W. Puth * Director March 24, 1997 - - ------------------------------------ -------------- John W. Puth /s/ Christopher L. Ellis Chief Financial Officer March 24, 1997 - - ------------------------------------ -------------- Christopher L. Ellis /s/ Robert S. Owen Controller and Principal March 24, 1997 - - ------------------------------------ Accounting Officer -------------- Robert S. Owen /s/ Christopher L. Ellis * By: Christopher L. Ellis Attorney-in-Fact EX-13 2 EXHIBIT 13 EXHIBIT 13 PAGE 1 SELECTED CONSOLIDATED FINANCIAL DATA (Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks 52 weeks 53 weeks December 28, December 30, December 31, January 1, January 2, 1996 1995 1994 1994 1993 - - ----------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS Operating Revenue $ 1,330,972 $ 1,144,458 $ 1,016,464 $ 898,920 $ 774,678 Income from operations before amortization of intangibles 69,605 (1) 70,126 72,686 64,260 44,892 Amortization of intangible assets (2,477) (2,583) (3,020) (3,038) (5,391) --------------- ---------------- --------------- --------------- --------------- Income from operations 67,128 67,543 69,666 61,222 39,501 --------------- ---------------- --------------- --------------- --------------- Interest expense, net (11,495) (8,177) (8,417) (7,391) (1,632) Other non-operating expense (704) (878) (2,011) (1,683) (1,067) --------------- ---------------- --------------- --------------- --------------- Net income from continuing operations before income taxes 54,929 58,488 59,238 52,148 36,802 Income tax expense (23,451) (25,150) (25,882) (23,603) (15,998) --------------- ---------------- --------------- --------------- --------------- Net income from continuing operations 31,478 33,338 33,356 28,545 20,804 --------------- ---------------- --------------- --------------- --------------- Discontinued operations -- -- -- (1,197) 288 Extraordinary item - operating rights -- -- (1,291) -- -- Cumulative effect of accounting change -- -- -- -- (14,190) --------------- ---------------- --------------- --------------- --------------- Net income $ 31,478 $ 33,338 $ 32,065 $ 27,348 $ 6,902 --------------- ---------------- --------------- --------------- --------------- Net income per share from continuing operations, exclusive of restructuring charge (1996 only) $ 1.51 (2) $ 1.51 $ 1.51 $ 1.25 $ 0.78 Net income per share 1.41 1.51 1.45 1.20 0.26 Cash dividends declared per share $ 0.37 $ 0.37 $ 0.37 $ 0.37 $ 0.28 OPERATING STATISTICS (in thousands) Total tons 7,732 6,835 6,210 5,977 5,184 Total shipments 11,590 10,187 9,045 8,762 7,934 BALANCE SHEETS ASSETS: Current assets $ 203,577 $ 158,611 $ 144,615 $ 122,770 $ 108,553 Property and equipment, net 395,500 338,846 272,264 247,123 202,454 Intangible assets, net 79,559 69,918 72,194 77,132 79,665 Other assets 9,872 10,819 11,929 13,755 16,165 --------------- ---------------- --------------- --------------- --------------- Total assets $ 688,508 $ 578,194 $ 501,002 $ 460,780 $ 406,837 --------------- ---------------- --------------- --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY: Current bank debt $ 333 $ 333 $ 333 $ 431 $ 874 Other current liabilities 144,015 128,151 118,114 97,313 83,999 Notes payable 100,000 100,000 100,000 100,000 -- Long-term bank debt, less current maturities 78,000 37,333 5,667 24,085 47,024 Other non-current liabilities 96,900 79,225 68,794 58,442 45,161 Total stockholders' equity 269,260 233,152 208,094 180,509 229,779 --------------- ---------------- --------------- --------------- --------------- Total liabilities and stockholders' equity $ 688,508 $ 578,194 $ 501,002 $ 460,780 $ 406,837 --------------- ---------------- --------------- --------------- ---------------
(1) Income from operations, before the Red Star restructuring charge of $4,050, is $73,655. (2) Before the Red Star restructuring charge, net of tax, equivalent to $0.10 per share. PAGE 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL YEAR ENDED DECEMBER 28, 1996, COMPARED TO FISCAL YEAR ENDED DECEMBER 30, 1995 Operating revenue for the 52 weeks ended December 28, 1996 ("Fiscal 1996") increased by $186,514,000 (16.3%) to $1,330,972,000 from $1,144,458,000 for the 52 weeks ended December 30, 1995 ("Fiscal 1995"). Of the total operating revenue increase, the regional less-than-truckload ("LTL") trucking companies accounted for $155,704,000 (a 14.5% increase over the prior year) primarily as a result of new customers, expanded business from existing customers and the acquisition of Transus in the Southeast. Effective January 1, 1996, Dugan acquired the business of Transus, a Southeastern LTL motor carrier, which included 29 terminals, some of which were operating in cities where Dugan previously had an existing presence. Those terminal locations which were duplicated in both systems were consolidated. Also, during January 1996, Reddaway and United successfully completed a merger of their separate operating systems resulting in elimination of four redundant terminal locations. Finally, as a result of restructuring its operations during the year, Red Star reduced its terminals by six to 26 with no loss in geographic coverage. In Fiscal 1996, LTL shipments increased by 15.4% while average revenue per LTL shipment declined by 0.5% compared to Fiscal 1995. Additionally, in Fiscal 1996 LTL tonnage increased by 16.4% while revenue per LTL hundredweight declined by 1.4% compared to Fiscal 1995. At the Company's logistics subsidiaries, Logix and Distribution Services, operating revenue grew by $21,508,000 from $64,093,000 in Fiscal 1995 to $85,601,000 in Fiscal 1996 (a 33.6% increase over the prior year) primarily due to the addition of new customers at Logix and its acquisition of Interamerican, a provider of warehousing, transportation, distribution and other logistics services, effective July 1, 1996. In Fiscal 1996, the LTL regional trucking companies accounted for 92.5% of consolidated operating revenue, the logistics and other subsidiaries accounted for 7.5%. In Fiscal 1995, the LTL regional trucking companies accounted for 94.0% of all consolidated operating revenue, the logistics and other subsidiaries for 6.0%. Operating income in the first half of 1996 was adversely impacted by severe weather during the winter months, intense industry competitive pricing and a somewhat sluggish economy. In the last half of the year, industry pricing firmed, the economy improved, and revenue growth returned to double digits. A fuel surcharge was also implemented to partially offset the increase in fuel prices. A dramatic turnaround was achieved at Red Star during the fourth quarter where, despite a 5.2% reduction in total revenue, the operating ratio improved from 104.3% in the 1995 fourth quarter to 99.5% in the 1996 fourth quarter. The improvement at Red Star resulted from an increase in yield per shipment of 5.6% together with a significant reduction in operating costs resulting from strict cost control. Income from operations, after a $4,050,000 restructuring charge at Red Star, decreased by 0.6% to $67,128,000 in Fiscal 1996 from $67,543,000 in Fiscal 1995. The restructuring charge at Red Star related primarily to ongoing lease commitments for terminals no longer occupied and to severance pay incurred in connection with the reduction in personnel. The decline in revenue per shipment, costs incurred associated with the acquisition of Transus, and the Red Star restructuring charge were major factors in the reduction in operating income. Operating expenses and supplies increased to 13.3% of operating revenue In Fiscal 1996 from 12.6% in Fiscal 1995, mainly due to higher fuel costs incurred which were not recovered by surcharges in the first half of the year. Depreciation and equipment leases increased to 4.9% of operating revenue during Fiscal 1996 from 4.4% in Fiscal 1995 due mainly to revenue equipment purchased and revenue equipment leases assumed with the purchase of Transus. These cost increases were partially offset by a reduction in salaries, wages and benefits from 64.1% in Fiscal 1995 to 63.7% in Fiscal 1996 due mainly to personnel reductions at Red Star and improved operating efficiencies at Holland. Interest expense, as a percentage of operating revenue, increased slightly to 0.9% in Fiscal 1996 from 0.8% in Fiscal 1995 despite a decrease in average interest rates of approximately 0.4%, as average debt outstanding increased due to the acquisitions of Transus and Interamerican and capital expenditures. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FISCAL YEAR ENDED DECEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1994 Operating revenue for the 52 weeks ended December 30, 1995 ("Fiscal 1995") increased by $127,994,000 (12.6%) to $1,144,458,000 from $1,016,464,000 for the 52 weeks ended December 31, 1994 ("Fiscal 1994"). Of the total operating revenue increase, the regional less-than-truckload ("LTL") trucking companies accounted for $110,785,000 (an 11.5% increase over the prior year) primarily as a result of new customers, additional business from existing customers and the opening of 21 new terminals. In Fiscal 1995, LTL shipments increased by 12.8% while revenue per LTL shipment declined by 0.1% over Fiscal 1994. Additionally, in Fiscal 1995 LTL tonnage increased by 12.9% while LTL revenue per hundredweight declined by 0.2% over Fiscal 1994. At the Company's logistics subsidiaries, Logix and Distribution Services, operating revenue grew by $16,665,000 from $47,428,000 in Fiscal 1994 to $64,093,000 in Fiscal 1995 (a 35.1% increase over the prior year) primarily due to the addition of new customers at Logix. In Fiscal 1995, the LTL regional trucking companies accounted for 94.0% of consolidated operating revenue, with the logistics and other subsidiaries accounting for 6.0%. In Fiscal 1994, the LTL regional trucking companies accounted for 94.9% of all consolidated operating revenue, with the logistics and other subsidiaries accounting for 5.1%. Operating margins were adversely impacted at all of the regional trucking companies by a combination of factors including the onset of a sluggish economy coupled with the most severe pricing pressures witnessed in recent years, both of which persisted throughout the entire year, but were most prevalent in the fourth quarter of Fiscal 1995. PAGE 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) These factors all but eliminated any gains resulting from an increase in the number of shipments. At Red Star, which operates in a highly competitive region of the country, pricing pressures resulted in an operating ratio of 101.1%. Revenue per LTL shipment, for the regional trucking companies, declined during the year from $99.72 in the 1995 first quarter to $95.98 in the 1995 fourth quarter, a decline of 3.8%. Income from operations decreased by 3.0% to $67,543,000 in Fiscal 1995 from $69,666,000 in Fiscal 1994. The decline in revenue per LTL shipment is the major factor in the reduction in operating margins. Contractual wage and benefit increases at Holland and Red Star, equivalent to approximately 3.4%, contributed to the increase in salaries, wages and benefits to 64.1% of operating revenue in Fiscal 1995 from 62.3% of operating revenue in Fiscal 1994. These increases were partially offset by the reduction in purchased transportation expense from 4.2% of revenue in Fiscal 1994 to 3.8% of revenue in Fiscal 1995 resulting from a decrease in the use of third party agents to transport freight; insurance and claims expense decreased from 1.8% of revenue in Fiscal 1994 to 1.5% of revenue in Fiscal 1995 primarily as a result of reduced casualty claims. Interest expense, as a percentage of operating revenue, declined slightly to 0.8% in Fiscal 1995 from 0.9% in Fiscal 1994 despite an increase in average interest rates of approximately 1.3%, as average debt outstanding declined due to the timing of capital expenditures. LIQUIDITY AND CAPITAL RESOURCES The Company generated $87,599,000 in cash flows from operating activities during Fiscal 1996. Capital expenditures during the year amounted to $125,322,000, of which $64,630,000 was for revenue equipment, $17,539,000 for terminals, $11,888,000 for other assets and $31,265,000 for the acquisitions of Transus and Interamerican. Capital expenditures for Fiscal 1995 amounted to $116,675,000. In light of current business levels, management expects that capital expenditures during the fiscal year ending on January 3, 1998 ("Fiscal 1997") will approximate $130 to $150 million. The Company maintains a $160 million revolving credit facility with a syndicate of commercial banks. The facility expires in 2000 and allows up to $100 million for standby letters of credit to cover the Company's self insurance program, and has optional pricing of interest rates, including LIBOR or Prime base rates. The facility has an annual fee and contains customary covenants including maintenance of minimum net worth and certain other ratios. During Fiscal 1996, all borrowings were drawn at LIBOR base rates, with a weighted average interest rate for the year of 5.8%, excluding fees charged on the facility. At December 28, 1996 the Company had borrowed $78,000,000 and had $46,116,000 outstanding letters of credit under this facility. In February 1997, the Company sold 3,105,000 of its shares in a public offering. The net proceeds from the sale, amounting to approximately $69 million were initially used to repay outstanding debt under the revolving credit facility. In management's opinion, cash flows from operating activities, net proceeds from the sale of the shares and funding from this facility are adequate to finance the Company's anticipated business activity in Fiscal 1997. In addition to the revolving credit facility, the Company maintains four uncommitted lines of credit which provide $39 million short-term funds at rates approximating LIBOR. These facilities are used in concert with a centralized cash management system to finance short-term working capital needs, thereby enabling the Company to maintain minimal cash balances. During Fiscal 1996, the Company declared cash dividends of $8,315,000. OTHER The Company uses underground storage tanks at certain terminal facilities and maintains a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various Federal and state laws. Whenever any contamination is detected, the Company takes prompt remedial action to remove the contaminants. It is management's opinion that the total costs related to all known incidents have been provided for in the financial statements and management is not aware of any potential contamination incidents that would have a material effect on the results of the Company. PAGE 4 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders USFreightways Corporation: We have audited the accompanying consolidated balance sheets of USFreightways Corporation and subsidiaries as of December 28, 1996 and December 30, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 28, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of USFreightways Corporation and subsidiaries as of December 28, 1996 and December 30, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 28, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Chicago, Illinois January 22, 1997, except for note 12, which is as of February 10, 1997 PAGE 5 CONSOLIDATED BALANCE SHEETS Years ended December 28, 1996 and December 30, 1995 (Thousands of dollars, except per share amounts)
December 28, December 30, 1996 1995 - - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 4,090 $ 1,707 Accounts receivable, less allowances of $7,186 and $5,606, respectively 157,874 118,107 Parts, supplies and prepaid expenses 19,096 19,010 Deferred income taxes (note 6) 22,517 19,787 --------------- --------------- Total current assets 203,577 158,611 Property and equipment at cost, net of accumulated depreciation (note 2) 395,500 338,846 Intangible assets, net of accumulated amortization (note 3) 79,559 69,918 Other assets 9,872 10,819 -------------- --------------- $ 688,508 $ 578,194 -------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current bank debt (note 5) $ 333 $ 333 Accounts payable 41,734 36,209 Accrued liabilities: Salaries, wages and benefits 49,528 47,230 Claims and other 50,442 42,882 Income taxes payable 2,311 1,830 --------------- --------------- Total current liabilities 144,348 128,484 Long-term bank debt, less current maturities (note 5) 78,000 37,333 Notes payable (note 5) 100,000 100,000 Claims and other 50,303 38,656 Deferred income taxes (note 6) 46,597 40,569 -------------- --------------- 419,248 345,042 Stockholders' equity: Cumulative preferred stock, $0.01 par value per share: 20,000,000 authorized, none issued -- -- Common stock, $0.01 par value per share: 80,000,000 authorized, 22,594,890 and 21,920,390 issued, respectively 234 234 Paid in capital 180,269 176,378 Retained earnings 100,108 76,945 Treasury stock, 844,518 and 1,519,018 shares, respectively (11,351) (20,405) --------------- --------------- Total stockholders' equity 269,260 233,152 --------------- ---------------- $ 688,508 $ 578,194 --------------- ----------------
See accompanying notes to consolidated financial statements. PAGE 6 CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 28, 1996, December 30, 1995 and December 31, 1994 (Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks December 28, December 30, December 31, 1996 1995 1994 - - ---------------------------------------------------------------------------------------------------------------------------------- Operating revenue $ 1,330,972 $ 1,144,458 $ 1,016,464 --------------- --------------- --------------- Operating expenses: Salaries, wages and benefits 847,285 733,441 633,197 Purchased transportation 49,412 43,763 42,427 Operating expenses and supplies 176,764 144,702 125,936 Operating taxes and licenses 56,104 48,585 42,101 Insurance and claims 22,523 17,556 18,012 Communications and utilities 15,333 13,337 12,247 Depreciation and equipment leases 64,869 50,866 47,519 Building and office equipment rents 15,762 13,283 13,485 Amortization of intangible assets 2,477 2,583 3,020 Other operating expenses 9,265 8,799 8,854 Red Star restructuring charge (note 10) 4,050 -- -- --------------- --------------- --------------- Total operating expenses 1,263,844 1,076,915 946,798 --------------- --------------- --------------- Income from operations 67,128 67,543 69,666 --------------- --------------- --------------- Non-operating income (expense): Interest expense (12,144) (8,884) (9,081) Interest income 649 707 664 Other, net (704) (878) (2,011) --------------- --------------- --------------- Total non-operating expense (12,199) (9,055) (10,428) --------------- --------------- --------------- Net income before income taxes and extraordinary item 54,929 58,488 59,238 Income tax expense (note 6) (23,451) (25,150) (25,882) --------------- --------------- --------------- Net income before extraordinary item 31,478 33,338 33,356 --------------- --------------- --------------- Extraordinary item (note 3) -- -- (1,291) --------------- --------------- --------------- Net income $ 31,478 $ 33,338 $ 32,065 --------------- --------------- --------------- Average shares outstanding 22,451,280 22,122,590 22,141,953 Earnings per common share: Net income before extraordinary item $ 1.41 $ 1.51 $ 1.51 Extraordinary item (note 3) -- -- (0.06) --------------- --------------- --------------- Net income $ 1.41 $ 1.51 $ 1.45 --------------- --------------- ---------------
See accompanying notes to consolidated financial statements. PAGE 7 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 28, 1996, December 30, 1995 and December 31, 1994 (Thousands of dollars, except per share amounts)
Total Common Paid in Retained Treasury Stockholders' Stock Capital Earnings Stock Equity - - ----------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1994 $ 234 $ 173,920 $ 27,867 $ (21,512) $ 180,509 Net income -- -- 32,065 -- 32,065 Dividends declared -- -- (8,153) -- (8,153) Employee stock transactions and other -- 1,367 -- 2,306 3,673 --------------- ---------------- --------------- --------------- --------------- Balance December 31, 1994 234 175,287 51,779 (19,206) 208,094 Net income -- -- 33,338 -- 33,338 Dividends declared -- -- (8,172) -- (8,172) Vesting of restricted stock award -- 250 -- -- 250 Purchase of common stock -- -- -- (3,921) (3,921) Employee stock transactions and other -- 841 -- 2,722 3,563 --------------- ---------------- --------------- --------------- --------------- Balance December 30, 1995 234 176,378 76,945 (20,405) 233,152 Net income -- -- 31,478 -- 31,478 Dividends declared -- -- (8,315) -- (8,315) Vesting of restricted stock award -- 250 -- -- 250 Employee stock transactions and other -- 3,641 -- 9,054 12,695 --------------- ---------------- --------------- --------------- --------------- Balance December 28, 1996 $ 234 $ 180,269 $ 100,108 $ (11,351) $ 269,260 --------------- ---------------- --------------- --------------- ---------------
See accompanying notes to consolidated financial statements. PAGE 8 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 28, 1996, December 30, 1995 and December 31, 1994 (Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks December 28, December 30, December 31, 1996 1995 1994 - - ---------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income from continuing operations $ 31,478 $ 33,338 $ 33,356 Reconciliation to net cash provided by operating activities: Depreciation 61,397 47,747 41,286 Amortization of intangible assets 2,477 2,583 3,020 Deferred taxes 3,298 5,216 1,203 (Gain) loss on sale of property and equipment (1,283) (1,958) 84 Increase in other liabilities 11,647 2,921 6,847 Changes in working capital affecting operations: Increase in accounts receivable (39,767) (7,752) (18,109) (Increase) decrease in other current assets 455 (4,298) (565) Increase in accounts payable 5,525 3,458 7,424 Increase in accrued liabilities 10,276 6,733 13,360 Other, net 2,096 1,161 1,309 --------------- --------------- --------------- Net cash provided by operating activities 87,599 89,149 89,215 --------------- --------------- --------------- Cash flows from investing activities: Capital expenditures (94,057) (116,675) (68,836) Proceeds from sale of property and equipment 4,246 3,792 2,325 Acquisitions (31,265) -- -- --------------- --------------- --------------- Net cash used in investing activities (121,076) (112,883) (66,511) --------------- --------------- --------------- Cash flows from financing activities: Capital contributions 250 250 -- Dividends paid (8,252) (8,172) (8,136) Purchase of common stock -- (3,921) -- Proceeds from sale of treasury stock 3,195 3,563 3,673 Proceeds from long-term bank debt 41,000 38,000 15,000 Payments on long-term bank debt (333) (6,334) (33,516) --------------- --------------- --------------- Net cash provided by (used in) financing activities 35,860 23,386 (22,979) --------------- --------------- --------------- Net increase (decrease) in cash 2,383 (348) (275) Cash at beginning of year 1,707 2,055 2,330 --------------- --------------- --------------- Cash at end of year $ 4,090 $ 1,707 $ 2,055 --------------- --------------- --------------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 11,715 $ 8,390 $ 8,334 Income taxes 18,105 20,507 25,003
See accompanying notes to consolidated financial statements. PAGE 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Thousands of dollars, except per share amounts) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of USFreightways and its wholly owned subsidiaries (the Company). Effective May 3, 1996, the Company's shareholders approved a name change from TNT Freightways Corporation to USFreightways Corporation. The Company's operations are further discussed in periodic SEC filings. Intercompany balances and transactions have been eliminated. The Company reports on a 52/53-week fiscal year basis concluding on the Saturday nearest to December 31. The three fiscal years covered in the consolidated financial statements ended on December 28, 1996, December 30, 1995 and December 31, 1994. Revenue Recognition Transportation revenue is recognized when freight is picked up from the customer, at which time the related estimated expenses of performing the total transportation services are accrued. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Although actual results could differ from estimates, significant adjustments historically have not been required. (2) PROPERTY AND EQUIPMENT Property and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over periods ranging from three to ten years for the majority of equipment and 30 years for buildings. Property and equipment at December 28, 1996 and December 30, 1995 consist of the following: December 28, December 30, 1996 1995 --------------- ------------ Land $ 53,904 $ 49,158 Buildings and leasehold improvements 114,513 99,425 Equipment 486,860 403,573 Furniture and fixtures 11,222 8,983 Data processing equipment 28,713 22,032 --------------- --------------- $ 695,212 $ 583,171 Less accumulated depreciation 299,712 244,325 --------------- --------------- $ 395,500 $ 338,846 --------------- --------------- (3) INTANGIBLE ASSETS - EXTRAORDINARY ITEM Intangible assets primarily represent goodwill which is amortized on a straight-line basis over 40 years. The carrying value of goodwill is reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable through projected undiscounted future operating cash flows. No reduction of the carrying value has been required for any year. In August 1994, Congress passed the Federal Aviation Administration Authorization Act of 1994 which includes provisions that effectively preempt states from regulating intrastate operations. Accordingly, in the third quarter of 1994 the Company recorded, as an extraordinary item, the write off of its remaining carrying values of intrastate operating rights resulting in an extraordinary charge of $1,291, net of income taxes of $992. PAGE 10 (4) OPERATING LEASES The Company leases certain terminals, vehicles and data processing equipment under long-term lease agreements that expire in various years through 2011. The following is a schedule of future minimum rental payments on leases that have initial or remaining non-cancelable lease terms in excess of one year at December 28, 1996. Fiscal Year Payments ------------ 1997 $ 17,278 1998 14,946 1999 10,866 2000 3,086 2001 3,356 Subsequent years 4,027 ---------- $ 53,559 Rental expense in the accompanying consolidated statements of operations for the years ended December 28, 1996, December 30, 1995 and December 31, 1994, was $23,960, $19,804 and $20,700, respectively. (5) LONG-TERM DEBT Long-term debt at December 28, 1996 and December 30, 1995 consists of the following: December 28, December 30, 1996 1995 -------------- -------------- Unsecured notes (a) $ 100,000 $ 100,000 Unsecured lines of credit (b) 78,000 37,000 Other 333 666 --------------- --------------- 178,333 137,666 Less current maturities 333 333 --------------- --------------- $ 178,000 $ 137,333 --------------- --------------- (a) In May 1993, the Company issued $100,000 principal amount of unsecured notes. The notes mature on May 1, 2000 and bear interest at 6 5/8%, payable semi-annually. The notes are not subject to redemption prior to maturity and have no sinking fund requirements. Based upon the Company's incremental borrowing rates for similar types of borrowing arrangements, the fair value of the notes at December 28, 1996 was approximately $100,000. (b) At December 28, 1996, the Company has outstanding borrowings of $78,000 and standby letters of credit outstanding of $46,116 on an unsecured credit facility expiring September 30, 2000. This facility is with a syndicate of commercial banks and provides revolving credit of $160,000 of which $100,000 can be used for standby letters of credit. The credit facility allows interest rates for funds borrowed based on either Prime or LIBOR. The weighted average interest on borrowings at December 28, 1996 was 5.8%. The aggregate annual maturities of debt at December 28, 1996 are as follows: Fiscal Year Amount ----------- 1997 $ 333 1998 0 1999 0 2000 178,000 ------------ $ 178,333 ------------ The Company has an interest rate protection contract which limits the maximum LIBOR rate on $40,000 loaned to the Company at 5.5% for a four year period ending August 1997. As of December 28, 1996, the fair value of the interest rate protection contract does not differ materially from the carrying value. PAGE 11 (6) INCOME TAXES A reconciliation of the statutory Federal income tax rate with the effective income tax rate is as follows:
52 weeks 52 weeks 52 weeks December 28, December 30, December 31, 1996 1995 1994 - - ---------------------------------------------------------------------------------------------------------------------------------- Federal income tax at statutory rate $ 19,225 $ 20,471 $ 20,733 State income tax 2,724 3,195 3,155 Goodwill amortization 823 766 766 Other 679 718 1,228 --------------- --------------- --------------- Total income tax expense $ 23,451 $ 25,150 $ 25,882 --------------- --------------- ---------------
The components of the provision for income taxes are as follows:
52 weeks 52 weeks 52 weeks December 28, December 30, December 31, 1996 1995 1994 - - ---------------------------------------------------------------------------------------------------------------------------------- Current expense: Federal $ 15,610 $ 16,024 $ 20,571 State 4,543 3,910 4,108 --------------- --------------- --------------- 20,153 19,934 24,679 --------------- --------------- --------------- Deferred expense: Accelerated depreciation 8,555 8,499 7,216 Insurance and claims (5,036) (1,841) (3,974) Vacation pay 597 (1,111) (224) Other (818) (331) (1,815) --------------- --------------- --------------- 3,298 5,216 1,203 --------------- --------------- --------------- Total income tax expense $ 23,451 $ 25,150 $ 25,882 --------------- --------------- ---------------
The following is a summary of the components of the deferred tax assets and liabilities at December 28, 1996 and December 30, 1995:
December 28, December 30, 1996 1995 ----------- ------------ Deferred tax assets: Allowance for doubtful accounts and revenue adjustments $ 4,825 $ 4,224 Insurance and claims 26,294 21,258 Vacation pay 6,143 6,740 Other 2,670 2,114 --------------- --------------- $ 39,932 $ 34,336 --------------- --------------- Deferred tax liabilities: Property and equipment, principally due to accelerated depreciation $ 64,012 $ 55,118 --------------- ---------------
PAGE 12 (7) EMPLOYEE BENEFIT PLANS The Company maintains a salary deferral 401(k) plan covering substantially all employees who are not members of a collective bargaining unit and who meet specified service requirements. Contributions are based upon participants' salary deferrals and compensation and are made within Internal Revenue Service limitations. For the years ended December 28, 1996, December 30, 1995 and December 31, 1994, Company contributions for these plans were $5,715, $4,876 and $4,470, respectively. The Company does not offer unfunded post-employment benefits or post-retirement benefits. The Company contributes to several union-sponsored multi-employer pension plans. These plans are not administered by the Company, and contributions are determined in accordance with provisions of negotiated labor contracts. The Multi-employer Pension Plan Amendments Act of 1980 established a continuing liability to such union-sponsored pension plans for an allocated share of each plan's unfunded vested benefits upon substantial or total withdrawal by the Company or upon termination of the pension plans. To date, no withdrawal or termination has occurred or is contemplated. For the years ended December 28, 1996, December 30, 1995 and December 31, 1994, Company contributions for these pension plans were $45,094, $39,428 and $31,299, respectively. (8) COMMON STOCK The Company maintains an employee stock purchase plan which provides for the purchase of an aggregate of not more than 900,000 shares of the Company's common stock. Each eligible employee may designate the amount of regular payroll deductions, subject to a yearly maximum, that is used to purchase shares at 90% of the month-end market price. The Company maintains stock option plans that provide for the granting of options to key employees and non-employee directors to purchase an aggregate of not more than 1,510,000 shares of the Company's common stock. Stock options issued pursuant to the plans are exercisable for periods up to 10 years from the date an option is granted. At December 28, 1996 there were 145,200 shares available for granting under the plans. In accordance with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans, and accordingly, does not recognize compensation cost. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date, as prescribed by SFAS No. 123, net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below: 1996 1995 - - -------------------------------------------------------------------------------- Net income--as reported $ 31,478 $ 33,338 Net income--pro forma 31,049 33,163 Earnings per share--as reported 1.41 1.51 Earnings per share--pro forma 1.38 1.50 As prescribed under SFAS No. 123, pro forma net income amounts presented above reflect only options granted in 1996 and 1995 since compensation costs for options granted prior to January 1, 1995 are not considered. Compensation cost for options granted in 1996 and 1995 is reflected over the options' vesting periods ranging from two to five years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995: dividend yield of 1.58% for all years; expected volatility of 35.69%; risk-free interest rates at grant date ranging from 6.07 to 7.46%; and expected lives of 6.4 years. PAGE 13 (8) COMMON STOCK (CONTINUED) A summary of the status of the Company's stock option plans as of December 28, 1996 and December 30, 1995, and changes during the years ended on those dates is presented below:
December 28, 1996 December 30, 1995 --------------------------- ------------------- Weighted-avg Weighted-avg Shares Exercise Price Shares Exercise Price ---------------- --------------- --------------- ----------------- Outstanding at beginning of year 758,800 $ 16.21 823,400 $ 15.72 Granted 479,000 19.49 58,500 22.80 Exercised (92,900) 13.65 (79,700) 13.53 Forfeited (37,650) 16.16 (43,400) 20.47 ---------------- --------------- Oustanding at end of year 1,107,250 17.84 758,800 16.21 ---------------- --------------- Options exercisable at year end 448,220 15.65 399,330 15.19 ---------------- --------------- Weighted-average fair value of options granted during the year $ 8.18 $ 9.59
The following table summarizes information about stock options outstanding at December 28, 1996:
Outstanding Options Options Exercisable ------------------- ------------------- Number Weighted-avg Number Range of Outstanding Remaining Weighted-avg Exercisable Weighted-avg Estimated Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price - - ---------------------------------------------------------------------------------------------------------------------------------- $ 13.00 - 15.00 438,550 5.81 years $ 13.92 354,700 $ 13.97 18.25 - 19.63 479,000 9.50 19.48 0 0 22.50 - 23.63 189,700 7.53 22.77 93,520 22.80 -------------- ------------- 1,107,250 7.70 17.84 448,220 15.81 -------------- -------------
In February, 1994 the Board of Directors approved a stockholder rights plan designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of the Company's stockholders. At that time, the Company declared a distribution of one right for each share of common stock outstanding (effected as a stock dividend) to stockholders of record as of February 11, 1994 and generally to shares issuable under the Company's stock option plans. Each right entitles holders to buy one-hundredth (1/100) of a share of the Company's newly designated Series A Junior Participating Cumulative Preferred Stock, $0.01 par value per share, for a purchase price of $110.00. Each right is exercisable ten days after the acquisition of 15% or more of the Company's voting stock, or the commencement of a tender or exchange offer under which the offeror would own 19.9% or more of the Company's stock. In the event of a proposed takeover meeting certain additional conditions, the rights could be exercised by all holders other than the takeover bidder at an exercise price of half of the current market price of the Company's common stock. This would have the effect of significantly diluting the holdings of the takeover bidder. These rights expire on February 3, 2004. PAGE 14 (9) COMMITMENTS AND CONTINGENCIES The Company is routinely involved in a number of legal proceedings and claims arising in the ordinary course of business, primarily involving claims for bodily injury and property damage incurred in the transportation of freight. The estimated liability for claims included in liabilities, both current and long-term, reflects the estimated ultimate cost of self-insured claims incurred, but not paid, for bodily injury, property damage, cargo loss and damage, and workers' compensation. In the opinion of management, the outcome of these matters is not expected to have any material adverse effect on the consolidated financial position or results of operations of the Company and have been adequately provided for in the financial statements. At December 28, 1996, the Company had capital purchase commitments of approximately $1,928 for land and improvements, $22,524 for transportation equipment, and $2,078 for other equipment. (10) RESTRUCTURING CHARGE During the fourth quarter, management authorized a restructuring charge at its USF Red Star subsidiary. The pre-tax restructuring charge of $4,050 relates primarily to ongoing lease commitments for terminals no longer occupied and severance paid in connection with the reduction of personnel. (11) ACQUISITIONS During 1996, the Company acquired all the outstanding shares of Interamerican, a contract warehousing company, and the general commodities business of Transus for an aggregate amount of $40,765. (12) SUBSEQUENT EVENT On February 10, 1997, the Company sold 3,105,000 shares of its Common Stock under a Registration Statement effective as of February 3, 1997. The net proceeds of the offering of approximately $69,000 were used principally to reduce the outstanding borrowings under the Company's unsecured bank credit facility. (13) QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarter ------- First Second Third Fourth Total ----- ------ ----- ------ ----- Fiscal Year Ended December 28, 1996: Operating revenue $ 313,705 $ 332,089 $ 343,203 $ 341,975 $ 1,330,972 Income from operations 10,412 17,231 22,528 16,957 67,128 Net income 4,349 8,137 11,024 7,968 31,478 Net income per share .20 .37 .49 .35 1.41 Dividends declared per share 0.0933 0.0933 0.0933 0.0933 0.3733 Market price per share (calendar quarter) 23 1/4 - 18 1/4 24 1/4 - 19 3/8 22 1/2 - 16 3/4 28 1/4 - 19 1/2 Fiscal Year Ended December 30, 1995: Operating revenue $ 278,923 $ 287,193 $ 289,964 $ 288,378 $ 1,144,458 Income from operations 16,437 19,462 17,326 14,318 67,543 Net income 8,136 9,767 8,739 6,696 33,338 Net income per share .37 .44 .40 .30 1.51 Dividends declared per share 0.0933 0.0933 0.0933 0.0933 0.3733 Market price per share (calendar quarter) 28 11/16 - 20 1/4 25 - 18 1/8 24 3/8 - 17 3/4 21 1/8 - 16 1/4
PAGE 15 STATISTICAL INFORMATION Operating Operating LTL Tons LTL Terminals Tractors Trailers Employees Revenue Ratio Shipments (millions) (thousands) (thousands) --------- --------- ----------- ----------- --------- -------- -------- --------- Holland 96 $ 595.4 91.4% 3,291.2 5,347.3 48 2,751 5,265 6,167 95 527.4 91.7% 2,924.7 4,750.5 47 2,507 4,487 5,490 Red Star 96 $ 196.4 102.0% 940.1 1,968.1 26 925 2,132 2,254 95 200.7 101.1% 955.5 2,038.3 32 932 2,159 2,295 Reddaway 96 $ 178.0 94.8% 751.2 1,585.3 55 938 2,519 2,225 95 163.5 92.6% 752.7 1,602.1 58 875 2,202 2,144 Bestway 96 $ 113.1 89.4% 545.7 1,027.4 25 548 1,785 1,271 95 107.6 90.6% 509.7 967.3 26 520 1,690 1,206 Dugan 96 $ 148.5 97.8% 777.1 1,471.9 57 818 2,504 1,923 95 76.5 93.2% 348.4 661.2 41 441 977 1,007 Logistics 96 $ 85.6 96.9% NA NA NA 544 1,345 1,484 95 64.1 95.3% NA NA NA 447 1,057 914
EX-21 3 EXHIBIT 21 EXHIBIT 21 USFREIGHTWAYS CORPORATION SIGNIFICANT SUBSIDIARIES OF THE COMPANY State of Parent and Significant Subsidiaries Incorporation USFreightways Corporation Delaware USF Bestway Inc. Arizona USF Dugan Inc. Kansas USF Holland Inc. Michigan USF Red Star Inc. New York USF Reddaway Inc. Oregon Logix Inc. Illinois USF Distribution Services Inc. Illinois Comet Transport Inc. Wisconsin USF Coast Consolidators Inc. California USF Caribbean Services Inc. Delaware USF Sales Corporation Delaware EX-23 4 EXHIBIT 23 EXHIBIT 23 Consent of KPMG Peat Marwick LLP The Board of Directors USFreightways Corporation: We consent to incorporation by reference in the following Registration Statements: Form Registration No. Subject S-8 33-57634 Employees' Salary Deferral Thrift Plan S-8 33-58290 1992 Stock Option Plan S-8 33-63628 Employees' Stock Purchase Plan S-8 33-79150 Stock Option Plan for Non-Employee Directors of USFreightways Corporation of our reports dated January 22, 1997 except for note 12, which is as of February 10, 1997 relating to the consolidated balance sheets of USFreightwayys Corporation and subsidiaries as of December 28, 1996 and December 30, 1995 and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 28, 1996 and the related financial statement schedule, which reports appear in or are incoporated by reference in the December 28, 1996 annual report on Form 10-K of USFreightways Corporation. Chicago, Illinois March 26, 1997 EX-24 5 EXHIBIT 24 EXHIBIT 24 USFREIGHTWAYS CORPORATION POWER OF ATTORNEY The undersigned hereby constitutes and appoints Christopher L. Ellis, Robert S. Owen and Richard C. Pagano, or each of them, my true and lawful attorneys-in-fact and agents, with full power of substitution, to execute on my behalf, individually and in all capacities as an officer or director of USFreightways Corporation, an Annual Report on Form 10-K, and all amendments thereto, for the year ended December 28, 1996, and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done to comply with all requirements of the Securities and Exchange Commission, as fully and to all intents and purposes as each might or could do in person, and the undersigned hereby ratifies and confirms each act that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has executed this power of attorney on the 24th day of January, 1997. Signatures Title /s/ Robert V. Delaney Director /s/ Morley Koffman Director /s/ Robert P. Neuschel Director /s/ John W. Puth Director /s/ Neil A. Springer Director /s/ William N. Weaver, Jr. Director EX-27 6 FDS --
5 (Replace this text with the legend) 0000881791 USFreightywys Corp. 1000 YEAR DEC-28-1996 DEC-28-1996 4,090 0 157,874 0 0 203,577 395,500 0 688,508 144,348 100,000 0 0 0 269,260 688,508 0 1,330,972 0 1,263,844 0 0 12,144 54,929 23,451 31,478 0 0 0 31,478 1.41 1.41
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