-----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, Q+VAnTjkuc3byue+b61y/uCmSFHHzR6ycaROTKQKcowwqCsPR0OB+MPB7hM5iAon skT7a0+LxlHsPrVzlJfaAg== 0000881791-98-000012.txt : 19981118 0000881791-98-000012.hdr.sgml : 19981118 ACCESSION NUMBER: 0000881791-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 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: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19791 FILM NUMBER: 98750058 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-Q 1 THIRD QUARTER REPORT SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1998, 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.) 9700 Higgins Road, Rosemont, Illinois 60018 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (847) 696-0200 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 12, 1998, 26,263,373 shares of common stock were outstanding. PART I: FINANCIAL INFORMATION Item 1. Financial Statements. USFreightways Corporation Condensed Consolidated Balance Sheets Unaudited (Dollars in thousands)
October 3, January 3, 1998 1998 - ----------------------------------------------------------------------------------------------------- Assets Current assets: Cash $ 7,572 $ 6,471 Accounts receivable, net 217,627 187,554 Other 53,544 43,091 ----------------- ------------------- Total current assets 278,743 237,116 ----------------- ------------------- Net property and equipment 528,929 448,315 Net intangible assets 108,875 104,407 Other assets 9,743 9,697 ----------------- ------------------- Total assets $ 926,290 $ 799,535 ----------------- ------------------- Liabilities and Stockholders' Equity Current liabilities: Current debt $ 5,219 $ 650 Accounts payable 67,963 62,895 Other current liabilities 164,748 118,169 ----------------- ------------------ Total current liabilities 237,930 181,714 ----------------- ------------------ Long-term liabilities: Long-term debt 20,726 15,000 Notes payable 100,000 100,000 Other long-term liabilities 126,833 110,621 ----------------- ------------------ Total long-term liabilities 247,559 225,621 ----------------- ------------------ Common stockholders' equity 440,801 392,200 ----------------- ------------------ Total liabilities and stockholders' equity $ 926,290 $ 799,535 ----------------- ------------------
USFreightways Corporation Consolidated Statements of Income Unaudited (Dollars in thousands, except per-share amounts)
Three months ended Nine months ended ------------------------------------- --------------------------------- October 3, September 27, October 3, September 27, 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------- Operating revenue $ 469,349 $ 393,462 $ 1,358,714 $ 1,130,042 Operating expenses: Salaries, wages and benefits 278,764 246,288 809,957 713,358 Other operating expenses 81,779 75,523 242,627 223,974 Purchased transportation 44,864 14,548 128,913 40,392 Insurance and claims 8,522 7,357 24,349 22,307 Depreciation and amortization 20,569 17,841 59,846 52,120 ----------------- ---------------- -------------- -------------- Total operating expenses 434,498 361,557 1,265,692 1,052,151 ----------------- ---------------- -------------- -------------- Income from operations 34,851 31,905 93,022 77,891 ----------------- ---------------- -------------- -------------- Non-operating income (expense): Interest expense (2,109) (1,956) (6,243) (6,554) Interest income 191 380 634 770 Other, net 125 (85) (102) (40) ---------------- --------------- ------------- --------------- Total non-operating expense (1,793) (1,661) (5,711) (5,824) ---------------- --------------- ------------- --------------- Net income before income taxes 33,058 30,244 87,311 72,067 Income tax expense 13,554 12,702 36,034 30,234 ----------------- --------------- ------------- -------------- Net income $ 19,504 $ 17,542 $ 51,277 $ 41,833 ----------------- --------------- ------------- -------------- Average shares outstanding - basic 26,244,706 25,972,653 26,187,788 25,357,417 Average shares outstanding - diluted 26,413,506 26,298,153 26,467,601 25,625,642 Basic earnings per common share: $ 0.74 $ 0.68 $ 1.96 $ 1.65 Diluted earnings per common share: $ 0.74 $ 0.67 $ 1.94 $ 1.63 ----------------- --------------------------------- --------------
USFreightways Corporation Condensed Consolidated Statements of Cash Flows Unaudited (Dollars in thousands)
Nine months ended -------------------------------------- October 3, September 27, 1998 1997 - ----------------------------------------------------------------------------------- Cash flows from operating activities: Net Income $ 51,277 $ 41,833 Adjustments to net income: Depreciation and amortization 59,846 52,120 Other items affecting cash 24,994 19,210 from operating activities ----------------- --------------- Net cash provided by operating activities 136,117 113,163 ----------------- --------------- Cash flows from investing activities: Capital expenditures, net of proceeds on sales (114,291) (78,758) Acquisitions ( 7,625) Net fixed assets from acquisitions (20,736) ----------------- ---------------- Net cash used in investing activities (142,652) (78,758) ----------------- ---------------- Cash flows from financing activities: Dividends paid (7,321) (6,926) Proceeds from sale of common stock - 69,431 Proceeds from sale of treasury stock 4,662 5,927 Proceeds from long-term debt 5,726 Payments on long-term debt - (78,000) Net change in short-term debt 4,569 (223) ----------------- ---------------- Net cash provided by (used in) financing activities 7,636 (9,791) ----------------- ---------------- Net increase in cash 1,101 24,614 ----------------- ---------------- Cash at beginning of period 6,471 4,090 ----------------- ----------------- Cash at end of period $ 7,572 $ 28,704 ----------------- -----------------
Notes to Condensed Consolidated Financial Statements (Dollars in thousands, except per share amounts) (Unaudited) 1. General The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements are unaudited but, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The Company's results of operations are affected by the seasonal aspects of the regional LTL trucking business. Therefore, operating results for the three months and nine months ended October 3, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to consolidated financial statements and footnotes thereto included in the registrant's annual report on Form 10-K for the year ended January 3, 1998. 2. Earnings per share Earnings per share basic and diluted earnings per share are calculated under guidelines of FASB statement No. 128. Basic earnings per share are calculated on income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated using earnings available to each share of common stock outstanding during the period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. Unexercised stock options, calculated under the treasury stock method, is the only reconciling item between the Company's basic and diluted weighted earnings per share. The number of options included in the denominator, used to calculate diluted earnings per share are 168,800, 325,500, 279,813 and 268,225 for the third quarters of 1998 and 1997 and for the years to date of 1998 and 1997 respectively. 3. New accounting standards The Financial Accounting Stands Board (FASB) has issued FASB Statement No. 132 ("Employers' Disclosures about Pensions and Other Postretirement Benefits") which the Company will adopt in the fourth quarter of 1998. FASB has also issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company is currently evaluating the impact of these pronouncements; however it does not anticipate that the adoption of these statements will have a material impact on results of operations or financial condition. 4. Subsequent events On September 23, 1998 the Company announced that it signed an agreement to acquire all of the issued and outstanding shares of Golden Eagle Group for approximately $34 million. This merger was completed on November 12, 1998. Golden Eagle provides logistics services and international air and ocean freight forwarding for shipments between the United States and Europe, the Middle East and Far East and from the United States to Central and South America and the Caribbean. The company also provides logistics services including packing, crating and warehousing as well as being a licensed customs broker. Revenue for Golden Eagle for the year ended December 31, 1997 amounted to $84 million, of which approximately 90% were international. This acquisition is consistent with the Company's expressed intention to pursue revenue growth through market share and acquisition. On October 19, 1998, the Company announced that it had acquired Moore & Son Co., a Columbus, Ohio based assembly and distribution business serving all points within the state. Annual revenue for Moore & Son is expected to be approximately $8 million. The Ohio cross-dock facility will become part of USF Distribution that has existing service centers located in major metropolitan centers of Illinois, Georgia, New Jersey, Colorado and California. On October 1, 1998, the Company approved a change in its fiscal year from a 52-53 week ending on the Saturday closest to December 31, to a calendar year basis ending on December 31 of each year. This change will have no material effect on the Company's 1998 full year results. On October 30, 1998, the Company announced that James G. Connelly, President and Chief Operating Officer of the Company resigned in order to explore other business opportunities. Mr. Connelly had been with the Company since January 1998.
Segment Reporting Three Months Ended Nine Months Ended October 3, September 27, October 3, September 27, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- Revenue LTL Group: USF Holland $ 202,259 $ 180,758 $ 595,906 $ 520,708 USF Reddaway 57,147 53,072 161,851 146,455 USF Red Star 55,264 50,001 159,528 144,984 USF Dugan 47,032 44,041 138,029 127,206 USF Bestway 35,216 34,533 103,468 98,465 - -------------------------------------------------------------------------------------------------------------------------- Sub total LTL Group 396,918 362,405 1,158,782 1,037,818 Truckload - Glen Moore 3,468 - 3,468 - Logistics subsidiaries 33,122 26,455 92,696 77,764 Freight forwarding 35,841 3,216 103,768 8,936 Corporate and other - 1,386 - 5,524 - -------------------------------------------------------------------------------------------------------------------------- Total Revenue $ 469,349 $ 393,462 $ 1,358,714 $ 1,130,042 Income From Operations LTL Group: USF Holland $ 21,972 $ 18,357 $ 59,301 $ 48,495 USF Reddaway 6,042 5,444 14,047 10,287 USF Red Star 1,199 549 2,498 762 USF Dugan 1,906 2,102 5,434 5,752 USF Bestway 3,898 4,951 12,165 13,153 - --------------------------------------------------------------------------------------------------------------------------- Sub total LTL Group 35,017 31,403 93,445 78,449 Truckload - Glen Moore 358 - 358 - Logistics subsidiaries 2,045 1,899 5,850 4,461 Freight forwarding 1,207 45 2,691 65 Corporate and other (2,712) (782) (6,243) (3,113) Amortization of intangibles (1,064) (660) (3,079) (1,971) - ---------------------------------------------------------------------------------------------------------------------------- Total Income from Operations $ 34,851 $ 31,905 $ 93,022 $ 77,891 - ----------------------------------------------------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations. Results of Operations; Liquidity and Capital Resources USFreightways Corporation ("the Company") reported the highest quarterly net income in the Company's history for the 13 weeks ended October 3, 1998 of $19,504,000, an 11.2% increase over the $17,542,000 which was reported for the thirteen weeks ended September 27, 1997. Net income per diluted share of 74 cents for the 1998 quarter, on an average of 26,413,506 shares is the highest ever quarterly earnings per share and represents a 10.4% increase over the 67 cents per diluted share on 26,298,153 average shares outstanding for the third quarter of 1997. Record revenue for the 1998 quarter of $469,349,000 increased 19.3% when compared to the $393,462,000 for the same quarter of 1997. Revenue for the nine months ended October 3, 1998 amounted to $1,358,714,000, an increase of 20.2% over the same period of the previous year. Net income for the nine months ended October 3, 1998 amounted to $51,277,000, an increase of 22.6%, when compared to $41,833,000 for the 1997 nine -month period. Earnings for the nine months ended October 3, 1998 were $1.94 per diluted share, a 19% increase compared to $1.63 per diluted share for the 1997 nine-month period. The Company achieved record results in both the third quarter and nine months of the current year, which is directly attributable to a modest improvement in the US economy, a stable pricing environment, its ability to increase market share in its various business enterprises, and continuing emphasis on cost reduction in all operating units of the Company. In the regional trucking group, LTL revenue increased 11.9% and truckload revenue increased 11.6%, after adjusting the 1997 quarter for the estimated impact of the unusual increase in shipments and revenue which resulted from the sixteen day UPS strike. Similarly LTL shipments in the 1998 quarter increased by 8.4% and the average revenue per LTL shipment increased 3.2% compared to last year. The operating ratio for the regional trucking group improved to 91.2% in the current quarter compared to 91.3% in the 1997 quarter as lower fuel and purchased transportation expenses were partially offset by increases in salaries, wages and benefits at Bestway where extreme summer heat in its operating territory caused labor inefficiencies. Revenue in the current year's quarter in the logistics group amounted to $33,122,000, an increase of 25.2%. Operating income increased 7.7%. However, the operating ratio increased to 93.8% in the current year's quarter, compared to 92.8% for the same period of 1997, primarily as a result of additional investment in technology and startup costs on new business acquired. Purchased transportation as a percentage of revenue increased to 21.4% in the current year's quarter compared to 18.6% as a percentage of revenue in last year's quarter due primarily to new contracts that required a higher level of third party transportation. This was partially offset by decreased wages, benefits and workers' compensation expenses. USF Seko Worldwide, the Company's domestic and international freight forwarding subsidiary which was acquired on September 30, 1997, produced revenue of $35,841,000 and an operating income of $1,207,000. USF Glen Moore, the Company's truckload carrier which was acquired August 31, 1998, contributed revenue of $3,468,000 at an operating ratio of 89.7%. The outlook for the last quarter of this year is positive and the Company expects to continue to see an improvement in profitability over the same period of the previous year, assuming there is no material change in the stable pricing environment or the level of US economic activity. Capital expenditures for the current year's quarter amounted to approximately $40 million, of which $21 million was for revenue equipment and $19 million was for terminal facilities and miscellaneous equipment. This compares to capital expenditures of $42 million for the third quarter of 1997. Year-to-date capital expenditures through September were approximately $120 million, compared to 1997 capital expenditures for the nine-month period of $90 million. A dividend of 9 1/3 cents per share was paid on October 9, 1998 to shareholders of record on September 25, 1998. Year 2000 In today's business environment, companies have developed a strong technological interdependence with each other. As the Year 2000 draws near, many businesses are increasingly concerned about how their business applications, as well as those utilized by their business partners, will handle the century date change. A summarized definition of the Year 2000 issue is the inability of certain computer systems, software and embedded-technologies to recognize or process dates beyond December 31, 1999. This problem may cause significant disruptions in manufacturing, administrative and distribution processes, as well as other computer supported activities. As a transportation service and logistics company, the Company is reliant on its computer applications to conduct everyday business. The Company also relies upon the computer capabilities of its major business partners (i.e. critical customers, vendors, financial institutions, governmental agencies, etc). In 1996, the Company implemented a comprehensive project to reduce the possibility that any of the Year 2000 date issues could significantly impact its operations. Year 2000 issues were analyzed by identifying and assessing all systems, with business critical systems given a higher priority. The Company defines a system as business critical if a failure would cause a significant service disruption or could cause a material adverse effect on the Company's operations or financial results. The Company expects to reach its target of addressing and remediating 100% of its core freight management and other critical business systems by December 31, 1998. Further testing and verification on all other systems will continue throughout 1999. The Company has expended approximately $1 million as of September 30, 1998 to ensure Y2K compliance. The total cost to ensure Y2K compliance is estimated to be less than $3 million. The Company is contacting business partners whose Year 2000 non-compliance could adversely affect the Company's operations, employees, or customers. The Company believes the most likely worst case scenario would be the failure of a material business partner to be Year 2000 compliant. Therefore, the Company will continue to work with and monitor the progress of its partners and formulate a contingency plan when the Company does not believe the business partner will be compliant. This release contains forward-looking statements, which are subject to certain risks, and uncertainties that could cause actual results to differ materially. These risks and uncertainties are detailed from time to time in reports filed by the Company with the Securities and Exchange Commission including forms 8K, 10Q and 10K. 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. On April 19, 1996, Steven Mark Whitworth ("Plaintiff") a former employee of USF Bestway Inc., a subsidiary of the Company ("USF Bestway", brought suit against USF Bestway and one of its employees, alleging claims of fraud and promissory estoppel arising from Plaintiff's previous employment as a driver with USF Bestway, Steven Mark Whitworth v. TNT Bestway Transportation, Inc. f/k/a .TNT Bestway Inc. and William Orr, Case No. 96-3935-A, 14th Judicial District Court, Dallas County, Texas. On or about October 2, 1996, Plaintiff amended his petition and added claims of wrongful discharge and conspiracy to wrongfully discharge. On October 7, 1996, Plaintiff moved for summary judgment, claiming that he was entitled to a judgment of $3,500,000 in actual damages and $1,750,000 in attorney fees based on (i) the USF Bestway's alleged untimely responses to Plaintiff's requests for admissions and (ii) the USF Bestway's alleged failure to comply with the requirements of Texas law concerning the signature of pleadings by counsel in connection with the responses to Plaintiff's requests for admissions. Following a hearing on November 1, 1996, the trial court granted Plaintiff's motion for summary judgment and entered judgment in favor of Plaintiff and against the USF Bestway, for $3,500,000 in actual damages $1,750,000 in attorneys' fees together with court costs and interest. On November 27, 1996, USF Bestway moved for reconsideration of the judgment and for a new trial. At a January 7, 1997 hearing on this motion, the trial court denied the motion for reconsideration and for new trial, but ruled that the responses to the Plaintiff's requests for admissions were timely. USF Bestway has posted a superedeas bond to prevent enforcement of the judgment pending appeal and perfected its appeal to the Dallas Court of Appeals. Management of the Company believes that it has good grounds for obtaining a reversal of the judgment on appeal because it believes, among other reasons, that the judgment entered on the basis of the procedural technicality of counsel's failure to comply with the requirements of Texas law concerning the signature of pleadings by counsel, will not be sustained by a reviewing court and further believes, the judgment will be vacated and the matter remanded for a trial on the merits and that, in any event, will not have a material adverse effect on USF Bestway's financial condition. In the event the judgment is sustained on appeal, management of USF Bestway intends to pursue potential causes of action against all appropriate parties. 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 27-Financial Data Schedule. (b) Current Reports on Form 8-K were filed: 1. No current reports on Form 8-K were filed during the quarter 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 12th day of November, 1998. 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-27 2 FDS WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27 FINANCIAL DATA SCHEDULE (FDS)
5 1000 9-MOS DEC-31-1998 JAN-04-1998 OCT-03-1998 7,572 0 217,627 0 0 278,743 528,929 0 926,290 237,930 0 0 0 0 440,801 926,290 0 1,358,714 0 1,265,692 (532) 0 6,243 87,311 36,034 51,277 0 0 0 51,277 1.96 1.94
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