Approximately 89% of Holland’s and Red Star’s employees belonged to the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (“IBT”). IBT Members at Holland and Red Star are presently working under the terms of a five-year, industry-wide labor agreement that expires in March 2003. A new five-year agreement between the IBT and Holland was announced on February 6, 2003. The agreement is subject to ratification by the IBT members. Red Star, separately, signed a “Me too” agreement that basically entitles its IBT members to the benefits under the agreement between Holland and the IBT.
Our TL carrier, Glen Moore, headquartered in Carlisle, Pennsylvania, operates in both regional and nationwide markets. Glen Moore contributed $114.2 million in revenue in 2002 (a 13.6% increase over 2001) and its operating ratio was 95.3%, generating $5.3 million in operating profits compared to $100.4 million in revenue, an operating ratio of 97.1% and operating income of $2.9 million in 2001. Increases in revenue per mile, increased business volumes with new customers and with our regional LTL carriers (performing the intercompany substitute line-haul for our PremierPlus service product) were primarily responsible for the revenue increase. Glen Moore’s improved operating ratio resulted from improvements in salaries, wages and benefits expenses as a percentage of revenue (34.2% compared to 35.0% in 2001) and a decrease in purchased transportation expenses to 19.5% in 2002 compared to 20.5% in 2001 as Glen Moore improved its employee driver productivity thereby reducing the need for outsourced transportation services. Fuel expense improved to 14.7% of revenue in 2002 compared to 15.1% in 2001. However, while fuel expense improved in 2002 as a whole, fuel expense in the 2002 fourth quarter was 16.3% of revenue compared to 13.1% of revenue in the fourth quarter of 2001.
Glen Moore’s revenue increased by 16.4% to $100.4 million in 2001 from $86.3 million in 2000 and it had operating ratios of 97.1% and 94.6% in 2001 and 2000, respectively. Glen Moore’s revenue increase was mainly attributable to an increase in revenue per mile and expansion of its customer base. To handle this revenue increase, Glen Moore augmented its owned fleet by increasing partnerships with independent contractors providing an additional 125 power units. As a result, purchased transportation expenses increased, but were somewhat offset by decreases in fuel expenses as a percentage of revenue as fuel prices moderated in 2001.
TL operations accounted for 4.7% of our 2002 consolidated revenue compared to 4.5% of 2001 revenue. Glen Moore currently owns 763 tractors and 2,363 trailers.
Revenue in our logistics segment, comprised of dedicated carriage, assembly and distribution, supply chain management, contractual warehousing and reverse logistics services was relatively flat, increasing by $0.8 million (a 0.3% increase over 2001) to $278.2 million in 2002 compared to $277.4 million in 2001. In 2002, our logistics segment accounted for 12.4% of our consolidated revenue compared to 12.5% in 2001. Our distribution business revenue increased by $11.8 million (an 11.4% increase over 2001) to $115.7 million in 2002 from $103.9 million in 2001 primarily through growth at existing distribution centers coupled with full year revenue from distribution centers that opened late in 2001—mainly in San Francisco, Orlando, Phoenix and Houston. Contractual and warehousing revenue increased in 2002 to $122.8 million from $118.6 million in 2001 primarily through the addition of new customers. Reverse logistics services revenue decreased to $39.8 million in 2002 compared to $54.9 million in 2001. Most of this revenue decline came from significant volumes from a major customer that, while declining in 2001, were non-existent in 2002.
Operating income for our logistics segment increased by 12.7% to $12.6 million in 2002 from $11.2 million (including a $1.6 million charge in the 2001 fourth quarter related to expenses arising from combining certain administrative functions within the logistics segment). The segment’s operating ratio improved to 95.5% in 2002 compared to 96.0% in 2001. Wages and related benefits decreased to 41.3% of 2002 revenue compared to 49.4% in 2001 in large part due to reduced employee driver requirements, as outsourcing deliveries increased, and a full year benefit from having combined administrative functions. Outsourced transportation expenses partially offset these wage related reductions as purchased transportation costs increased to 19.7% of 2002 revenue compared to 12.6% of 2001 revenue due mainly to our distribution business’ increased dependence on outsourced deliveries.
Revenue for the logistics segment in 2001 was also flat compared to 2000 increasing by $0.4 million to $277.4 million compared to $277.0 million in 2000. In 2001, our logistics segment accounted for 12.5% of our consolidated revenue compared to 12.1% in 2000. The distribution business revenue increased in 2001 from 2000 by $11.6 million (a 15.0% increase) primarily through growth at existing distribution centers coupled with revenue from new distribution centers in San Francisco, Orlando and Houston. Contractual and warehousing revenue increased in 2001 to $118.6 million primarily through the addition of new customers and expanded business with existing customers. Reverse logistics services’ revenue amounted to $54.9 million in 2001 compared to $70.6 million in 2000. Most of this revenue decline came from extraordinary volumes from a major customer in 2000 that significantly declined in 2001.
Operating income for our logistics segment decreased by 32.9% to $11.2 million from $16.7 million in 2000. The segment’s operating ratio was 96.0% in 2001 compared to 94.0% in 2000. Wages and related benefits decreased to 49.4% of 2001 revenue compared to 52.1% in 2000 due in part to the change in our distribution business’ reduced dependence on employee deliveries. Purchased transportation expenses increased to 12.6% of 2001 revenue compared to 11.2% of 2000 revenue as our distribution business continued to increase its dependence on outsourced deliveries. Operating taxes and licenses increased to 2.0% of 2001 revenue compared to 1.6% in 2000. Depreciation increased to 4.2% of 2001 revenue compared to 3.9% in 2000.
Asia Operations
In October 1999, Worldwide, our former non-core freight forwarding business, formed a joint venture partnership under the trading name USF Asia Group Ltd. (“Asia”). Asia, based in Hong Kong, provided sea/air consolidation, local forwarding, customs clearance, Non-Vessel Operating Common Carrier (“NVOCC”) and warehousing and distribution services to companies doing business to and from or within the Asia-Pacific region.
Revenue in 2000 amounted to $11.7 million with an operating loss of $3.8 million due in part to operating expenses that included additional startup expenses incurred during the first full year of operations. In 2001, revenue increased to $26.9 million and operating losses declined to $2.8 million.
After deciding that the Asia operations were not one of our core competencies, on January 18, 2002, we relinquished our interest in Asia and incurred a charge of $12.8 million ($10 million in cash).
Corporate and Other
Included in our Corporate and Other segment are expenses of intangible assets, executive and Corporate management, Corporate IT and certain expenses of our self-insurance programs.
Our amortization of intangible assets amounted to $1.2 million, $5.4 million and $4.8 million, respectively, in 2002, 2001 and 2000. On January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, which required us to cease amortization of goodwill. Amortization of intangible assets in 2002 includes only those intangible assets that were not subject to amortization under SFAS No. 142—mainly customer lists. We amortized approximately $4.2 million of goodwill in 2001.
As a result of our commitment to continued significant investment in IT and the people that support this effort, our IT group’s staff size has grown from 45 in 2000 to 70 in 2001 and 122 at the end of 2002. Additionally, there are independent contractors that support our internal IT staff. Accordingly, IT’s costs have risen from $4.5 million in 2000 to $9.2 million in 2001 and $21.6 million in 2002.
The remainder of our Corporate expenses decreased by $0.3 million in 2001 over 2000, but increased by $4.8 million in 2002 compared to 2001 as the cost of maintaining our self-insurance programs increased by approximately $1.8 million. In addition, Corporate non-insurance related expenses increased for legal, accounting and tax related services along with an increase in donations, advertising and travel and entertainment.
Other Income and Expense
Interest expense for 2002 amounted to $20.5 million compared to $21.0 million in 2001. Our average outstanding debt in 2002 and 2001 was $253.0 million and $271.3 million, respectively. In 2002 and 2001, we had $250 million in outstanding notes at fixed rates of interest. In 2000, we had outstanding notes at fixed rates of interest until the end of April amounting to $200 million. In late April 2000, we replaced $100 million of notes having a fixed interest rate of 6 5/8% with $150 million of notes with an 8 1/2% fixed interest rate. In 2002, we had no drawings under our revolving line of credit and our other uncommitted facilities compared to 2001 when we had nominal drawings under the revolving line of credit and the uncommitted lines of credit that were paid in full prior to the end of the 2001 first quarter. There have been no drawings under the revolving line of credit or the uncommitted lines of credit since the end of the 2001 first quarter.
Interest income for 2002 amounted to $2.7 million compared to $2.3 million in 2001. In 2002 and 2001, we received interest income of $1.3 million and $1.2 million from the settlement of tax related matters. Due to the slowing economy and our managed reduction in capital spending in 2002 and 2001, we had cash invested in interest bearing instruments during all of 2002 and most of 2001. At the end of 2002 and 2001, we had $51.8 million and $61.7 million, respectively, in interest bearing investments.
Our principal debts at the end of 2002 were $150 million in 8 1/2% guaranteed notes, issued April 25, 2000 and $100 million in 6 1/2% guaranteed notes, issued May 1, 1999. During 2002 we had no drawings under our $200 million revolving credit facility while in 2001 we had nominal borrowings. In late October 2002, we replaced our $200 million revolving credit facility that was to expire in November 2002 with a $200 million revolving credit facility that will expire at the end of October 2005. The average interest rate on our bank debt for 2001 (which included only nominal drawings during the first quarter of 2001) was approximately 6.3% compared to 6.6% in 2000. We had no borrowings under our revolving credit facility or uncommitted lines of credit since the end of the first quarter of 2001.
18 | USFREIGHTWAYS
Income Taxes
The effective tax rate on income from continuing operations for 2002 was 46.3% versus 39.3% in 2001 and 40.3% in 2000. The difference between the current year effective tax rate and the prior years’ effective tax rate is primarily related to permanent tax differences associated with the disposition of Asia.
Goodwill amortization is no longer a reconciling item as of 2002 due to the adoption of SFAS No. 142. In 2001 and 2000, goodwill amortization accounted for 0.9% and 0.6%, respectively, of the overall effective tax rates for those years.
Outlook—Unknown Trends or Uncertainties
While we believe that the current economic downturn is largely cyclical, we also expect it to impact 2003. Given the current geo-political risks, certain events could endanger the recovery of the economy. We plan to monitor capital spending and cash flow as well as continue strict controls over spending and operating costs.
Actual results for 2003 will depend upon a number of factors, including the extent and duration of the current economic downturn, our ability to maintain freight rates as competitors increase their pricing pressures, and our ability to increase our market share as we maintain our levels of service and at the same time introduce new service products.
LIQUIDITY AND CAPITAL RESOURCES
We generated $126.9 million in cash flows from operating activities in 2002 compared to $170.7 million in 2001. Contributing to the lower cash flow from operating activities was an increase in trade receivables from increased revenue (especially in the fourth quarter of 2002), compared to lower receivable levels in 2001 when our revenue declined compared to 2000. Capital expenditures during the year amounted to $141.3 million, of which $87.0 million was for revenue equipment (including approximately $35 million for tractors acquired ahead of the October 1, 2002 new engine guidelines published by the Environmental Protection Agency), $26.4 million for terminals, $12.2 million for IT and communications equipment, and $15.7 million for other assets. Capital expenditures for 2001 amounted to $89.5 million, of which $11.3 million was for revenue equipment, $47.3 million was for terminals, $18.7 million was for IT and communications gear and $12.2 million was for other assets. Because of the current sluggish economic conditions, we expect that capital expenditures in 2003 will approximate $100 million to $150 million, before any acquisitions.
On January 31, 2000, we filed a Form S-3 shelf registration statement that allowed for the sale of up to $400 million in additional guaranteed notes of which $250 million was available for issuance as of December 31, 2002.
We issued unsecured guaranteed notes of $100 million on May 1, 1999 that are due May 1, 2009 and bear interest at 6 1/2%, payable semi-annually. Net proceeds from the sale of the notes amounted to $98.5 million. On April 25, 2000, we issued $150 million of 8 1/2% unsecured guaranteed notes that are due April 15, 2010. Net proceeds from the sale of the notes amounted to $149 million. We used $100 million of the net proceeds to pay off our 6 5/8% notes that matured on May 1, 2000. Interest on all of our notes is paid semi-annually. All these notes may be redeemed before maturity and have no sinking-fund requirements. If the notes are redeemed before maturity, the purchase price is the greater of (1) 100% of the principal amount of the guaranteed notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments on such guaranteed notes, discounted to the redemption date, on a semi-annual basis at the treasury rate plus 37.5 basis points, plus accrued interest.
Our guaranteed notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured senior basis, by all our direct and indirect domestic subsidiaries (the “Subsidiary Guarantors”). We are a holding company and during the periods presented substantially all of the assets of the Subsidiary Guarantors, and substantially all of our operations were conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors were substantially equivalent to the assets, liabilities, earnings and equity shown in our consolidated financial statements. We believe that separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them, are not meaningful or material to our investors. Our subsidiaries, other than the Subsidiary Guarantors, are minor. There are no restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. We, therefore, are not required to present separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them.
In addition to our notes mentioned above, we have a $200 million revolving credit facility through a syndicate of nine commercial banks. In October 2002, we replaced our $200 million credit facility that was to expire in November 2002 with a $200 million credit facility that expires in October of 2005. The facility allows up to $125 million for standby letters of credit to cover our self-insurance programs, and has optional pricing of interest rates, including LIBOR or Prime base rates. The facility has an annual fee and contains customary financial covenants including maintenance of minimum net worth and funded debt to cash flow. During 2002, we had no drawings on either credit facility. At December 31, 2002, we had no borrowings and had approximately $70 million of outstanding letters of credit under this facility. In addition to our revolving credit facility, we maintain three uncommitted lines of credit, which provide $40 million short-term funds at rates approximating LIBOR. These facilities are used in concert with a centralized cash management system to finance our short-term working capital needs thereby enabling us to maintain minimal cash balances. At December 31, 2002, we had no borrowings under these uncommitted facilities.
We believe cash flows from operating activities and funding from our revolving credit facilities are adequate to finance our anticipated business activity in 2003.
2002 ANNUAL REPORT | 19
At December 31, 2002, we had capital purchase commitments of approximately $4.0 million for land and improvements, $3.5 million for transportation equipment, and $12.5 million for other information technology related projects.
During 2000, we repurchased approximately one million of our shares under two repurchase programs authorized by our Board of Directors. The average repurchase price was approximately $24 per share. At December 31, 2002, we had authorization to purchase an additional 0.5 million shares.
During 2002, we declared cash dividends of $10.1 million.
Table of Share Price by Quarter
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2002 | | | | | | | | | | | |
Market price per share | | $ | 31.15–38.95 | | $ | 33.02–38.75 | | $ | 26.50–37.70 | | $ | 28.10–34.46 | | $ | 26.33–38.50 | |
2001 | | | | | | | | | | | |
Market price per share | | | 26.87–37.75 | | | 25.03–31.61 | | | 28.01–36.94 | | | 30.06–36.50 | | | 25.03–37.75 | |
Following is a table of our Contractual Cash Obligations as of December 31, 2002 (See also Notes 3 & 4 to the Consolidated Financial Statements of this Form 10-K):
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Contractual Obligations | | Total | | Less than
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Years | | 4–5
Years | | After 5
Years | |
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Long-Term Debt | | $ | 252,496 | | $ | 367 | | $ | 2,129 | | $ | — | | $ | 250,000 | |
Operating Leases | | 67,030 | | 20,497 | | 29,812 | | 9,832 | | 6,889 | |
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Total Contractual Cash Obligations | | $ | 319,526 | | $ | 20,864 | | $ | 31,941 | | $ | 9,832 | | $ | 256,889 | |
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Following is a table of our Other Commercial Commitments as of December 31, 2002 (See also Note 4 to Consolidated Financial Statements of this Form 10-K):
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Other Commercial Commitments | | Total Amounts
Committed | | Less than
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Years | | Over 5
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Lines of Credit (1) | | $ | 200,000 | | $ | — | | $ | 200,000 | | | | | |
Standby Letters of Credit (2) | | 69,681 | | 69,681 | | — | | | | | |
Purchase Commitments | | 19,948 | | 19,948 | | — | | | | | |
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Total Commercial Commitments | | $ | 289,629 | | $ | 89,629 | | $ | 200,000 | | | | | | | |
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(1) | We had no drawings under this facility as of December 31, 2002. |
(2) | The standby letters of credit are a part of our $200 million line of credit facility that, in total, allows for up to $125 million in standby letters of credit. |
CRITICAL ACCOUNTING POLICIES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the period, the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements. Many of these estimates and assumptions are based on our critical accounting policies as described below. We have applied these policies on a consistent basis from year to year. Actual results could differ from these estimates. Additionally, our Audit Committee of the Board of Directors has been informed by us and our independent auditors of the significance, sensitivity, and reasonableness of these estimates.
Revenue Recognition
Effective January 1, 2003, we changed our method of accounting for revenue and expense recognition for our LTL and TL segments. In 2002, revenue for LTL and TL operations was recognized when freight was picked up from the customer. Under the new accounting method, we recognize revenue for LTL and TL operations by the allocation of revenue between reporting periods based on the relative transit time in each reporting period with expenses recognized as incurred.
20 | USFREIGHTWAYS
Logistics revenue from warehousing continued to be recognized under the terms of the various contracts. Revenue from dedicated fleet shipments also continues to be recognized upon delivery, which is generally the same day as the pickup. Domestic ocean freight forwarding transportation revenue is recognized at the time freight is tendered to an ocean going vessel at origin. In all cases, estimated expenses of performing the total transportation services are accrued concurrently with the revenue recognition.
Allowance for Doubtful Accounts
Our operating segments have credit and collections procedures that are followed to determine which customers are extended credit for services provided. Services provided to customers where we are not able to determine their creditworthiness are done so on a cash on delivery basis. We have developed a methodology based on write-off history that we apply to our open accounts receivable to assess the adequacy of our allowance for debts. Our analysis provides for allowance needs that we may have for large customers that may be experiencing financial difficulty as well as the overall conditions in the economy.
Casualty Claims
Casualty claim reserves represent management’s estimates of claims for property damage, public liability and workers’ compensation. We manage casualty claims with the assistance of a third-party administrator (TPA) along with its’ insurers. We have a retention/deductible of $5 million for public liability and $2.5 million for workers’ compensation. We promote prevention as a key component in minimizing exposure to casualty claim losses. We have developed comprehensive programs that emphasize and encourage employee safety and accident prevention. When collisions or injuries occur, their outcomes are managed closely to bring them to conclusion efficiently, fairly, and quickly by us, our TPA, and insurers. Processes are in place to identify, evaluate, and develop individual cases as soon as possible, to facilitate recovery and return to work, or to mitigate damages. We have developed an extensive program to aid the employee’s recovery from injury, return to work, and allow resumption of the individual’s normal lifestyle. We closely monitor the casualty accruals and methodologies for accuracy. Extensive analysis enables us to estimate casualty reserves, provide for incurred but not reported cases, and development patterns of cases consistently and adequately. At December 31, 2002 and 2001 we had reserve balances for casualty claims of $113.4 million and $100.7 million, respectively.
Cargo Claims
Our operating procedures are designed to minimize freight from being lost or damaged while in our care. Although our goal is to pick-up and deliver all freight on time and without damage, given the large volume of freight movements there are situations where freight is lost or damaged while in our control. We do not accept freight that has an excessively high value, is extremely volatile, is unusually hazardous or exhibits other unnecessary risks. We have developed reporting procedures to monitor the claims activity at each of our terminals. We have developed a methodology to assess our accrual needs for cargo claims. This methodology is based on historical payment activity and lag times for reported claims. Our accrual includes an estimation of payments to be made for claims reported, claims incurred but not reported and specific estimations for any unusually large claims. Our accrual at December 31, 2002 and 2001 for these types of claims was $6.0 million and $6.6 million, respectively.
Contingencies
We are 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. We believe these matters have been adequately provided for in our financial statements and their outcome is not expected to have any material adverse effect on our consolidated financial position or results of our operations.
We use underground storage tanks at certain terminal facilities and maintain a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various federal and state laws. We take prompt remedial action whenever any contamination is detected. We accrue for estimated losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. We believe that our obligation with regard to these sites is not significant.
Pension and Post-Retirement Health Care
We maintain a non-qualified deferred compensation plan for the benefit of a select group of our management. The purpose of the plan is to enhance our ability to attract and retain qualified management personnel by providing an opportunity to defer a portion of their compensation that cannot be deferred under our 401(k) plan. We also maintain a supplemental executive retirement plan (defined contribution) to provide benefits to a select group of our management who contribute materially to our continued growth, development and future business. In 2002, 2001 and 2000, we contributed $1.6 million annually to this plan. We have established a grantor trust (Rabbi Trust) to provide funding for benefits payable under our deferred compensation and supplemental executive retirement plans.
We do not offer post-employment or post-retirement benefits.
Goodwill
Under SFAS No. 142 “Goodwill and Other Intangible Assets,” previously recorded goodwill and other intangible assets with indefinite lives are no longer amortized but are subject to annual undiscounted cash flow impairment tests. If there is an apparent impairment, the fair value of the reporting unit would be calculated. If the calculated fair value is less than the carrying amount, an impairment loss would be recognized. In 2001, we amortized $4.2 million of goodwill. As a result of implementing this new standard on January 1, 2002 we no longer amortize goodwill and recorded an impairment charge of $70.0 million at USF Worldwide, our discontinued freight forwarding segment. The charge was shown as a cumulative effect of change in accounting for goodwill in the first quarter of 2002. Goodwill and other intangible assets consist of the following:
2002 ANNUAL REPORT | 21
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Life (Yrs) | | Gross
Carrying
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Amortization | | Gross
Carrying
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Amortization | |
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Amortized intangible assets: | | | | | | | | | | | |
Customer lists | | 5 | | $ | 6,073 | | $ | (5,078 | ) | $ | 6,073 | | $ | (3,869 | ) |
Non-competes | | 5 | | 5,156 | | (5,156 | ) | 5,156 | | (5,130 | ) |
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Total | | | | $ | 11,229 | | $ | (10,234 | ) | $ | 11,229 | | $ | (8,999 | ) |
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Intangible assets not subject to amortization: | | | | | | | | | | | |
Goodwill | | | | $ | 100,504 | | $ | — | | $ | 134,659 | | $ | (34,155 | ) |
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RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The pronouncement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishments of Debt,” and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” The pronouncement also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers” and amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1, 2003. We have reviewed the requirements of this standard and have concluded it does not have an impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize the costs associated with exit or disposal activities when they are incurred. Prior to the adoption of SFAS No. 146, these types of costs were recognized at the time management committed to an exit/disposal plan in accordance with EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement is effective for exit or disposal activities that are initiated subsequent to December 31, 2002. Accordingly, we will apply the provisions of SFAS No. 146 prospectively to exit or disposal activities initiated subsequent to December 31, 2002.
On November 25, 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Interpretation expands on the accounting guidance of SFAS No. 5, “Accounting for Contingencies,” SFAS No. 57 “Related Party Disclosures,” and SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Interpretation also incorporates, without change, the provisions of FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others,” which it supercedes. The Interpretation does identify several situations where the recognition of a liability at inception for a guarantor’s obligation is not required. The initial recognition and measurement provisions of Interpretation 45 apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year-end. The disclosures are effective for financial statements of interim or annual periods ending after December 15, 2002. We have not determined the impact of this Interpretation on our financial position or results of operations.
RELATED PARTIES
William N. Weaver, Jr., one of our directors, is a member of the law firm of Sachnoff & Weaver, Ltd. an Illinois professional corporation. Sachnoff & Weaver, Ltd. has acted and continues to act as outside counsel to us with regard to certain matters. We believe that the legal fees billed to us for these services were at market rates. We paid $725,000, $379,000 and $553,000 in 2002, 2001 and 2000, respectively, to Sachnoff & Weaver, Ltd.
Anthony J. Paoni, one of our directors, is a member of DiamondCluster International, Inc., an Illinois corporation. DiamondCluster International, Inc. has acted as a consultant to us with regard to certain matters, and we have paid consulting fees for services rendered. We believe that the consulting fees billed to us for these services were at market rates. We paid $690,000 for consulting fees in 2001 to DiamondCluster.
22 | USFREIGHTWAYS
ITEM 7A— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to the impact of interest rate changes. Our exposure to changes in interest rates is limited to borrowings under our line of credit that has variable interest rates tied to the LIBOR rate. The weighted-average annual interest rate on borrowings under this credit agreement was 6.3% in 2001. We had no borrowings under the credit agreement in 2002. In addition, we had $150 million of unsecured notes with an 8 1/2% fixed annual interest rate and $100 million of unsecured notes with a 6 1/2% fixed annual interest rate at December 31, 2002. Because these notes have a relatively long maturity feature, any sudden change in market interest rates would not affect our operating results or cash flows to any significant degree. We estimate that the fair value of the notes exceeded by approximately 13% their carrying value at December 31, 2002. We have no hedging instruments. We invest excess cash in overnight money market accounts.
2002 ANNUAL REPORT | 23
ITEM 8— FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of
USFreightways Corporation
We have audited the accompanying consolidated balance sheets of USFreightways Corporation and subsidiaries (the “Company”) as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index under Part IV, Item 15(a)(2). These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of USFreightways Corporation and subsidiaries at December 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, 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.
As discussed in Note 8, effective January 1, 2002, the Company changed its method of accounting for goodwill and intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
| | | |
| | |
|
Chicago, Illinois
January 30, 2003
(March 17, 2003 as to Note 14)
| | | |
24 | USFREIGHTWAYS
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share and per share amounts)
| | | |
|
|
| |
| | As of December 31 | |
|
|
| |
| | 2002 | | 2001 | |
|
|
|
|
| |
| | | | | |
Assets | | | | | |
Current assets: | | | | | |
Cash | | $ | 54,158 | | $ | 72,105 | |
Accounts receivable, less allowances of $13,586 and $11,606, in 2002 and 2001, respectively | | 269,583 | | 247,874 | |
Operating supplies and prepaid expenses | | 33,180 | | 31,107 | |
Deferred income taxes | | 53,086 | | 32,925 | |
Current assets—discontinued operations | | — | | 62,239 | |
| |
|
|
| |
Total current assets | | 410,007 | | 446,250 | |
Property and equipment: | | | | | |
Land | | 116,240 | | 113,887 | |
Buildings and leasehold improvements | | 291,138 | | 268,745 | |
Equipment | | 928,392 | | 865,962 | |
Other | | 92,079 | | 86,834 | |
| |
|
|
| |
| | 1,427,849 | | 1,335,428 | |
Less accumulated depreciation | | (667,696 | ) | (610,963 | ) |
| |
|
|
| |
Total property and equipment | | 760,153 | | 724,465 | |
Goodwill, net of accumulated amortization | | 100,504 | | 100,504 | |
Other assets | | 24,607 | | 26,459 | |
Non-current assets—discontinued operations | | — | | 80,986 | |
| |
|
|
| |
| | $ | 1,295,271 | | $ | 1,378,664 | |
| |
|
|
|
|
| |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Current debt | | $ | 367 | | $ | 1,023 | |
Accounts payable | | 59,691 | | 62,191 | |
Accrued salaries, wages and benefits | | 89,765 | | 87,254 | |
Accrued claims and other | | 90,245 | | 78,329 | |
Current liabilities—discontinued operations | | — | | 33,190 | |
| |
|
|
| |
Total current liabilities | | 240,068 | | 261,987 | |
Notes payable and long-term debt | | 252,129 | | 252,515 | |
Accrued claims and other | | 84,079 | | 75,835 | |
Deferred income taxes | | 99,864 | | 96,635 | |
Non-current liabilities—discontinued operations | | — | | 2,185 | |
| |
|
|
| |
| | 676,140 | | 689,157 | |
Commitments and contingencies (Note 9) | | | | | |
Minority interest | | — | | 1,855 | |
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, 26,994,915 and 26,766,454 issued and 26,989,173 and 26,678,038 outstanding in 2002 and 2001, respectively | | 270 | | 267 | |
Paid in capital | | 277,298 | | 270,936 | |
Retained earnings | | 341,563 | | 418,585 | |
Treasury stock, 88,416 shares in 2001 | | — | | (1,796 | ) |
Accumulated and other comprehensive loss | | — | | (340 | ) |
| |
|
|
| |
Total stockholders’ equity | | 619,131 | | 687,652 | |
| |
|
|
| |
| | $ | 1,295,271 | | $ | 1,378,664 | |
| |
|
|
|
|
| |
See accompanying notes to consolidated financial statements.
2002 ANNUAL REPORT | 25
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars, except share and per share amounts)
| | | |
|
|
| |
| | Years ended December 31 | |
|
|
| |
| | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Revenue: | | | | | | | |
LTL Trucking | | $ | 1,866,892 | | $ | 1,816,204 | | $ | 1,913,675 | |
TL Trucking | | 114,151 | | 100,439 | | 86,317 | |
Logistics | | 278,161 | | 277,393 | | 276,958 | |
Asia Operations | | — | | 26,938 | | 11,663 | |
Intercompany eliminations | | (8,678 | ) | — | | — | |
| |
|
|
|
|
| |
| | 2,250,526 | | 2,220,974 | | 2,288,613 | |
| |
|
|
|
|
| |
Operating expenses: | | | | | | | |
LTL Trucking | | 1,761,720 | | 1,707,584 | | 1,737,055 | |
TL Trucking | | 108,840 | | 97,552 | | 81,646 | |
Logistics | | 265,558 | | 266,208 | | 260,278 | |
Asia Operations | | — | | 29,749 | | 15,420 | |
Freight Forwarding—Asia exit costs | | 12,760 | | — | | — | |
Corporate and Other | | 29,472 | | 16,545 | | 11,541 | |
Intercompany eliminations | | (8,678 | ) | — | | — | |
| |
|
|
|
|
| |
| | 2,169,672 | | 2,117,638 | | 2,105,940 | |
| |
|
|
|
|
| |
Income from operations | | 80,854 | | 103,336 | | 182,673 | |
| |
|
|
|
|
| |
Non-operating income (expense): | | | | | | | |
Interest expense | | (20,516 | ) | (20,964 | ) | (21,090 | ) |
Interest income | | 2,708 | | 2,278 | | 638 | |
Other, net | | (1,054 | ) | (499 | ) | (926 | ) |
| |
|
|
|
|
| |
Total non-operating expense | | (18,862 | ) | (19,185 | ) | (21,378 | ) |
| |
|
|
|
|
| |
Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change | | 61,992 | | 84,151 | | 161,295 | |
Income tax expense | | (28,724 | ) | (33,074 | ) | (64,962 | ) |
Minority interest | | — | | (1,100 | ) | 1,708 | |
| |
|
|
|
|
| |
Income from continuing operations before cumulative effect of accounting change | | 33,268 | | 49,977 | | 98,041 | |
Discontinued operations (freight forwarding segment): | | | | | | | |
Loss from operations, net of tax benefits of $6,907, $6,518, and $700 respectively | | (16,978 | ) | (11,589 | ) | (1,243 | ) |
Loss from disposal net of tax benefit of $29,060 | | (13,239 | ) | — | | — | |
| |
|
|
|
|
| |
Loss from discontinued operations | | (30,217 | ) | (11,589 | ) | (1,243 | ) |
| |
|
|
|
|
| |
Income before cumulative effect of accounting change | | 3,051 | | 38,388 | | 96,798 | |
Cumulative effect of change in accounting for goodwill | | (70,022 | ) | — | | — | |
| |
|
|
|
|
| |
Net income/(loss) | | $ | (66,971 | ) | $ | 38,388 | | $ | 96,798 | |
| |
|
|
|
|
|
|
|
| |
Income per share from continuing operations: | | | | | | | |
Basic | | $ | 1.23 | | $ | 1.90 | | $ | 3.72 | |
Diluted | | 1.22 | | 1.87 | | 3.65 | |
Loss per share from discontinued operations: | | | | | | | |
Basic | | (1.12 | ) | (0.44 | ) | (0.04 | ) |
Diluted | | (1.11 | ) | (0.44 | ) | (0.04 | ) |
Loss per share—cumulative effect of change in accounting for goodwill: | | | | | | | |
Basic | | (2.60 | ) | — | | — | |
Diluted | | (2.56 | ) | — | | — | |
Net income/(loss) per share—basic | | (2.49 | ) | 1.46 | | 3.68 | |
Net income/(loss) per share—diluted | | (2.45 | ) | 1.43 | | 3.61 | |
| |
|
|
|
|
| |
Average shares outstanding—basic | | | 26,900,311 | | | 26,309,107 | | | 26,337,734 | |
Average shares outstanding—diluted | | | 27,331,890 | | | 26,765,861 | | | 26,828,046 | |
See accompanying notes to consolidated financial statements.
26 | USFREIGHTWAYS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | Number
of
Shares | | Common
Stock | | Paid In
Capital | | Retained
Earnings | | Treasury
Stock | | Compre-
hensive
Income | | Accumulated
Other
Comprehensive
Loss | | Total
Stockholders’
Equity | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance January 1, 2000 | | 26,499 | | $ | 265 | | $ | 256,081 | | $ | 303,032 | | $ | (519 | ) | | | | | $ | 558,859 | |
Net income | | | | — | | — | | 96,798 | | — | | $ | 96,798 | | | | 96,798 | |
Unrealized loss on foreign currency transactions | | | | | | | | | | | | (185 | ) | | $ (185 | ) | (185 | ) |
| | | | | | | | | | | |
| | | | | | |
Comprehensive income | | | | | | | | | | | | $ | 96,613 | | | | | |
| | | | | | | | | | | |
|
| | | | | |
Dividends declared | | | | — | | — | | (9,790 | ) | — | | | | | | (9,790 | ) |
Employee and director stock transactions | | 337 | | (6 | ) | 9,552 | | — | | 2,880 | | | | | | 12,426 | |
Repurchase of common stock | | (954 | ) | — | | — | | — | | (22,932 | ) | | | | | (22,932 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance December 31, 2000 | | 25,882 | | $ | 259 | | $ | 265,633 | | $ | 390,040 | | $ | (20,571 | ) | | | | $ (185 | ) | $ | 635,176 | |
Net income | | | | — | | — | | 38,388 | | — | | $ | 38,388 | | | | 38,388 | |
Unrealized loss on foreign currency transactions | | | | | | | | | | | | (155 | ) | (155 | ) | (155 | ) |
| | | | | | | | | | | |
| | | | | |
Comprehensive income | | | | | | | | | | | | $ | 38,233 | | | | | |
| | | | | | | | | | | |
|
| | | | | |
Dividends declared | | | | — | | — | | (9,843 | ) | — | | | | | | (9,843 | ) |
Employee and director stock transactions | | 796 | | 8 | | 5,303 | | — | | 18,775 | | | | | | 24,086 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance December 31, 2001 | | 26,678 | | $ | 267 | | $ | 270,936 | | $ | 418,585 | | $ | (1,796 | ) | | | | $ (340 | ) | $ | 687,652 | |
Net loss | | | | — | | — | | (66,971 | ) | — | | $ | (66,971 | ) | | | (66,971 | ) |
Recognition of previously unrealized loss on foreign currency transactions | | | | | | | | | | | | 340 | | 340 | | 340 | |
| | | | | | | | | | | |
| | | | | |
Comprehensive loss | | | | | | | | | | | | $ | (66,631 | ) | | | | |
| | | | | | | | | | | |
|
| | | | | |
Dividends declared | | | | — | | — | | (10,051 | ) | — | | | | | | (10,051 | ) |
Employee and director stock transactions | | 317 | | 3 | | 6,362 | | — | | 1,796 | | | | | | 8,161 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Balance December 31, 2002 | | 26,995 | | $ | 270 | | $ | 277,298 | | $ | 341,563 | | $ | — | | | | | $ — | | $ | 619,131 | |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
See accompanying notes to consolidated financial statements.
2002 ANNUAL REPORT | 27
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
| | | |
|
|
| |
| | Years ended December 31 | |
|
|
| |
| | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Cash flows from operating activities: | | | | | | | |
Net (loss)/income | | $ | (66,971 | ) | $ | 38,388 | | $ | 96,798 | |
Net loss from discontinued operations | | 30,217 | | 11,589 | | 1,243 | |
| |
|
|
|
|
| |
Income/(loss) from continuing operations after cumulative effect of accounting change | | (36,754 | ) | 49,977 | | 98,041 | |
Adjustments to reconcile net income/(loss) from continuing operations after accounting change to net cash provided by operating activities: | | | | | | | |
Depreciation of property and equipment | | 99,873 | | 100,564 | | 103,091 | |
Cumulative effect of accounting change | | 70,022 | | — | | — | |
Amortization of intangible assets | | 1,235 | | 5,446 | | 4,806 | |
Deferred taxes | | (1,232 | ) | 2,444 | | 13,930 | |
Gains on sale of property and equipment | | (1,350 | ) | (2,154 | ) | (6,264 | ) |
Increase in accrued claims and other | | 8,244 | | 1,260 | | 1,577 | |
Changes in working capital affecting operations: | | | | | | | |
Accounts receivable | | (21,709 | ) | 21,138 | | (17,484 | ) |
Operating supplies and prepaid expenses | | (2,073 | ) | (885 | ) | (4,311 | ) |
Accounts payable | | (2,500 | ) | (7,417 | ) | 7,374 | |
Accrued liabilities | | 14,386 | | 2,423 | | (666 | ) |
Other non-current assets, net | | (1,238 | ) | (2,059 | ) | (5,864 | ) |
| |
|
|
|
|
| |
Net cash provided by operating activities | | 126,904 | | 170,737 | | 194,230 | |
| |
|
|
|
|
| |
Cash flows from investing activities: | | | | | | | |
Acquisitions | | — | | — | | (7,300 | ) |
Capital expenditures | | (141,322 | ) | (89,495 | ) | (190,098 | ) |
Proceeds from sale of property and equipment | | 7,111 | | 11,468 | | 15,437 | |
Disposition of USF Asia | | (6,000 | ) | — | | — | |
| |
|
|
|
|
| |
Net cash used in investing activities | | (140,211 | ) | (78,027 | ) | (181,961 | ) |
| |
|
|
|
|
| |
Cash flows from financing activities: | | | | | | | |
Dividends paid | | (10,010 | ) | (9,781 | ) | (9,847 | ) |
Proceeds from the issuance of common stock | | 8,161 | | 24,086 | | 12,426 | |
Repurchase of common stock | | — | | — | | (22,932 | ) |
Net proceeds from sale of notes | | — | | — | | 149,025 | |
Proceeds from long-term bank debt | | — | | 5,000 | | 90,000 | |
Payments on long-term bank debt | | (1,042 | ) | (40,470 | ) | (204,513 | ) |
| |
|
|
|
|
| |
Net cash (used in)/provided by financing activities | | (2,891 | ) | (21,165 | ) | 14,159 | |
| |
|
|
|
|
| |
Net cash used in discontinued operations | | (1,749 | ) | (1,703 | ) | (28,953 | ) |
| |
|
|
|
|
| |
Net (decrease)/increase in cash | | (17,947 | ) | 69,842 | | (2,525 | ) |
Cash at beginning of year | | 72,105 | | 2,263 | | 4,788 | |
| |
|
|
|
|
| |
Cash at end of year | | $ | 54,158 | | $ | 72,105 | | $ | 2,263 | |
| |
|
|
|
|
|
|
|
| |
Supplemental disclosure of cash flow information: | | | | | | | |
Cash paid during the year for: | | | | | | | |
Interest | | $ | 19,481 | | $ | 20,107 | | $ | 17,766 | |
Income taxes | | 11,437 | | 25,603 | | 52,136 | |
Non-cash transactions: equity, notes issued and debt assumed in connection with acquisitions | | — | | — | | 9,769 | |
| |
|
|
|
|
| |
See accompanying notes to consolidated financial statements.
28 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except share and per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Company Overview
USFreightways Corporation (“USF”), a Delaware corporation, is a full service provider of transportation services and innovative logistics solutions throughout the United States (“US”) and Canada. This is accomplished through our operating subsidiaries. In the less-than-truckload (“LTL”) segment, our carriers provide overnight and second-day delivery service. Our regional trucking companies also provide national service, utilizing the combined network of the group. In our truckload (“TL”) segment, we offer premium regional and national truckload services. Our logistics (“Logistics”) segment provides integrated supply chain solutions, value-added logistics solutions, reverse logistics services, complete warehouse fulfillment services, and domestic ocean freight forwarding services.
Basis of Presentation
Our consolidated financial statements include the accounts of USFreightways and its wholly owned subsidiaries. Intercompany balances and transactions have been eliminated. Our consolidated statements of operations for prior years have been reclassified to conform with the current year’s presentation.
Revenue Recognition
Revenue for LTL and TL operations is recognized when freight is picked up from the customer. Logistics revenue from warehousing is recognized under the terms of the various contracts and revenue from dedicated fleet shipments is recognized upon delivery, which is generally the same day as the pickup. Domestic ocean freight forwarding transportation revenue is recognized at the time freight is tendered to an ocean going vessel at origin. In all cases, estimated expenses of performing the total transportation services are accrued concurrently with the revenue recognition.
Cash
We consider demand deposits and highly liquid investments purchased with original maturities of three months or less as cash.
Property and Equipment
Purchases of property, equipment, leasehold improvements and other assets are carried at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over periods ranging from three to twelve years for equipment and 30 years for buildings. Maintenance and repairs are charged to operations when incurred, while expenditures that add to the life of the equipment are capitalized. When revenue equipment is disposed, a gain or loss is recognized. Amortization of leasehold improvements is recognized over the lesser of the life of the lease or the life of the improvement. Other assets mainly include computer hardware and software, and are depreciated using periods ranging from two to seven years.
We continually evaluate whether events and circumstances have occurred that indicate our long-lived assets may not be recoverable. When factors indicate that our assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining lives of assets in measuring whether or not an impairment has occurred. If an impairment were identified, a loss would be reported to the extent that the carrying value of the related assets exceeded the fair value of those assets as determined by valuation techniques available in the circumstances.
Goodwill
These costs primarily represent goodwill that through December 31, 2001, was amortized on a straight-line basis up to 40 years. Upon adoption of Statement of Financial Accounting Standards (“SFAS”) No 142, amortization ceased and we recorded an impairment charge of $70,022. The carrying value of goodwill is reviewed on an annual basis during the fourth quarter or whenever events or changes in circumstances indicate that the carrying value may be impaired. (See Note 8).
Concentration
We are not dependent upon any particular industry and provide services to a wide variety of customers including many large, publicly held companies. During the year ended December 31, 2002, no single customer accounted for more than 4.6% of our revenue and our 50 largest customers as a group accounted for approximately 30% of total revenue. Many of the corporate account customers use more than one of our regional trucklines for their transportation requirements.
Earnings/(Loss) Per Share
Basic earnings/(loss) per share are calculated on net income divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share are calculated by dividing net income by this weighted-average number of common shares outstanding plus the shares that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares for the period. Unexercised stock options are the only reconciling items between our basic and diluted earnings per share.
2002 ANNUAL REPORT | 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
The following table presents information necessary to calculate basic and diluted earnings per share and common equivalent shares:
| | | | | | | |
|
|
|
|
|
|
| |
| | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Weighted-average shares outstanding—basic | | 26,900,311 | | 26,309,107 | | 26,337,734 | |
Common stock equivalents | | 431,579 | | 456,754 | | 490,312 | |
| |
|
|
|
|
| |
Weighted-average shares and equivalent—diluted | | 27,331,890 | | 26,765,861 | | 26,828,046 | |
| |
|
|
|
|
| |
Anti-dilutive unexercised stock options excluded from calculations | | 1,113,100 | | 485,500 | | 540,500 | |
| |
|
|
|
|
| |
Stock-based Compensation
SFAS No. 123, “Accounting for Stock Based Compensation,” establishes a fair value based method of accounting for stock options. We have elected to continue using the intrinsic value method prescribed under Accounting Principles Board No. 25 as permitted by SFAS No. 123. If we had elected to recognize compensation cost based on the fair value of the options at grant date, as prescribed by SFAS No. 123, our net income and earnings per share would have been reduced to the proforma amounts indicated in the table below:
| | | | | | | |
|
|
|
|
|
|
| |
Year | | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Net income/(loss)—as reported | | $ | (66,971 | ) | $ | 38,388 | | $ | 96,798 | |
Less: total stock-based employee compensation expense determined under | | | | | | | |
fair value based method for all awards, net of related tax effects | | 5,523 | | 4,718 | | 6,267 | |
| |
|
|
|
|
| |
Net income/(loss)—pro forma | | (72,494 | ) | 33,670 | | 90,531 | |
| | | | | | | |
Basic earnings/(loss) per share—as reported | | (2.49 | ) | 1.46 | | 3.68 | |
Basic earnings/(loss) per share—pro forma | | (2.69 | ) | 1.28 | | 3.44 | |
| | | | | | | |
Diluted earnings/(loss) per share—as reported | | (2.45 | ) | 1.43 | | 3.61 | |
Diluted earnings/(loss) per share—pro forma | | | (2.65 | ) | | 1.26 | | | 3.44 | |
|
|
|
|
|
|
|
|
|
| |
Foreign Currency Translation
The financial statements of our former foreign subsidiaries (see Note 2) were measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenue and expenses were translated at average rates of exchange during the period. The resulting cumulative translation adjustments at December 31, 2001 and 2000 are included in our consolidated statements of stockholders’ equity.
Subject to our disposal of our freight forwarding segment, in October 2002, we no longer have any foreign subsidiaries and consequently we had no cumulative translation adjustment as of December 31, 2002.
Use of Estimates
Our management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.
New Accounting Standards
In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” The pronouncement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishments of Debt,” and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” The pronouncement also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers” and amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1, 2003. We have reviewed the requirements of this standard and have concluded it does not have an impact on our financial position or results of operations.
30 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize the costs associated with exit or disposal activities when they are incurred. Prior to the adoption of SFAS No. 146, these types of costs were recognized at the time management committed to an exit/disposal plan in accordance with EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement is effective for exit or disposal activities that are initiated subsequent to December 31, 2002. Accordingly, we will apply the provisions of SFAS No. 146 prospectively to exit or disposal activities initiated subsequent to December 31, 2002.
On November 25, 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Interpretation expands on the accounting guidance of SFAS No. 5, “Accounting for Contingencies,” SFAS No. 57 “Related Party Disclosures,” and SFAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The Interpretation also incorporates, without change, the provisions of FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others,” which it supercedes. The Interpretation does identify several situations where the recognition of a liability at inception for a guarantor’s obligation is not required. The initial recognition and measurement provisions of Interpretation 45 apply on a prospective basis to guarantees issued or modified after December 31, 2002. We are currently reviewing the requirements of this new standard, but we do not expect implementation to have a material impact on our financial position or results of operations.
(2) DISCONTINUED OPERATIONS
On October 30, 2002, we sold our freight forwarding businesses, USF Worldwide Inc. and USF Worldwide Logistics (UK) Ltd. (the “Companies”) to GPS Logistics, LLC and Seko Worldwide Acquisition LLC (the “Transferees”) pursuant to a Share Transfer Agreement dated October 17, 2002 through the transfer of the shares of the Companies. As a condition to the transfer and in consideration of Transferees’ obligation to assume ownership of the stock of the Companies, we agreed to contribute $17,000 in cash to USF Worldwide Inc. As part of the agreement, the Transferees had the option for a period of up to six months from closing to return its interest in certain assets to us for $3,000 in cash. In December 2002, the Transferees exercised their option to return their interest in those certain assets which are the ocean freight forwarding businesses formerly known as USF Coast Consolidators and USF Caribbean Services.
During the year ended December 31, 2002, we recognized a loss of $13,239 net of tax benefits on the transfer of our freight forwarding businesses. The calculation of the loss is summarized as follows:
Net assets transferred | | $ | 14,556 | |
Cash paid | | 20,000 | |
Write-off of notes receivable | | 6,000 | |
Transaction fees and expenses | | 1,743 | |
| |
| |
Loss on transfer before income tax benefits | | 42,299 | |
Income tax benefits | | 29,060 | |
| |
| |
Loss, net of income tax benefits | | $ | 13,239 | |
| |
|
| |
The disposal of our freight forwarding businesses represents the disposal of a component of an entity under SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the financial position and results of operations of the freight forwarding segment have been classified as discontinued operations and all prior periods presented have been restated.
2002 ANNUAL REPORT | 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
Loss from discontinued operations consisted of the following:
| | | | | | | |
|
|
|
|
|
|
| |
| | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Revenue | | $ | 187,638 | | $ | 237,673 | | $ | 250,086 | |
Loss from operations | | (23,885 | ) | (18,107 | ) | (1,943 | ) |
Income tax benefits | | 6,907 | | 6,518 | | 700 | |
| |
|
|
|
|
| |
Loss from operations, net | | (16,978 | ) | (11,589 | ) | (1,243 | ) |
| |
|
|
|
|
| |
Loss on disposal | | (42,299 | ) | — | | — | |
Income tax benefits on disposal | | 29,060 | | — | | — | |
| |
|
|
|
|
| |
Loss on disposal, net | | (13,239 | ) | — | | — | |
| |
|
|
|
|
| |
Loss from discontinued operations, net | | $ | (30,217 | ) | $ | (11,589 | ) | $ | (1,243 | ) |
| |
|
|
|
|
|
|
|
| |
Current assets, non-current assets, current liabilities and non-current liabilities of discontinued operations consisted of the following as of December 31, 2001:
Current assets | | | | | | | |
Cash | | $ | 7,429 | | Current liabilities | | | |
Accounts receivable, net | | 48,002 | | Accounts payable | | $ | 27,788 | |
Deposits and prepayments | | 924 | | Accrued salaries, wages and benefits | | 3,243 | |
Deferred income taxes | | 5,884 | | Other current liabilities | | 2,159 | |
| |
| | | |
| |
Total current assets | | $ | 62,239 | | Total current liabilities | | $ | 33,190 | |
| |
|
| | | |
|
| |
| | | | | | | |
Non-current assets | | | | | | | |
Property and equipment, net | | $ | 8,055 | | Non-current liabilities | | | |
Goodwill, net | | 71,990 | | Notes payable | | $ | 1,168 | |
Other non-current assets | | 941 | | Other non-current liabilities | | 1,017 | |
| |
| | | |
| |
Total non-current assets | | $ | 80,986 | | Total non-current liabilities | | $ | 2,185 | |
| |
|
| | | |
|
| |
(3) OPERATING LEASES
We lease certain terminals, warehouses, vehicles and data processing equipment under long-term lease agreements that expire in various years through 2010.
The following is a schedule of future minimum rental payments on leases that had initial or remaining non-cancelable lease terms in excess of one year at December 31, 2002.
| | | |
|
|
| |
Year | | Payments | |
|
|
| |
2003 | | $ | 20,497 | |
2004 | | 17,988 | |
2005 | | 11,824 | |
2006 | | 6,251 | |
2007 | | 3,581 | |
Subsequent years | | 6,889 | |
| |
| |
| | $ | 67,030 | |
| |
|
| |
Rental expense in our accompanying consolidated statements of operations for 2002, 2001, and 2000 was $29,406, $30,257 and $29,400, respectively.
32 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(4) LONG-TERM DEBT
Long-term debt consists of the following:
| | | | | |
|
|
|
|
| |
| | 2002 | | 2001 | |
|
|
|
|
| |
Unsecured notes (a) | | $ | 250,000 | | $ | 250,000 | |
Unsecured lines of credit (b) | | — | | — | |
Other | | 2,496 | | 3,538 | |
| |
|
|
| |
| | 252,496 | | 253,538 | |
Less current maturities | | 367 | | 1,023 | |
| |
|
|
| |
| | $ | 252,129 | | $ | 252,515 | |
| |
|
|
|
|
| |
(a) | We issued guaranteed unsecured notes of $150,000 on April 25, 2000 that are due April 15, 2010 and bear interest at 8½%. The notes are redeemable in whole or part any time before maturity and have no sinking-fund requirements. We also issued guaranteed unsecured notes of $100,000 on May 1, 1999 that are due May 1, 2009 and bear interest at 6½ %. The notes are redeemable in whole or part any time before maturity and have no sinking-fund requirements. Based upon our incremental borrowing rates for similar types of borrowing arrangements, the fair value of the notes at December 31, 2002 was approximately $282,000. Our guaranteed notes are fully and unconditionally guaranteed, on a joint and several basis, on an unsecured senior basis, by substantially all of our direct and indirect domestic subsidiaries (the “Subsidiary Guarantors”). All of the assets were owned by the Subsidiary Guarantors and substantially all of our operations were conducted by the Subsidiary Guarantors. Accordingly, the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors were substantially equivalent to the assets, liabilities, earnings and equity shown in our consolidated financial statements. Our subsidiaries, other than the Subsidiary Guarantors, are minor. There are no restrictions on our ability to obtain funds from our subsidiaries by dividend or loan. We, therefore, are not required to present separate financial statements of our Subsidiary Guarantors, and other disclosures relating to them. On January 31, 2000, we filed a Form S-3 shelf registration statement that allowed for the sale of up to $400,000 in additional guaranteed notes. As of December 31, 2002 $250,000 of notes may be issued under this shelf registration statement. |
(b) | We have a $200,000 revolving credit facility through a syndicate of commercial banks. In October 2002, we replaced our $200,000 credit facility that was to expire in November 2002 with a $200,000 credit facility that expires in October of 2005. The facility allows up to $125,000 for standby letters of credit to cover our self-insurance program, and has optional pricing of interest rates, including LIBOR or Prime based rates. The facility has an annual fee and contains customary financial covenants including maintenance of minimum net worth and funded debt to cash flow. During 2002, we had no drawings on either credit facility. At December 31, 2002, we had no borrowings and had approximately $70,000 outstanding letters of credit under this facility. In addition to our revolving credit facility, we maintain three uncommitted lines of credit, which provide $40,000 short-term funds at rates approximating LIBOR. These facilities are used in conjunction with a centralized cash management system to finance our short-term working capital needs thereby enabling us to maintain minimal cash balances. At December 31, 2002, we had no borrowings under these uncommitted facilities. |
The aggregate annual maturities of our debt at December 31, 2002 were as follows:
| | | |
|
|
| |
Year | | Amount | |
|
|
| |
2003 | | $ | 367 | |
2004 | | 307 | |
2005 | | 1,822 | |
2006 | | — | |
2007 | | — | |
Subsequent years | | 250,000 | |
| |
| |
| | $ | 252,496 | |
| |
|
| |
2002 ANNUAL REPORT | 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(5) INCOME TAXES
A reconciliation of the statutory Federal income tax rate with our effective income tax rate from continuing operations is as follows:
| | | | | | | |
|
|
|
|
|
|
| |
Year | | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Federal income tax at statutory rate (35%) | | $ | 21,697 | | $ | 29,453 | | $ | 56,453 | |
State income tax, net of federal tax benefit | | 2,861 | | 2,214 | | 6,984 | |
Asia exit costs | | 3,500 | | — | | — | |
Goodwill amortization | | — | | 784 | | 961 | |
Other | | 666 | | 623 | | 564 | |
| |
|
|
|
|
| |
Total income tax expense | | $ | 28,724 | | $ | 33,074 | | $ | 64,962 | |
| |
|
|
|
|
|
|
|
| |
The components of our provision for income taxes are as follows:
| | | | | | | |
|
|
|
|
|
|
| |
Year | | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Current expense: | | | | | | | |
Federal | | $ | 25,163 | | $ | 28,598 | | $ | 42,955 | |
State | | 4,793 | | 2,032 | | 8,077 | |
| |
|
|
|
|
| |
| | 29,956 | | 30,630 | | 51,032 | |
| |
|
|
|
|
| |
Deferred expense: | | | | | | | |
Federal | | (841 | ) | 3,381 | | 11,262 | |
State | | (391 | ) | (937 | ) | 2,668 | |
| |
|
|
|
|
| |
| | (1,232 | ) | 2,444 | | 13,930 | |
| |
|
|
|
|
| |
Total income tax expense | | $ | 28,724 | | $ | 33,074 | | $ | 64,962 | |
| |
|
|
|
|
|
|
|
| |
The following is a summary of the components of our deferred income tax assets and liabilities at December 31, 2002 and December 31, 2001:
| | | | | |
|
|
|
|
| |
| | 2002 | | 2001 | |
|
|
|
|
| |
Deferred tax assets: | | | | | |
Deferred compensation | | $ | 5,711 | | $ | 4,713 | |
Insurance and claims | | 46,951 | | 41,309 | |
Vacation pay | | 11,178 | | 10,451 | |
Tax loss carry forwards | | 15,700 | | — | |
Other | | 4,111 | | 2,540 | |
| |
|
|
| |
| | 83,651 | | 59,013 | |
| |
|
|
| |
Deferred tax liabilities: | | | | | |
Property and equipment, principally due to accelerated depreciation | | $ | 130,429 | | $ | 122,723 | |
| |
|
|
|
|
| |
Net deferred tax liabilities | | $ | 46,778 | | $ | 63,710 | |
| |
|
|
|
|
| |
Goodwill is no longer a reconciling item with respect to our effective income tax rate due to the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets.” Our deferred tax assets included tax loss carry forwards, which expire in 2022.
34 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(6) EMPLOYEE BENEFIT PLANS
We maintain a salary deferral 401(k) plan covering substantially all of our 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 2002, 2001 and 2000, our contributions for these plans were $11,623, $11,207 and $10,625, respectively. We do not offer post-employment or post-retirement benefits.
We contribute to several union-sponsored multi-employer pension plans. These plans are not administered by us, 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 us or upon termination of the pension plans. To date, no withdrawal or termination has occurred or is contemplated. For 2002, 2001 and 2000, our contributions to these pension plans were $87,894, $82,914 and $84,269, respectively.
We maintain a non-qualified deferred compensation plan for the benefit of a select group of our management. The purpose of the plan is to enhance our ability to attract and retain qualified management personnel by providing an opportunity to defer a portion of their compensation that cannot be deferred under our 401(k) plan. We also maintain a supplemental executive retirement plan (defined contribution) to provide benefits to a select group of our management who contribute significantly to our continued growth, development and future business. In 2002, 2001 and 2000, we contributed $1,579, $1,625 and $1,560, respectively, to this plan. We have established a grantor trust (Rabbi Trust) to provide funding for benefits payable under our deferred compensation and supplemental executive retirement plans.
(7) COMMON STOCK
We maintain two employee stock purchase plans, which provide for the purchase of an aggregate of not more than 1,225,000 shares of our 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 a discount of the month-end market price. At December 31, 2002, 952,617 shares had been issued under these plans.
We maintain 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 5,235,000 shares of our common stock. Stock options issued under these plans are exercisable for periods up to ten years from the date an option is granted. At December 31, 2002 there were 120,283 shares available for granting under the plans.
In 2002, 2001 and 2000, we issued 303,377, 796,260 and 337,002 common shares, respectively, through the exercise of stock options or the purchase, by employees, through our stock option and stock purchase programs. In 2000, we repurchased, under two board authorized repurchase programs, 954,200 common shares in the open market for approximately $22,900. These repurchased shares were included under the caption “Treasury Stock” on our balance sheet. The repurchased shares are the first shares to be used in our employee stock purchase plans or when employees exercise stock options. The repurchased shares are recorded at cost and when issued for employee stock purchase plan allocations or when employees exercise stock options the value of treasury stock is reduced at the average cost per share of all shares currently available in the Treasury stock account. If allocations under the employee stock purchase plans or employee stock option exercises (on a per share price basis) exceeds the current treasury stock average price per share, the excess is recorded as paid in capital.
We estimated the fair value of each option on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for 2002, 2001 and 2000: dividend yield ranging from 1.14% to 1.19%; expected volatility ranging from 41.20% to 110.64%; risk-free interest rates at grant date ranging from 2.56% to 7.42%; and expected lives ranging from 4.35 to 4.53 years.
2002 ANNUAL REPORT | 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
A summary of the status of our stock option plans is presented below:
| | | | | | | |
|
|
|
|
|
|
| |
Year | | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
| | Shares | | Weighted-
Average
Exercise Price | | Shares | | Weighted-
Average
Exercise Price | | Shares | | Weighted-
Average
Exercise Price | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Outstanding at beginning of year | | 2,659,113 | | $ | 28.48 | | 3,647,940 | | $ | 27.75 | | 3,276,890 | | $ | 27.92 | |
Granted | | 928,110 | | 32.45 | | 65,000 | | 30.85 | | 1,347,500 | | 25.81 | |
Exercised | | (228,721 | ) | 22.90 | | (694,827 | ) | 24.91 | | (145,666 | ) | 23.08 | |
Forfeited | | (224,616 | ) | 31.93 | | (359,000 | ) | 28.34 | | (830,784 | ) | 27.88 | |
| |
| | | |
| | | |
| | | |
Outstanding at end of year | | 3,133,886 | | 29.82 | | 2,659,113 | | 28.48 | | 3,647,940 | | 27.75 | |
| |
| | | |
| | | |
| | | |
Options exercisable at year end | | 1,424,497 | | 28.03 | | 1,122,419 | | 26.24 | | 1,248,990 | | 25.23 | |
| |
| | | |
| | | |
| | | |
Weighted-average fair value of options granted during the year | | $ | 11.81 | | | | | $ | 13.40 | | | | | $ | 12.54 | | | | |
| |
|
| | | | |
|
| | | | |
|
| | | | |
The following table summarizes information about stock options outstanding at December 31, 2002:
| | | | | |
|
|
|
|
| |
| | Outstanding Options | | Options Exercisable | |
|
|
|
|
| |
Range of
Exercise Prices | | Number
Outstanding at
12/31/02 | | Weighted-Average
Remaining
Contractual Life
(Years) | | Weighted-Average
Exercise Price | | Number
Exercisable at
12/31/02 | | Weighted-Average
Exercise Price | |
|
|
|
|
|
|
|
|
|
|
| |
$19.63–24.94 | | 1,258,493 | | 6.00 | | $ 24.01 | | 819,996 | | $ 23.73 | |
25.88–27.69 | | 370,000 | | 7.40 | | 26.41 | | 196,334 | | 26.17 | |
28.92–37.75 | | 1,094,893 | | 8.62 | | 32.40 | | 201,993 | | 31.47 | |
42.88–46.63 | | 410,500 | | 6.77 | | 43.81 | | 206,174 | | 43.56 | |
| |
| | | | | |
| | | |
| | 3,133,886 | | 7.18 | | 29.82 | | 1,424,497 | | 28.03 | |
| |
| |
| |
| |
| |
| |
We have a stockholder rights plan designed to deter coercive takeover tactics and to prevent an acquiror from gaining control without offering a fair price to all of our stockholders. In the event of a non-permitted transaction, we would declare a distribution of one right for each share of common stock outstanding to our stockholders and generally to shares issuable under our stock option plans. In the event of a proposed takeover meeting certain 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 our common stock. This would have the effect of significantly diluting the holdings of the takeover bidder. These rights expire on February 3, 2004.
36 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(8) GOODWILL AND OTHER INTANGIBLE ASSETS
Under SFAS No. 142 “Goodwill and Other Intangible Assets,” previously recorded goodwill and other intangible assets with indefinite lives are no longer amortized but are subject to impairment tests annually. In 2001, we amortized $4,207 of goodwill. As a result of implementing this new standard on January 1, 2002 we no longer amortize goodwill and recorded an impairment charge of $70,022 at USF Worldwide, our discontinued freight forwarding segment. The charge was shown as a cumulative effect of change in accounting for goodwill in the first quarter of 2002. Goodwill was not impaired under SFAS No. 121 which was effective through December 31, 2001. Goodwill and other intangible assets consist of the following:
| | | | | | | |
|
|
|
|
|
|
| |
| | | | 2002 | | 2001 | |
|
|
|
|
|
|
| |
| | Average
Life (Yrs) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization | |
|
|
|
|
|
|
|
|
|
|
| |
Amortized intangible assets: | | | | | | | | | | | |
Customer lists | | 5 | | $ | 6,073 | | $ | (5,078 | ) | $ | 6,073 | | $ | (3,869 | ) |
Non-competes | | 5 | | 5,156 | | (5,156 | ) | 5,156 | | (5,130 | ) |
| | | |
|
|
|
|
|
|
| |
Total | | | | $ | 11,229 | | $ | (10,234 | ) | $ | 11,229 | | $ | (8,999 | ) |
| | | |
|
|
|
|
|
|
|
|
|
|
| |
Intangible assets not subject to amortization: | | | | | | | | | | | |
Goodwill | | | | $ | 100,504 | | $ | — | | $ | 134,659 | | $ | (34,155 | ) |
| | | |
|
|
|
|
|
|
|
|
|
|
| |
Aggregate amortization expense for the year ended December 31, 2002 | | | | $ | 1,235 | | | | | | | |
| | | |
|
| | | | | | | |
We estimate that our amortization expense for 2003 will be $995.
There were no changes in the carrying amount of goodwill in 2002. The balances by operating segment as of December 31, 2002 were as follows:
| | | | | | | | | |
|
|
|
|
|
|
|
|
| |
| | LTL | | TL | | Logistics | | Total | |
|
|
|
|
|
|
|
|
| |
Balance as of December 31, 2002 | | $ | 57,273 | | $ | 10,574 | | $ | 32,657 | | $ | 100,504 | |
| | | | | | | | | | | | | |
The following table adjusts earnings and earnings per share for the adoption of SFAS No. 142:
| | | | | | | |
|
|
|
|
|
|
| |
| | 2002 | | 2001 | | 2000 | |
|
|
|
|
|
|
| |
Income from continuing operations before cumulative effect of accounting change | | $ | 33,268 | | $ | 49,977 | | $ | 98,041 | |
Add back goodwill amortization, net of tax | | — | | 4,207 | | 3,396 | |
| |
|
|
|
|
| |
Adjusted income from continuing operations before cumulative effect of accounting change | | $ | 33,268 | | $ | 54,184 | | $ | 101,437 | |
| |
|
|
|
|
|
|
|
| |
| | | | | | | |
Basic earnings per share: | | | | | | | |
Reported basic EPS from continuing operations before cumulative effect of accounting change | | $ | 1.23 | | $ | 1.90 | | $ | 3.72 | |
Add back goodwill amortization, net of tax | | — | | 0.16 | | 0.13 | |
| |
|
|
|
|
| |
Adjusted basic EPS from continuing operations before cumulative effect of accounting change | | $ | 1.23 | | $ | 2.06 | | $ | 3.85 | |
| |
|
|
|
|
|
|
|
| |
| | | | | | | |
Diluted earnings per share: | | | | | | | |
Reported diluted EPS from continuing operations before cumulative effect of accounting change | | $ | 1.22 | | $ | 1.87 | | $ | 3.65 | |
Add back goodwill amortization, net of tax | | — | | 0.16 | | 0.13 | |
| |
|
|
|
|
| |
Adjusted diluted EPS from continuing operations before cumulative effect of accounting change | | $ | 1.22 | | $ | 2.03 | | $ | 3.78 | |
| |
|
|
|
|
|
|
|
| |
Weighted-average shares: | | | | | | | |
Basic | | 26,900,311 | | 26,309,107 | | 26,337,734 | |
Diluted | | | 27,331,890 | | | 26,765,861 | | | 26,828,046 | |
2002 ANNUAL REPORT | 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
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| | 2002 | | 2001 | | 2000 | |
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|
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| |
Net (loss)/income | | $ | (66,971 | ) | $ | 38,388 | | $ | 96,798 | |
Add back goodwill amortization, net of tax | | — | | 6,478 | | 5,433 | |
| |
|
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Adjusted net (loss)/income | | $ | (66,971 | ) | $ | 44,866 | | $ | 102,231 | |
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| | | | | | | |
Basic earnings per share: | | | | | | | |
Reported basic EPS from net (loss)/income | | $ | (2.49 | ) | $ | 1.46 | | $ | 3.68 | |
Add back goodwill amortization, net of tax | | — | | 0.25 | | 0.21 | |
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| |
Adjusted basic EPS from net (loss)/income | | $ | (2.49 | ) | $ | 1.71 | | $ | 3.89 | |
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Diluted earnings per share: | | | | | | | |
Reported diluted EPS from net (loss)/income | | $ | (2.45 | ) | $ | 1.43 | | $ | 3.61 | |
Add back goodwill amortization, net of tax | | — | | 0.24 | | 0.20 | |
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Adjusted diluted EPS from continuing operations | | $ | (2.45 | ) | $ | 1.67 | | $ | 3.81 | |
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| | | | | | | |
Weighted-average shares: | | | | | | | |
Basic | | 26,900,311 | | 26,309,107 | | 26,337,734 | |
Diluted | | | 27,331,890 | | | 26,765,861 | | | 26,828,046 | |
(9) COMMITMENTS AND CONTINGENCIES
We are 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 is $55,174 and $72,744, respectively, in 2002 and $47,742 and $65,449, respectively, in 2001 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. We believe the outcome of these matters is not expected to have any material adverse effect on our consolidated financial position or results of our operations and have been adequately provided for in our financial statements.
At December 31, 2002, we had capital purchase commitments of approximately $3,973 for land and improvements, $3,470 for transportation equipment, and $12,505 for other information technology related projects.
We use underground storage tanks at certain terminal facilities and maintain a comprehensive policy of testing, upgrading, replacing or eliminating these tanks to protect the environment and comply with various Federal and state laws. We take prompt remedial action whenever any contamination is detected.
(10) RELATED PARTIES
William N. Weaver, Jr., one of our directors, is a member of the law firm of Sachnoff & Weaver, Ltd. an Illinois professional corporation. Sachnoff & Weaver, Ltd. has acted and continues to act as outside counsel to us with regard to certain matters. We believe that the legal fees billed to us for these services were at market rates. We paid $725, $379 and $553 in 2002, 2001 and 2000 respectively, to Sachnoff & Weaver, Ltd.
Anthony J. Paoni, one of our directors, is a member of DiamondCluster International, Inc., an Illinois corporation. DiamondCluster International, Inc. has acted as a consultant to us with regard to certain matters. We believe that the consulting fees billed to us for these services were at market rates. We paid $690 for consulting fees in 2001 to DiamondCluster.
(11) ACQUISITIONS
During 2000, we acquired Tri-Star Corporation, Inc., a Tennessee-based truckload carrier. Total consideration for this acquisition was approximately $17,000 of cash and debt incurred.
38 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(12) BUSINESS SEGMENTS
We have four reportable business segments: (1) five regional LTL trucking companies, (2) TL trucking, (3) Logistics and (4) Corporate and Other. Our regional LTL trucking segment provides overnight and second-day delivery of general commodities throughout the US and into Canada. Our TL subsidiary provides premium regional and national TL services. Our logistics subsidiaries provide solutions to customers’ logistics and distribution requirements and domestic ocean freight services. The Corporate and Other segment performs support activities to our operating segments including executive, information technology, corporate sales and various financial management functions. Our reportable business segments are managed separately because each business has different customer requirements and service offerings.
The accounting policies of our segments are the same as those described in the summary of significant accounting policies. Intangible assets are included in each segment’s reportable assets, but the amortization of these intangible assets is not included in the determination of a segment’s operating profit or loss. We evaluate performance based on profit or loss from operations before income taxes, interest, amortization of intangibles and other non-operating income (expenses).
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Year | | 2002 | | 2001 | | 2000 | |
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Revenue | | | | | | | |
LTL: | | | | | | | |
Holland | | $ | 960,392 | | $ | 937,150 | | $ | 1,001,250 | |
Reddaway | | 274,368 | | 266,206 | | 276,915 | |
Red Star | | 264,279 | | 255,722 | | 275,841 | |
Dugan | | 216,256 | | 206,660 | | 204,481 | |
Bestway | | 151,597 | | 150,466 | | 155,188 | |
| |
|
|
|
|
| |
Total LTL | | 1,866,892 | | 1,816,204 | | 1,913,675 | |
TL | | 114,151 | | 100,439 | | 86,317 | |
Logistics | | 278,161 | | 277,393 | | 276,958 | |
Asia Operations | | — | | 26,938 | | 11,663 | |
Intercompany eliminations | | (8,678 | ) | — | | — | |
Corporate and Other | | — | | — | | — | |
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| |
Total Revenue from Continuing Operations | | $ | 2,250,526 | | $ | 2,220,974 | | $ | 2,288,613 | |
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Year | | 2002 | | 2001 | | 2000 | |
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| |
Income From Operations | | | | | | | |
LTL: | | | | | | | |
Holland | | $ | 71,768 | | $ | 75,000 | | $ | 109,485 | |
Reddaway | | 29,500 | | 24,855 | | 33,483 | |
Red Star | | (6,728 | ) | (3,422 | ) | 8,905 | |
Dugan | | 1,301 | | 4,619 | | 10,554 | |
Bestway | | 9,331 | | 7,568 | | 14,193 | |
| |
|
|
|
|
| |
Total LTL | | 105,172 | | 108,620 | | 176,620 | |
TL | | 5,311 | | 2,887 | | 4,671 | |
Logistics | | 12,603 | | 11,185 | | 16,680 | |
Asia Operations | | — | | (2,811 | ) | (3,757 | ) |
Freight Forwarding—Asia exit costs | | (12,760 | ) | — | | — | |
Corporate and Other | | (28,237 | ) | (11,099 | ) | (6,735 | ) |
Amortization of intangibles | | (1,235 | ) | (5,446 | ) | (4,806 | ) |
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| |
Total Income from Operations | | $ | 80,854 | | $ | 103,336 | | $ | 182,673 | |
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2002 ANNUAL REPORT | 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
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Year | | 2002 | | 2001 | | 2000 | |
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Assets | | | | | | | |
LTL: | | | | | | | |
Holland | | $ | 431,607 | | $ | 424,054 | | $ | 462,469 | |
Reddaway | | 152,825 | | 141,139 | | 151,509 | |
Red Star | | 151,748 | | 152,730 | | 159,331 | |
Dugan | | 106,138 | | 93,217 | | 97,832 | |
Bestway | | 109,991 | | 96,111 | | 93,344 | |
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Total LTL | | 952,309 | | 907,251 | | 964,485 | |
TL | | 87,336 | | 77,426 | | 83,287 | |
Logistics | | 154,153 | | 151,223 | | 143,684 | |
Asia Operations | | — | | 8,262 | | 2,812 | |
Corporate and Other | | 101,473 | | 91,277 | | 14,977 | |
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Total Assets (Excludes Discontinued Operations) | | $ | 1,295,271 | | $ | 1,235,439 | | $ | 1,209,245 | |
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Long-Lived Asset Expenditures | | | | | | | |
LTL: | | | | | | | |
Holland | | $ | 33,001 | | $ | 14,577 | | $ | 71,643 | |
Reddaway | | 21,871 | | 10,682 | | 24,613 | |
Red Star | | 5,849 | | 10,177 | | 15,489 | |
Dugan | | 20,530 | | 4,415 | | 8,826 | |
Bestway | | 18,082 | | 13,111 | | 15,935 | |
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|
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Total LTL | | 99,333 | | 52,962 | | 136,506 | |
TL | | 18,194 | | 6,152 | | 25,125 | |
Logistics | | 15,324 | | 23,764 | | 23,807 | |
Asia Operations | | — | | — | | — | |
Corporate and Other | | 8,471 | | 6,617 | | 4,660 | |
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Total Long-Lived Asset Expenditures | | $ | 141,322 | | $ | 89,495 | | $ | 190,098 | |
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Year | | 2002 | | 2001 | | 2000 | |
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Depreciation Expense | | | | | | | |
LTL: | | | | | | | |
Holland | | $ | 33,509 | | $ | 37,383 | | $ | 43,021 | |
Reddaway | | 12,482 | | 12,523 | | 12,710 | |
Red Star | | 10,243 | | 10,599 | | 10,095 | |
Dugan | | 9,870 | | 10,064 | | 11,402 | |
Bestway | | 6,622 | | 6,358 | | 6,199 | |
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Total LTL | | 72,726 | | 76,927 | | 83,427 | |
TL | | 10,900 | | 9,524 | | 7,698 | |
Logistics | | 12,208 | | 11,581 | | 10,817 | |
Asia Operations | | — | | — | | — | |
Corporate and Other | | 4,039 | | 2,532 | | 1,149 | |
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Total Depreciation Expense | | $ | 99,873 | | $ | 100,564 | | $ | 103,091 | |
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40 | USFREIGHTWAYS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Thousands of dollars, except share and per share amounts)
(13) QUARTERLY FINANCIAL INFORMATION (unaudited)
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Quarters | | First | | Second | | Third | | Fourth | | Total | |
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2002 | | | | | | | | | | | |
Revenue | | $ | 520,165 | | $ | 571,187 | | $ | 578,485 | | $ | 580,689 | | $ | 2,250,526 | |
Income/(Loss) from Continuing Operations | | (6,801 | ) | 12,981 | | 13,446 | | 13,642 | | 33,268 | |
Net income/(loss) | | (77,685 | ) | 5,940 | | 5,319 | | (545 | ) | (66,971 | ) |
Net income/(loss) per share—basic | | (2.89 | ) | 0.22 | | 0.20 | | (0.02 | ) | (2.49 | ) |
Net income/(loss) per share—diluted | | (2.84 | ) | 0.22 | | 0.19 | | (0.02 | ) | (2.45 | ) |
Dividends declared per share | | 0.0933 | | 0.0933 | | 0.0933 | | 0.0933 | | 0.3733 | |
| | | | | | | | | | | |
2001 | | | | | | | | | | | |
Revenue | | $ | 559,248 | | $ | 563,612 | | $ | 560,840 | | $ | 537,274 | | $ | 2,220,974 | |
Income from Continuing Operations | | 10,463 | | 13,233 | | 15,532 | | 10,749 | | 49,977 | |
Net income | | 8,451 | | 11,423 | | 9,731 | | 8,783 | | 38,388 | |
Net income per share—basic | | 0.32 | | 0.44 | | 0.37 | | 0.33 | | 1.46 | |
Net income per share—diluted | | 0.31 | | 0.43 | | 0.36 | | 0.33 | | 1.43 | |
Dividends declared per share | | | 0.0933 | | | 0.0933 | | | 0.0933 | | | 0.0933 | | | 0.3733 | |
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(14) SUBSEQUENT EVENTS
Teamsters’ Agreement
Approximately 44% of all our employees are members of unions. Approximately 89% of these union workers are employed by Holland or Red Star and belong to the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America (“IBT”). Members of the IBT at Holland and Red Star are presently working under the terms of a five-year, industry-wide labor agreement that expires at the end of March 2003. A new five-year agreement between the IBT and Holland was announced on February 6, 2003. The agreement is subject to ratification by the IBT members. Red Star, separately, signed a “Me too” agreement that basically entitles its IBT members to the benefits under the agreement between Holland and the IBT.
Change in Method of Accounting for Revenue and Expense Recognition
Effective January 1, 2003, we changed our method of accounting for revenue and expense recognition for our LTL and TL segments. Under the new accounting method, we recognize revenue for LTL and TL operations by the allocation of revenue between reporting periods based on the relative transit time in each reporting period with expenses recognized as incurred. This change in the method of accounting was made to recognize the increase in our average length of haul of freight, which resulted from our implementation of new marketing strategies. We believe that the new method of recognizing revenue and expense is preferable. The cumulative effect of the change in accounting principle on prior years will result in an after-tax charge to income of approximately $1,500 (net of income taxes of $1,000) in the first quarter of 2003.
Repurchase of Common Stock
During February 2003, we repurchased approximately 14,000 of our shares under a repurchase program authorized in 2000 by our Board of Directors. The average repurchase price was approximately $24 per share. At March 17, 2003, we had authorization to purchase an additional 532,000 shares.
ITEM 9— CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Effective May 29, 2002, based on the recommendation of our Audit Committee and with the approval of our Board of Directors, we dismissed Arthur Andersen LLP as our independent auditors and engaged Deloitte & Touche LLP as our new independent auditors.
In 2001 and 2000, Arthur Andersen LLP’s report on our financial statements did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles.
2002 ANNUAL REPORT | 41
During our last two years, there were no disagreements with Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused them to make reference to the subject matter of the disagreement in connection with their reports.
None of the reportable events described under Item 304 (a) (1) (v) of Regulation S-K occurred within two years or within the interim period through May 29, 2002.
We have a letter from Arthur Andersen LLP stating its agreement with the statements made by us in our Report on Form 8-K announcing the change in auditors.
During the two years and the subsequent interim period through May 29, 2002, neither us or anyone on our behalf has consulted with Deloitte & Touche LLP regarding any of the matters or events set forth in Item 304 (a) (2) (i) and (ii) of Regulation S-K.
PART III
ITEM 10— DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for directors is reported in our definitive proxy statement filed pursuant to Regulation 14A, and is incorporated by reference. The following table sets forth certain information as of December 31, 2002 concerning our executive officers:
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Name | | Age | | Position |
|
| | | | |
Samuel K. Skinner | | 64 | | Chairman of the Board, President and Chief Executive Officer |
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Christopher L. Ellis | | 57 | | Senior Vice President, Finance, Treasurer & Chief Financial Officer |
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John A. Niemzyk | | 52 | | Senior Vice President & Chief Information Officer |
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Douglas R. Waggoner | | 44 | | Senior Vice President, Strategic Marketing |
Samuel K. Skinner, 64, was appointed as our President and Chief Executive Officer on July 17, 2000 and our Chairman of the Board on January 1, 2001. He has been a director of USFreightways since December 1999. From October 1, 1998 to July 15, 2000, Mr. Skinner was a partner and Co-Chairman of the law firm of Hopkins & Sutter. From February 1, 1993 to April 1, 1998, he was President and a director of Commonwealth Edison Company and its parent company Unicom Corporation. Prior thereto, he served as Chief of Staff to the President of the United States. Before his White House service, Mr. Skinner served as US Secretary of Transportation for nearly three years. Before February 1989, he was a Senior Partner of the law firm of Sidley & Austin, where he served on the firm’s Executive Committee.
Christopher L. Ellis, 57, has been our Senior Vice President, Finance, Treasurer and Chief Financial Officer since June 1991. Mr. Ellis has over 20 years of experience in the transportation industry.
John A. Niemzyk, 52, was appointed as our Senior Vice President and Chief Information Officer on January 8, 2001. Mr. Niemzyk has 25 years of experience in information technology in both manufacturing and distribution industries. Before joining USF, Mr. Niemzyk was Vice President, Information Technology for Baxter International’s Renal Division. From 1998 to 2000, Mr. Niemzyk was Vice President, Information Technology and Chief Information Officer for Favorite Brands International, Inc. From 1991 until 1997, Mr. Niemzyk held several senior positions with Norand Corporation with his last position being Vice President, Operations & Information Technology-Chief Information Officer.
Douglas R. Waggoner, 44, was appointed as our Senior Vice President, Strategic Marketing on January 16, 2002. Mr. Waggoner has over 20 years of experience in the trucking industry. Before joining USF, Mr. Waggoner was President and Chief Operating Officer of Daylight Transport, Inc. from 1998 to 2002. Prior to that, Mr. Waggoner worked for Yellow Freight in various positions.
ITEM 11— EXECUTIVE COMPENSATION
This information is reported in our definitive proxy statement entitled “Management Compensation” and “Compensation Committee Interlocks and Insider Participation” respectively to be filed pursuant to Regulation 14A, and is incorporated by reference.
ITEM 12— SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is reported in our definitive proxy statement entitled “Security Ownership of Principal Holders and Management” and “Equity Compensation Plan Information” respectively to be filed pursuant to Regulation 14A, and is incorporated by reference.
ITEM 13— CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is reported in the Company’s definitive proxy statement entitled “Certain Relationships and Related Transactions” to be filed pursuant to Regulation 14A, and is incorporated by reference.
42 | USFREIGHTWAYS
PART IV
ITEM 14— CONTROLS AND PROCEDURES
In order to ensure information for disclosure in our filings of periodic reports with the Securities and Exchange Commission is identified, recorded, processed, summarized and reported on a timely basis, we have adopted disclosure controls and procedures. Our Chief Executive Officer, Samuel K. Skinner, and our Chief Financial Officer, Christopher L. Ellis, have reviewed and evaluated our disclosure controls and procedures as of February 28, 2003 and have concluded that our disclosure controls and procedures were adequate as of that date.
There have been no significant changes in our internal controls, which we define to include our control environment, control procedures, and accounting systems, or in other factors that could significantly affect our internal controls, since February 28, 2003.
ITEM 15— EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
(2) Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts
USFreightways Corporation
Three Years ended December 31, 2002
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| | Additions | |
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Description | | Balance at
Beginning
of Year | | Charges to
Costs and
Expenses | | Charged to
Other
Accounts | | Deductions (1) | | Balance
at End
of Year | |
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| | (Dollars in thousands) | |
Year ended December 31, 2000 | | | | | | | | | | | |
Accounts receivable allowances for revenue adjustments and doubtful accounts | | $ | 8,911 | | $ | 6,176 | | $ | 0 | | $ | 5,833 | | $ | 9,254 | |
Year ended December 31, 2001 | | | | | | | | | | | |
Accounts receivable allowances for revenue adjustments and doubtful accounts | | $ | 9,254 | | $ | 7,941 | | $ | 0 | | $ | 5,589 | | $ | 11,606 | |
Year ended December 31, 2002 | | | | | | | | | | | |
Accounts receivable allowances for revenue adjustments and doubtful accounts | | $ | 11,606 | | $ | 9,373 | | $ | 0 | | $ | 7,393 | | $ | 13,586 | |
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(1) Primarily uncollectible accounts written off net of recoveries
(3) Exhibits
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Exhibit
Number | Document Description |
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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); 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 Quarterly Report on Form 10-Q for the quarter ended June 29, 1996). |
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3(b) | Bylaws of USFreightways Corporation, as restated as of October 16, 2002 (filed with this Annual Report on Form 10-K). |
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4(a) | Indenture, dated as of May 5, 1999 among USFreightways Corporation, the Guarantors named therein and Bank One, Michigan, as Trustee (as the successor-in-interest to NBD Bank) (incorporated by reference from Exhibit 4.1 to USFreightways Corporation Current Report on Form 8-K, filed on May 11, 1999). |
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4(b) | First Supplemental Indenture, dated as of January 31, 2000 among USFreightways Corporation, the Guarantors named therein and Bank One, Michigan, as Trustee (as the successor-in-interest to NBD Bank) (incorporated byreference from Exhibit to USFreightways Corporation Registration Statement on Form S-3, filed on January 31, 2000, Registration No. 333-95777). |
2002 ANNUAL REPORT | 43
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Exhibit
Number | Document Description |
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10(a) | 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). |
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10(c) | Stock Option Plan for Non-Employee Directors amended and restated as of April 28, 2000 (incorporated by reference from Exhibit 10(c) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 2000). |
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10(d) | 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). |
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10(e) | 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). |
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10(f) | USFreightways Long-Term Incentive Plan amended and restated as of April 30, 1999 (incorporated by reference from Exhibit 10(j) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 1999). |
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10(h) | $200,000,000 Credit Agreement dated as of October 24, 2002 among USFreightways Corporation, the banks named therein and Harris Trust and Savings Bank, as administrative agent (filed with this Annual Report on Form 10-K). |
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10(i) | Form of Irrevocable Guaranty and Indemnity relating to the Credit Agreement described in Exhibit 10(m) (incorporated by reference from Exhibit 10(l) to USFreightways Corporation Annual Report on Form 10-K for the year ended January 3, 1998). |
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10(k) | USFreightways Corporation Non-Qualified Deferred Compensation Plan (incorporated by reference from Exhibit 10(q) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 1998). |
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10(l) | Employment Agreement of Samuel K. Skinner dated as of June 5, 2000 (incorporated by reference from Exhibit 10.1 to USFreightways Corporation Quarterly Report on Form 10-Q for the quarter ended July 1, 2000). |
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10(m) | 6 1/2% Guaranteed Note due May 1, 2009 (incorporated by reference from Exhibit 4.2 to USFreightways Corporation Current Report on Form 8-K, filed on May 11, 1999). |
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10(n) | 8 1/2% Guaranteed Note due on April 15, 2010 (incorporated by reference from Exhibit 4.1 to USFreightways Corporation Current Report on Form 8-K, filed on April 26, 2000). |
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10(o) | Consulting Agreement and Release of John Campbell Carruth dated as of October 27, 2000 (incorporated by reference from Exhibit 10(o) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 2000). |
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10(p) | USFreightways Corporation Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10(p) to USFreightways Corporation Annual Report on Form 10-K for the year ended December 31, 2000). |
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21 | Subsidiaries of USFreightways Corporation (filed with this Annual Report on Form 10-K). |
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23 | Consent of Deloitte & Touche LLP. |
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24 | Power of Attorney. |
Exhibits 2, 9, 11, 12, 16, 17, 18 and 22 are not applicable to this filing.
44 | USFREIGHTWAYS
(b) Reports on Form 8-K
1. On October 18, 2002, the Company filed a Current Report on Form 8-K announcing that GPS Logistics, Inc. and Seko Worldwide Acquisition LLC had agreed to acquire the Company’s freight forwarding units, USF Worldwide Inc. and USF Worldwide Logistics (UK) Ltd.
2. On November 12, 2002, the Company filed a Current Report on Form 8-K announcing the completion of the transfer of its freight forwarding units, USF Worldwide Inc. and USF Worldwide Logistics (UK) Ltd. to GPS Logistics, Inc. and Seko Worldwide Acquisition LLC. Pro Forma financial statements were filed with this Form 8-K.
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, in the City of Chicago, State of Illinois, on the 17th day of March, 2002.
| | USFreightways Corporation |
| | By: |
/s/ CHRISTOPHER L. ELLIS
|
| | |
|
| | | Christopher L. Ellis
Senior Vice President, Finance, Treasurer
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/ SAMUEL K. SKINNER* | | Chairman of the Board, President and Chief Executive Officer and Director (Principal Executive Officer) | | March 17, 2003 |
|
Samuel K. Skinner |
| | | | |
/s/ MORLEY KOFFMAN* | | Director | | March 17, 2003 |
|
Morley Koffman |
| | | | |
/s/ WILLIAM N. WEAVER, JR.* | | Director | | March 17, 2003 |
|
William N. Weaver, Jr. |
| | | | |
/s/ NEIL A. SPRINGER* | | Director | | March 17, 2003 |
|
Neil A. Springer |
| | | | |
/s/ STEPHEN B. TIMBERS* | | Director | | March 17, 2003 |
|
Stephen B. Timbers |
| | | | |
/s/ PAUL J. LISKA* | | Director | | March 17, 2003 |
|
Paul J. Liska |
| | | | |
/s/ ROBERT V. DELANEY* | | Director | | March 17, 2003 |
|
Robert V. Delaney |
| | | | |
/s/ JOHN W. PUTH* | | Director | | March 17, 2003 |
|
John W. Puth |
| | | | |
/s/ ANTHONY J. PAONI* | | Director | | March 17, 2003 |
|
Anthony J. Paoni |
| | | | |
/s/ CHRISTOPHER L. ELLIS | | Chief Financial Officer (Principal Financial Officer) | | March 17, 2003 |
|
Christopher L. Ellis |
| | | | |
/s/ ROBERT S. OWEN | | Controller (Principal Accounting Officer) | | March 17, 2003 |
|
Robert S. Owen |
| | | | |
/s/ CHRISTOPHER L. ELLIS | | | | |
|
*By: Christopher L. Ellis
Attorney-in-Fact |
2002 ANNUAL REPORT | 45
CERTIFICATIONS
I, Samuel K. Skinner, certify that:
1. I have reviewed this annual report on Form 10-K of USFreightways Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
| | | |
| | |
/s/ SAMUEL K. SKINNER
|
| | |
|
| | | Samuel K. Skinner
Chairman of the Board,
President and CEO |
46 | USFREIGHTWAYS
CERTIFICATIONS
I, Christopher L. Ellis, certify that:
1. I have reviewed this annual report on Form 10-K of USFreightways Corporation;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 17, 2003
| | | |
| | |
/s/ CHRISTOPHER L. ELLIS
|
| | |
|
| | | Christopher L. Ellis
Senior Vice President, Finance, Treasurer
and Chief Financial Officer |
2002 ANNUAL REPORT | 47
