SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
---------------
Commission File Number 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
8550 W. Bryn Mawr Ave., Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (773) 824-1000
Not applicable
(Former name or former address, if changed since the last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 7, 2001, 26,262,153 shares of common stock were outstanding.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USFreightways Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
March 31, December 31,
2001 2000
- -----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 9,325 $ 5,248
Accounts receivable, net 321,849 323,517
Other 74,611 67,596
----------------- -------------------
Total current assets 405,785 396,361
----------------- -------------------
Net property and equipment 737,376 750,485
Net intangible assets 179,988 181,978
Other assets 21,602 22,250
----------------- -------------------
Total assets $ 1,344,751 $ 1,351,074
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current bank debt $ 2,247 $ 28,991
Accounts payable 80,716 90,741
Other current liabilities 191,379 172,443
----------------- ------------------
Total current liabilities 274,342 292,175
----------------- ------------------
Long-term liabilities:
Long-term bank debt 4,567 10,137
Notes payable 250,000 250,000
Other long-term liabilities 164,512 163,047
----------------- ------------------
Total long-term liabilities 419,079 423,184
----------------- ------------------
Minority interest 1,022 539
Common stockholders' equity 650,308 635,176
----------------- ------------------
Total liabilities and stockholders' equity $ 1,344,751 $ 1,351,074
----------------- ------------------
USFreightways Corporation
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
Three months ended
-------------------------------------
March 31, April 1,
2001 2000
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Operating revenue
LTL Trucking $ 459,019 $ 470,864
TL Trucking 24,668 19,897
Logistics 71,159 67,125
Freight Forwarding 66,547 60,804
----------------- ----------------
Total operating revenue $ 621,393 $ 618,690
Operating expenses:
LTL Trucking 434,921 432,681
TL Trucking 23,832 18,952
Logistics 68,378 62,883
Freight Forwarding 69,841 60,088
Corporate and other 4,610 3,327
----------------- ----------------
Total operating expenses 601,582 577,931
----------------- ----------------
Income from operations 19,811 40,759
----------------- ----------------
Non-operating income (expense):
Interest expense (5,580) (4,571)
Interest income 134 192
Other, net 36 493
---------------- ---------------
Total non-operating expense (5,410) (3,886)
---------------- ---------------
Net income before income taxes 14,401 36,873
Income tax expense (5,680) (14,823)
Minority interest (270) 266
----------------- ---------------
Net income $ 8,451 $ 22,316
----------------- ---------------
Average shares outstanding - basic 26,191,561 26,509,438
Average shares outstanding - diluted 26,775,002 27,456,591
Basic earnings per common share: $ 0.32 $ 0.84
Diluted earnings per common share: $ 0.32 $ 0.81
----------------- ------------------
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
Three months ended
----------------------------
March 31, April 1,
2001 2000
- --------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income $ 8,451 $ 22,316
Adjustments to net income:
Depreciation and amortization 28,256 26,519
Other items affecting cash 5,460 5,548
from operating activities
-------------- -------------
Net cash provided by operating activities 42,167 54,383
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Cash flows from investing activities:
Capital expenditures (15,667) (45,830)
Proceeds on sales 2,786 1,960
Acquisitions - (7,300)
-------------- -------------
Net cash used in investing activities (12,881) (51,170)
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Cash flows from financing activities:
Dividends paid (2,415) (2,473)
Proceeds from sale of treasury stock 9,520 1,366
Proceeds from long-term debt 10,000 40,000
Payments on long-term debt (15,570) (40,498)
Net change in short-term debt (26,744) 692
-------------- -------------
Net cash provided by (used in) financing activities (25,209) (913)
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Net increase/(decrease) in cash 4,077 2,300
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Cash at beginning of period 5,248 6,862
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Cash at end of period $ 9,325 $ 9,162
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USFreightways Corporation
Condensed Consolidated Statements of Changes in Common Stockholders' Equity
Unaudited (Dollars in thousands)
Three Months Ended
-----------------
March 31, April 1,
2001 2000
Balance as of December 31 2000 and 1999 respectively $ 635,176 $ 558,859
Net income 8,451 22,316
Foreign currency translation adjustments (389) -
-------- -------
Comprehensive income $ 8,062 $ 22,316
Proceeds from sale of treasury stock 9,520 1,366
Dividends declared ( 2,450) ( 2,475)
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Balance as of March 31, 2001 and April 1, 2000 $ 650,308 $ 580,066
respectively ========== ==========
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
1. Summary of significant accounting policies
General -
The consolidated financial statements include the accounts of USFreightways
and its wholly owned subsidiaries (the Company). The financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The statements are unaudited but, in the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The Company's results of operations are
affected by the seasonal aspects of the trucking and air freight industries.
Therefore, operating results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2001. For further information, refer to consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 2000.
2. Earnings per share
Basic earnings per share are calculated on net income divided by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share are calculated by dividing net income by this
weighted-average number of common shares outstanding plus the shares that would
have been outstanding assuming the issuance of common shares for all dilutive
potential common shares. Unexercised stock options, calculated under the
treasury stock method, is the only reconciling item between the Company's basic
and diluted earnings per share. The number of options included in the
denominator, used to calculate diluted earnings per share are 583,441 and
947,153 for the first quarters of 2001 and 2000 respectively.
3. Debt
The Company's debt includes $100 million of unsecured guaranteed notes
due May 1, 2009 and $150 million of guaranteed notes due April 15, 2010.
On January 31, 2000, the Company filed a Form S-3 registration statement
that allowed for the sale of up to $400 million in additional guaranteed notes.
On April 25, 2000, the Company sold $150 million in 8 1/2% guaranteed notes
due April 15, 2010 as part of the $400 million Form S-3 registration statement
filed on January 31, 2000
The guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all of the Company's direct
and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is
a holding company and during the period presented substantially all of the
assets were the stock of the Subsidiary Guarantors, and substantially all of the
operations were conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
were substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. Management of the Company believes that
separate financial statements of, and other disclosures with respect to, the
Subsidiary Guarantors are not meaningful or material to investors.
4. Stock repurchases
On July 24, 2000, the Company announced the authorized buyback of up to 1
million additional shares of its common stock in either public market or private
transactions. This repurchase program is not yet completed. There have been no
shares repurchased in the first quarter of 2001. As of March 31, 2001, the
Company had repurchased 454,200 shares.
5. Segment Reporting Three Months Ended
Unaudited (dollars in thousands) Mar. 31, Apr. 1,
2001 2000
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Revenue
LTL Group:
USF Holland $ 239,320 $ 251,745
USF Reddaway 65,109 63,588
USF Red Star 64,405 66,830
USF Dugan 51,291 51,802
USF Bestway 38,894 36,899
- -------------------------------------------------------------------------------
Sub total LTL Group 459,019 470,864
Truckload - Glen Moore 24,668 19,897
Logistics subsidiaries 71,159 67,125
Freight forwarding 66,547 60,804
Corporate and other - -
- -------------------------------------------------------------------------------
Total Revenue $ 621,393 $ 618,690
Income From Operations
LTL Group:
USF Holland $ 16,750 $ 25,801
USF Reddaway 3,839 4,650
USF Red Star (584) 1,355
USF Dugan 1,724 2,712
USF Bestway 2,369 3,665
- -------------------------------------------------------------------------------
Sub total LTL Group 24,098 38,183
Truckload - Glen Moore 836 945
Logistics subsidiaries 2,781 4,242
Freight forwarding (3,294) 716
Corporate and other (2,873) (1,658)
Amortization of intangibles (1,737) (1,669)
- -------------------------------------------------------------------------------
Total Income from Operations $ 19,811 $ 40,759
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Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations
USFreightways Corporation ("the Company") reported net income for the
quarter ended March 31, 2001 of $8.5 million, a 62% decrease compared to $22.3
million that was reported for the quarter that ended April 1, 2000. There were
64 working days in the current quarter compared to 65 working days in last
year's first quarter.
Net income per share for the current year's quarter was equivalent to 32
cents diluted earnings per share. Net income per share for the 2000 quarter
amounted to 81 cents diluted earnings per share. Net income for the current
year's quarter was negatively impacted (as announced by a press release dated
April 19, 2001) by the continued slowing of the economy that affected results in
all the Company's lines of businesses, continued losses at USF Worldwide, the
Company's domestic and international freight forwarding business and to a lesser
extent, bad weather during the current quarter.
Revenue for the 2001 quarter increased by 0.4% to $621.4 million from
$618.7 million for the first quarter of 2000. Revenue increases in the logistics
business, distribution service centers, the UK freight forwarder, Asia and
truckload revenue were offset by decreases in the regional trucking subsidiaries
group, the return logistics business and USF Worldwide.
Less-than-truckload (LTL) revenue for the current quarter at the regional
trucking subsidiaries decreased 1.8%, including the fuel surcharges (see the
note below relating to the inclusion of fuel surcharges into revenue as
promulgated under SAB No. 101), compared to the 2000 first quarter; LTL
shipments decreased 2.8% and LTL tonnage decreased 5.1%. LTL revenue per
shipment increased from $113.36 to $114.55 and the weight per shipment decreased
from 1,147 pounds to 1,121 pounds. Volume levels in last year's quarter
benefited from a very strong second half of the quarter. Whereas, in the current
year, volume levels were negatively impacted by the slowdown in the economy and
particularly at USF Holland due to a slowdown in the automotive industry and
other heavy manufacturing based in the central United States.
Operating earnings for the regional trucking subsidiaries, in the current
year's quarter, decreased 36.9% to $24.1 million compared to $38.2 million for
the same period of 2000. The consolidated operating ratio for the LTL group
deteriorated to 94.8 from 91.9 last year. Due to current ecomomic conditions,
the regional trucking subsidiaries has reduced its work force by approximately
5.3% (amounting to 950 workers) since November of 2000. Despite the work force
reductions, labor and fringe related benefits increased due to annual
contractual increases at the Company's unionized carriers (USF Holland and USF
Red Star). In addition, the regional trucking subsidiaries incurred increases in
group health costs ranging from 12% to 30%. Claims and other operating expenses
also increased as a percentage of revenue compared to last year's quarter. Fuel
expense as a percentage of revenue improved slightly in the current year's
quarter.
USF Glen Moore, the Company's truckload (TL) carrier reported operating
earnings of $0.8 million at an operating ratio of 96.6 compared to $0.9 and an
operating ratio of 95.2 in 2000. Improvements in Labor and Operating costs were
more than offset by increases in Fringes, Depreciation and Fuel expense.
Revenue in the Logistics group increased by 6.0% to $71.2 million in the
current quarter from $67.1 million in the prior year. USF Processors contributed
lower revenue in the 2001 quarter amounting to approximately $17.0 million
compared to approximately $18.7 million in last year's quarter as a major
customer concluded a period of significantly increased volumes. USF Distribution
Services increased revenue by approximately $2.5 million of which expansion into
its new center in Baltimore (that was not opened in the first quarter of
2000)amounted to $0.6 million, while growth in existing centers in Kansas City,
Chicago, Irwindale, Fontana and Oklahoma City contributed approximately $1.9
million. USF Logistics increased revenue by $3.2 million mainly in its food,
retail and international business sectors.
Earnings in the Logistics group decreased by 34.4% compared to the prior
year's quarter to $2.8 million from $4.2 million as USF Processors reported
lower earnings as a result of lower revenue (see paragraph above) and also as a
result of a less profitable mix of business in the Food and Consumer sectors at
USF Logistics.
Revenue in the Freight Forwarding group increased 9.4% to $66.5 million
from $60.8 million in the prior year's quarter. The group reported an operating
loss of $3.3 million in 2001 compared to an operating profit of $0.7 million in
the 2000 quarter.Results in the Freight Forwarding group include USF Asia, the
trading name given to a joint venture formed in October 1999 of which USF
Worldwide(a wholly owned subisidiary in the Freight Forwarding group) is a
partner and USF Worldwide Logistics Limited ("Limited")(a UK freight forwarder).
USF Asia recorded first quarter revenue of approximately $4.4 million and an
operating loss of $0.7 million compared to revenue of $1.2 million and an
operating loss of $0.9 million last year. Limited recorded revenue of
approximately $8.5 million and an operating profit of $0.1 million.
Additionally, in the first quarter, USF Worldwide reported an operating loss of
$2.7 million as its gross margins deteriorated due to a decline in revenue of
$6.0 million.
Liquidity and Capital Resources
Cash flows from operating activities contributed $42.5 million during the
current quarter compared to $54.4 million during the same period last year.
Net capital expenditures for the 2001 quarter amounted to approximately
$12.9 million including $4.2 million for revenue equipment, $2.5 million for
terminal facilities, and the balance for other capital items. Last year for the
same period, net capital expenditures amounted to approximately $51.2 million,
including $37.4 million for revenue equipment, $3.5 million for terminal
facilities, and the balance for other capital items and the acquisition of
Tri-Star Transportation.
Cash flows provided by financing activities included $9.5 million of
proceeds from the sale of treasury stock that resulted primarily from the
exercise of stock options.
Total borrowings decreased by $32.3 million during the first quarter of
2001 and the Company's debt to capital ratio improved to 28.3% compared to 31.3%
at December 31, 2000. The Company's debt includes $150 million of unsecured
guaranteed notes that were floated in late April, 2000 and are due on April 15,
2010 and $100 million of unsecured guaranteed notes due May 1, 2009.
On January 31, 2000, the Company filed a Form S-3 registration statement
that allowed for the sale of up to $400 million in additional guaranteed notes.
On April 25, 2000, the Company sold $150 million in 8 1/2% guaranteed notes
due April 15, 2010 as part of the $400 million Form S-3 registration statement
filed on January 31, 2000. The net proceeds from the sale of the guaranteed
notes, after deducting underwriting fees and other expenses was approximately
$149 million, was used to repay $100 million in 6 5/8% notes that matured May 1,
2000, to reduce other unsecured lines of credit and to purchase an interest rate
hedge.
The guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all of the Company's direct
and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is
a holding company and during the period presented substantially all of the
assets were the stock of the Subsidiary Guarantors, and substantially all of the
operations were conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
were substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. Management of the Company believes that
separate financial statements of, and other disclosures with respect to, the
Subsidiary Guarantors are not meaningful or material to investors.
On July 24, 2000, the Company announced the authorized buyback of up to 1
million additional shares of its common stock in either public market or private
transactions. This repurchase program is not yet completed. There have been no
shares repurchased in the first quarter of 2001. As of March 31, 2001, the
Company had repurchased 454,200 shares.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
April 6, 2001 to shareholders of record on March 23, 2001.
Market Risk
The Company is exposed to the impact of interest rate changes. The
Company's exposure to changes in interest rates is limited to borrowings under a
line of credit agreement which has variable interest rates tied to the LIBOR
rate. The average annual interest rates on borrowings under this credit
agreement were approximately 6.2% in the first quarter of 2001. In addition, the
Company has $100 million of unsecured guaranteed notes with a 6 1/2% fixed
annual interest rate and $150 million of unsecured guaranteed notes with an 8
1/2% interest rate at March 31, 2001. The Company estimates that the carrying
value of the notes approximated their market value at March 31, 2001. The
Company has no hedging instruments outstanding. From time to time, the Company
invests excess cash in overnight money market accounts.
Recent Accounting Pronouncements
In the 2000 fourth quarter, the Company reclassified fuel surcharges
invoiced to customers as revenue according to guidelines established under the
Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") Number
101 "Revenue Recognition in Financial Statements". Prior to the 2000 fourth
quarter, the fuel surcharges were presented as a reduction of fuel costs. The
Company, therefore, has restated the fourth quarter 1999 and the first three
quarters of 2000 revenue and expenses in accordance with SAB Number 101. The
implementation of SAB Number 101 had no effect on income from operations or
net income.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to a number of proceedings brought under
the Comprehensive Environmental Response, Compensation and
Liability Act, (CERCLA). The Company has been made a party to
these proceedings as an alleged generator of waste disposed of
at hazardous waste disposal sites. In each case, the Government
alleges that the parties are jointly and severally liable for
the cleanup costs. Although joint and several liability is
alleged, these proceedings are frequently resolved on the basis
of the quantity of waste disposed of at the site by the
generator. The Company's potential liability varies greatly
from site to site. For some sites the potential liability is de
minimis and for others the costs of cleanup have not yet been
determined. While it is not feasible to predict or determine
the outcome of these proceedings or similar proceedings brought
by state agencies or private litigants, in the opinion of
management, the ultimate recovery or liability, if any,
resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's
financial condition or results of operations and, to the
Company's best knowledge, such liability, if any, will
represent less than 1% of its revenues.
Also, the Company is involved in other litigation arising in
the ordinary course of business, primarily involving claims for
bodily injuries and property damage. In the opinion of
management, the ultimate recovery or liability, if any,
resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. Exhibit 10.1-USFreightways Corporation Long-Term Incentive Plan,
as restated and amended March 8, 2001.
2. Exhibit 10.2-USFreightways Corporation Stock Option Plan for
Non-Employee Directors, as restated and amended March 8, 2001.
3. Exhibit 10.3-Form of Severance Protection Agreement, dated as of
February 28, 2001.
(b) Current Reports on Form 8-K were filed:
1. None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. Dated the 15th day of
May, 2001.
USFREIGHTWAYS CORPORATION
By: /s/ Christopher L. Ellis
Christopher L. Ellis
Senior Vice President, Finance and Chief Financial Officer
By: /s/ Robert S. Owen
Robert S. Owen
Controller and Principal Accounting Officer