SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
Form 10-Q/A
Amendment No. 1
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2002, OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________ TO
____________
Commission File Number 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
8550 W. Bryn Mawr Ave.,Suite 700 60631
Chicago, Illinois
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (773) 824-1000
Not applicable
(Former name or former address, if changed since the last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of April 25, 2002, 26,875,311 shares of common stock were outstanding.
EXPLANATORY NOTE - RECLASSIFICATION
This Form 10-Q/A is being filed to restate our Consolidated Statement of
Income for the three months ended March 30, 2002 by reclassifying a $12.8
million charge, taken in the 2002 first quarter to relinquish our interest in
USF Asia - see Footnotes 5 and 9, thereby increasing operating expenses,
reducing income from operations and reducing non-operating expenses by $12.8
million. The $12.8 million charge, after the reclassification, is reported under
Freight Forwarding - Asia exit costs. The Consolidated Statement of Cash Flows
for the three months ended March 30, 2002 has also been restated from the
amounts previously reported to decrease net cash provided by operating
activities and to increase net cash used in investing activities, respectively,
by the $10.0 million cash payment portion of the aforementioned total $12.8
million charge.These reclassifications are limited to these line items and time
period and had no effect on our revenue, net income, earnings per share or
equity.
For purposes of this Form 10Q/A, and in accordance with Rule 12b-15 under
the Securities and Exchange Act of 1934, as amended, each item of the Form 10-Q
for the quarter ended March 30, 2002 as originally filed May 2, 2002 that was
affected by the reclassification has been amended to the extent affected and
reclassified in its entirety. No attempt has been made in this Form 10-Q/A to
modify or update other disclosures as presented in the original Form 10-Q except
as required to reflect the effects of the reclassifications.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USFreightways Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
March 30, December 31,
2002 2001
- -----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 57,564 $ 79,534
Accounts receivable, net 304,164 295,876
Other 69,769 70,840
----------------- -------------------
Total current assets 431,497 446,250
----------------- -------------------
Net property and equipment 732,216 732,520
Goodwill 100,476 171,708
Other intangible assets, net 2,672 3,016
Notes receivable 11,036 5,036
Other assets 23,176 20,134
----------------- -------------------
Total assets $ 1,301,073 $ 1,378,664
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current bank debt $ 878 $ 1,037
Accounts payable 80,379 89,979
Other current liabilities 184,224 174,695
----------------- ------------------
Total current liabilities 265,481 265,711
----------------- ------------------
Long-term liabilities:
Long-term bank debt 2,523 2,774
Notes payable 250,000 250,000
Other long-term liabilities 170,768 170,672
----------------- ------------------
Total long-term liabilities 423,291 423,446
----------------- ------------------
Minority interest - 1,855
Common stockholders' equity 612,301 687,652
----------------- ------------------
Total liabilities and stockholders' equity $ 1,301,073 $ 1,378,664
----------------- ------------------
See Accompanying Notes to Consolidated Financial Statements.
USFreightways Corporation
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
Three months ended
-------------------------------------
March 30, March 31,
2002 2001
- -----------------------------------------------------------------------------
Revenue
LTL Trucking $ 430,218 $ 459,019
TL Trucking 25,317 24,668
Logistics 66,552 71,159
Freight Forwarding 55,646 66,547
Corporate and other - -
----------------- ----------------
Total operating revenue $ 577,733 $ 621,393
Operating expenses:
LTL Trucking 413,353 434,921
TL Trucking 24,428 23,832
Logistics 64,262 68,378
Freight Forwarding 56,851 69,841
* Freight Forwarding-Asia exit costs 12,760 -
Corporate and other 6,110 4,610
----------------- ----------------
* Total operating expenses 577,764 601,582
----------------- ----------------
* Income/ (loss) from operations (31) 19,811
----------------- ----------------
Non-operating income (expense):
Interest expense (5,226) (5,580)
Interest income 354 134
Other, net (165) 36
---------------- ---------------
* Total non-operating expense (5,037) (5,410)
---------------- ---------------
Income/ (loss)before income taxes (5,068) 14,401
Income tax expense (2,595) (5,680)
Minority interest - (270)
----------------- ---------------
Income/(Loss) before cumulative
effect of accounting change $ (7,663) $ 8,451
Cumulative effect of change in
accounting for goodwill $ (70,022) $ -
--------------- -------------
Net income/(Loss) $ (77,685) $ 8,451
--------------- -------------
Income/(Loss) per share before
cumulative effect - Basic $ (0.29) $ 0.32
Income/(Loss) per share before
cumulative effect - Diluted $ (0.29) $ 0.32
(Loss) per share - cumulative
effect - Basic $ (2.61) $ 0.00
(Loss) per share - cumulative
effect - Diluted $ (2.61) $ 0.00
Net income/(Loss)per share - Basic: $ (2.90) $ 0.32
Net income/(Loss) per share - Diluted: $ (2.90) $ 0.32
Average shares outstanding - basic 26,798,022 26,191,561
Average shares outstanding - diluted 26,798,022 26,775,002
----------------- ------------------
* Amounts have been restated to reclassify a $12.8 million charge taken in the
first quarter of 2002 to relinquish our interest in USF Asia - see Footnotes 5
and 9.
See Accompanying Notes to Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
Three months ended
----------------------------
March 30, March 31,
2002 2001
- --------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income/(loss) $ (77,685) $ 8,451
Adjustments to net income/ (loss):
Depreciation and amortization 25,247 28,256
Cumulative effect of change in accounting 70,022 -
for goodwill
Other items affecting cash (11,622) 5,460
from operating activities
-------------- -------------
* Net cash provided by operating activities 5,962 42,167
-------------- -------------
Cash flows from investing activities:
Capital expenditures (26,649) (15,667)
Proceeds on sales on property and equipment 2,628 2,786
* Disposition of USF Asia (6,000) -
-------------- -------------
* Net cash used in investing activities (30,021) (12,881)
-------------- -------------
Cash flows from financing activities:
Dividends paid (2,478) (2,415)
Proceeds from sale of stock 4,977 9,520
Proceeds from long-term debt - 10,000
Payments on long-term debt (251) (15,570)
Net change in short-term debt (159) (26,744)
-------------- -------------
Net cash provided by (used in) financing activities 2,089 (25,209)
-------------- -------------
Net increase/(decrease) in cash (21,970) 4,077
-------------- -------------
Cash at beginning of period 79,534 5,248
-------------- -------------
Cash at end of period $ 57,564 $ 9,325
-------------- -------------
* Amounts restated to reclassify the $10 million cash payment in first quarter
to relinquish our interest in USF Asia - see Footnotes 5 and 9.
See Accompanying Notes to Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Changes in Common Stockholders' Equity
Unaudited (Dollars in thousands)
Three Months Ended
-----------------
March 30, March 31,
2002 2001
Balance as of December 31 2001 and 2000 respectively $ 687,652 $ 635,176
Net income/(Loss) (77,685) 8,451
Foreign currency translation adjustments (135) (389)
-------- -------
Comprehensive income $ (77,820) $ 8,062
Proceeds from sale of stock 4,977 9,520
Dividends declared (2,508) (2,450)
---------- ----------
Balance as of March 30, 2002 and March 31, 2001 $ 612,301 $ 650,308
respectively ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
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 our wholly owned subsidiaries. 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. Our consolidated financial statements for prior periods have been
reclassified to conform with the current presentation. Our 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 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to consolidated financial
statements and footnotes thereto included in our annual report on Form 10-K for
the year ended December 31, 2001.
2. Earnings per share
Basic earnings/ (loss) per share are calculated on net income/ (loss)
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 our basic and
diluted earnings per share. For the first quarter of 2002, the diluted loss per
share calculation excludes the effect of the unexercised stock options because
their inclusion would be anti-dilutive. The number of options included in the
denominator, used to calculate diluted earnings per share, are 583,441 for the
first quarter 2001.
3. Debt
Our debt includes $100 million of unsecured guaranteed notes due May 1,
2009 and $150 million of unsecured guaranteed notes due April 15, 2010.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are 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 shown in our
consolidated statements. Our management 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, we announced the authorized buyback of up to 1 million
additional shares of our common stock in either public market or private
transactions. This repurchase program is not yet completed. There were no shares
repurchased in the first quarter of 2002 or the first quarter of 2001. As of
March 30, 2002, we had repurchased 454,200 shares.
5. Notes receivable
USF Asia Group, Ltd.
On January 18, 2002 we relinquished our interest in USF Asia Group, Ltd.,
USF Worldwide's freight forwarding joint venture in Asia. A one-time payment of
$10 million was made to Asia Challenge, Ltd., a Hong Kong based logistics
company and USF Worldwide's former joint venture partner. We also provided $6
million in loans to Asia. The loans included a $3.0 million secured loan and a
$3.0 million unsecured loan. The secured loan is backed by at least 51% of the
common voting shares of USF Asia Group, Ltd. Both loans are due on June 30, 2005
and each bears interest at the six-month LIBOR plus 1%. Interest is payable
quarterly. Income from operations and income before income taxes were reduced by
approximately $12.8 million in the current quarter as a result of this
transaction. There are no tax benefits associated with the transaction.
Auto Warehousing Company ("AWC")
We have notes receivable from AWC, a company that we owned until 1993,
totaling $5.7 million ($0.7 million in accounts receivable)as of March 30, 2002
and December 31, 2001. The notes are due August 28, 2003 and bear interest at
the three month LIBOR plus 7/8%. Interest is payable quarterly and is current.
Principal payments of $0.7 million are due annually in May of each year with a
final installment of approximately $3.6 million due on August 28, 2003. The
notes are secured by a lien on all assets of AWC and a personal guarantee by
AWC's owner including a pledge by the owner of 100% of his stock in AWC.
Our notes receivable are secondary to loans due from AWC to US Bank
totaling approximately $4.8 million. As a result of financial difficulties being
experienced by AWC, AWC has had and may continue to have difficulty making
timely principal payments to us as required by the notes.The last principal
payment was made in May 2000. AWC is pursuing various actions, including
corporate and debt restructuring (including its obligation to us), that if
successful could better enable AWC to meet its financial obligations. We have
evaluated the carrying value of these notes receivable, and based on AWC's
ongoing restructuring efforts and operating results, we believe the notes
receivable from AWC will ultimately be realized. We will continue to review the
value considering the operations of AWC and the results of its restructuring
efforts.
6. Accounting for Goodwill under SFAS 142
Under Statement of Financial Accounting Standards (SFAS) 142 "Goodwill and
Other Intangible Assets", previously recorded goodwill and other intangible
assets with indefinite lives will no longer be amortized but will be subject to
impairment tests annually. As a result of implementing this new standard on
January 1, 2002, we recorded an impairment charge of $70 million at USF
Worldwide, our freight forwarding segment. The charge was shown as a cumulative
effect of change in accounting for goodwill in the current quarter. Also,
effective January 1, 2002 amortization of goodwill ceased under the standard. In
the first quarter of 2001, we amortized $1.3 million of goodwill.
Quarters Ended
($000's except for earnings March 30, 2002 March 31, 2001
per-share amounts) ______________ ______________
Reported net income/ (Loss) $ (77,685) $ 8,451
Add back: Goodwill amortization - 1,339
______________ ______________
Adjusted net income/(Loss) $ (77,685) $ 9,790
============== ==============
Basic earnings per share:
Reported net income/(Loss) $ (2.90) $ 0.32
Goodwill amortization 0.00 0.05
_____________ ______________
Adjusted net income/(Loss) $ (2.90) $ 0.37
============= ==============
Diluted earnings per share:
Reported net income/(Loss) $ (2.90) $ 0.32
Goodwill amortization 0.00 0.05
_____________ ______________
Adjusted net income/(Loss) $ (2.90) $ 0.37
============= ==============
7. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The standard is effective for 2003. We are currently reviewing the
requirements of this new standard and have not yet determined its impact, if
any, on our financial position or results of operations.
8. Segment Reporting Three Months Ended
(dollars in thousands) March 30, March 31,
2002 2001
- -------------------------------------------------------------------------------
Revenue
LTL Group:
USF Holland $ 224,275 $ 239,320
USF Reddaway 61,705 65,109
USF Red Star 60,090 64,405
USF Dugan 49,990 51,291
USF Bestway 34,158 38,894
- -------------------------------------------------------------------------------
Sub total LTL Group 430,218 459,019
Truckload - Glen Moore 25,317 24,668
Logistics subsidiaries 66,552 71,159
Freight forwarding 55,646 66,547
Corporate and other - -
- -------------------------------------------------------------------------------
Total Revenue $ 577,733 $ 621,393
Income/ (loss) From Operations
LTL Group:
USF Holland $ 13,580 $ 16,750
USF Reddaway 3,691 3,839
USF Red Star (2,427) (584)
USF Dugan 627 1,724
USF Bestway 1,394 2,369
- -------------------------------------------------------------------------------
Sub total LTL Group 16,865 24,098
Truckload - Glen Moore 889 836
Logistics subsidiaries 2,290 2,781
Freight forwarding (1,205) (3,294)
* Freight forwarding - Asia exit costs (12,760) -
Corporate and other (5,721) (2,873)
Amortization of intangibles (389) (1,737)
- -------------------------------------------------------------------------------
* Total Income/ (loss) from Operations $ (31) $ 19,811
- ------------------------------------------------------------------------------
* Amounts have been restated to reclassify a $12.8 million charge taken in the
2002 first quarter to relinquish our interest in USF Asia - see Footnotes 5
and 9.
9. Restatement
Subsequent to the issuance of our financial statements included in our Form
10-Q for the three months ended March 30, 2002, we have restated our financial
statements by reclassifying a $12.8 million charge to relinquish our interest in
USF Asia (see Footnote 5). As a result, the Consolidated Statements of Income
for the three months ended March 30, 2002 have been restated from the amounts
previously reported to increase operating expenses, reduce income from
operations and reduce non-operating expenses by $12.8 million as shown below.
The Consolidated Statement of Cash Flows for the three months ended March 30,
2002 has been restated from the amounts previously reported to decrease net cash
provided by operating activities and to increase net cash used in investing
activities, respectively, by the $10.0 million cash payment portion of the
aforementioned $12.8 million charge. These reclassifications are limited to
these line items and this time period, and had no effect on our revenue, net
income, earnings per share or equity.
For the Three Months Ended March 30, 2002
As Previously Reported As Restated
Consolidated Statement of Income
________________________________
Total operating expenses $ 565,004 $ 577,764
___________ ____________
Income/ (loss) from operations 12,729 (31)
___________ ____________
Total non-operating expenses (17,797) (5,037)
Loss before income taxes (5,068) (5,068)
___________ ___________
Net Loss $ (77,685) $ (77,685)
=========== ===========
Consolidated Statement of Cash Flows
____________________________________
Cash payment to Asia $ 10,000 $ -
______ _______
Net cash provided by operating
activities 15,962 5,962
______ _______
Dispostion of USF Asia (16,000) -
_______ _______
Net cash used in investing
activities (40,021) (30,021)
_______ _______
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations
This Form 10-Q/A is being filed to restate our Consolidated Statement of
Income for the three months ended March 30, 2002 by reclassifying a $12.8
million charge, taken in the 2002 first quarter to relinquish our interest in
USF Asia - see Footnotes 5 and 9, thereby increasing operating expenses,
reducing income from operations and reducing non-operating expenses by $12.8
million. The $12.8 million charge, after the reclassification, is reported under
Freight Forwarding - Asia exit costs. The Consolidated Statement of Cash Flows
for the three months ended March 30, 2002 has also been restated from the
amounts previously reported to decrease net cash provided by operating
activities and to increase net cash used in investing activities, respectively,
by the $10.0 million cash payment portion of the aforementioned $12.8 million
charge.These reclassifications are limited to these line items and time period
and had no effect on our revenue, net income, earnings per share or equity. The
accompanying management's discussion and analysis gives effect to the
restatement.
For purposes of this Form 10Q/A, and in accordance with Rule 12b-15 under
the Securities and Exchange Act of 1934, as amended, each item of the Form 10-Q
for the quarter ended March 30, 2002 as originally filed May 2, 2002 that was
affected by the reclassification has been amended to the extent affected and
reclassified in its entirety. No attempt has been made in this Form 10-Q/A to
modify or update other disclosures as presented in the original Form 10-Q except
as required to reflect the effects of the reclassifications.
We ("USFreightways Corporation") reported a net loss for the quarter ended
March 30, 2002 of $77.7 million, compared to net income of $8.4 million that was
reported for the quarter ended March 31, 2001.
The net loss per share for the current year's quarter was equivalent to
($2.90) diluted earnings per share. Net income per share for the 2001 quarter
amounted to $0.32 diluted earnings per share. The net loss for the current
year's quarter included a charge of $12.8 million for relinquishing our interest
in USF Asia and a charge of $70.0 million related to goodwill impairment at USF
Worldwide, our freight forwarding segment, upon implementation on January 1,
2002 of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets". Earnings before these two charges amounted to $5.1
million equivalent to $0.19 diluted earnings per share. $72.8 million, of the
total $82.8 million charges taken, were non-cash while the remaining $10 million
was a cash related charge. Both charges were announced in press releases earlier
in the first quarter of 2002. The results of the first quarter in 2002 and 2001
were negatively impacted by the sluggishness of the economy, that affected the
results mainly in our Less-than-truckload (LTL) segment and continued losses in
our freight forwarding segment, though the current loss was sharply reduced from
the loss in the 2001 first quarter.
Revenue for the 2002 first quarter decreased by 7.0% to $577.7 million from
$621.4 million for the first quarter of 2001. Revenue decreased across all our
lines of business except for our Truckload (TL) carrier which showed a slight
increase in the 2002 quarter compared to the 2001 quarter.
Total revenue for the current quarter at the regional trucking subsidiaries
decreased 6.3% to $430.2 million compared to $459.0 million in the 2001 first
quarter. Because Good Friday occurred in the current year's first quarter but in
the second quarter of 2001, there were slightly less than 63 working days in the
current year's quarter compared to 64 for last year's first quarter. Total
revenue in the 2002 first quarter was virtually the same as the total revenue
reported in the fourth quarter of 2001. Fuel surcharges, which are included in
the reported revenue, declined by approximately 2.1% as a percent of revenue
compared to last year's first quarter as fuel prices declined. LTL revenue
before fuel surcharges declined by approximately 3.6% in the 2002 quarter
compared to the 2001 first quarter. LTL shipments decreased 3.0% and LTL tonnage
decreased 4.2%. LTL revenue per shipment decreased 2.8%from $114.55 to $111.37
as the average weight per shipment decreased 1.3% from 1,120 pounds to 1,106
pounds. On a comparable daily basis, for the 2002 first quarter compared to the
2001 first quarter, LTL shipments decreased approximately 0.6%, LTL tonnage
decreased 1.9% and LTL revenue per shipment before fuel surcharges decreased
0.7% while LTL revenue per hundredweight before fuel surcharges increased 0.6%.
Likewise, on a comparable daily basis, March shipments and tonnage improved
slightly compared to those in March 2001.
Operating earnings for the regional trucking subsidiaries, in the current
year's quarter, decreased 30.0% to $16.9 million compared to $24.1 million for
the same period of 2001. The consolidated operating ratio for the LTL group
increased to 96.1 from 94.7 in the first quarter of 2001. Despite the sluggish
economy and the reduction in the number of working days, USF Reddaway recorded a
slightly improved operating ratio, on a 5.2% decline in revenue, in the current
quarter of 94.0 compared to last year's first quarter operating ratio of 94.1
and USF Holland, which operates in the central states where the economy (that is
heavily influenced by manufacturing-particularly in the automotive area) has
been the most adversely impacted, where revenue decreased by 6.3% compared to
last year's first quarter reported an operating ratio of 93.9 compared to 93.0
in the 2001 first quarter. USF Bestway reported a decline in revenue of 12.2%
compared to last year's first quarter, but on a comparative daily basis and
before fuel surcharges revenue declined by 7.8%. In spite of this revenue
decrease, USF Bestway's operating ratio was 95.9 compared to 93.9 in the 2001
first quarter. The current operating ratio for USF Bestway (95.9) was just
slightly above the 95.6 operating ratio reported in the 2001 fourth quarter on
2.1% lower revenue in the current quarter compared to the 2001 fourth quarter.
USF Dugan recorded a revenue decrease of 2.5% in the current quarter compared to
the 2001 first quarter. On a comparable daily basis and before fuel surcharges,
USF Dugan's revenue increased by 2.6%. USF Dugan operated at a 98.7 in the 2002
first quarter compared to 96.6 in last year's first quarter. USF Red Star
recorded a 104.0 operating ratio in the 2002 first quarter compared to 100.9 in
the 2001 first quarter. This increase in operating ratio was largely due to a
significant drop in volumes in January and early February of 2002. A USF Red
Star competitor closed operations in late February 2002, and the extra business
enabled USF Red Star to operate close to break even in March 2002.
USF Glen Moore, our TL carrier recorded a 2.6% revenue increase to
$25.3 million in the 2002 first quarter with operating earnings of $0.9 million
and an operating ratio of 96.5 compared to $0.8 million profit and an operating
ratio of 96.6 in the 2001 first quarter.
Revenue in the Logistics group decreased by 6.5% to $66.6 million in the
current quarter from $71.2 million in the prior year. USF Processors contributed
lower revenue in the 2002 quarter amounting to approximately $9.6 million
compared to approximately $17.0 million in last year's quarter as volumes from a
major customer were significantly reduced. Revenue from a combined USF Logistics
and USF Distribution Services increased by 5.1%. Earnings in the Logistics group
decreased by 17.7% from $2.8 million in the 2001 first quarter to $2.3 million
in the 2002 first quarter.
Revenue in the Freight Forwarding segment decreased 16.4% to $55.6 million
from $66.5 million in the 2001 first quarter. $4.4 million of revenue was
reported in USF Asia in the 2001 first quarter, whereas there was no revenue
reported in the 2002 first quarter because we relinquished our interest in USF
Asia in the first week of the 2002 first quarter. The segment's management team
has reduced fixed costs and made organizational changes that have begun to show
improved results. The segment reported an operating loss of $1.2 million in the
2002 first quarter(excluding Asia exit costs of $12.8 million)compared to a $3.3
million loss in the 2001 first quarter.
Freight Forwarding - Asia exit costs is the $12.8 million charge taken to
relinquish our interest in USF Asia. Included in the costs is a one-time payment
of $10.0 million to Asia Challenge, Ltd., a Hong Kong based logistics company
and USF Worldwide's former joint venture partner (see also Footnote 5).
Corporate and other expenses increased by $1.5 million in the 2002 first
quarter to $6.1 million compared to $4.6 million in the 2001 first quarter. Due
to implementation of SFAS No. 142, amortization of non-goodwill intangible
assets in the 2002 first quarter amounted to $0.4 million compared to $1.7
million amortization on all intangible assets in the 2001 first quarter.
Corporate expenses increased to $5.7 million in the 2002 first quarter compared
to $2.9 million in the 2001 first quarter as our information technology group
(IT) increased non-capital expenses by $2.7 million in the current quarter as
the IT group continued to upgrade IT systems and infrastructure. The IT group
continues to recruit industry-leading talent.
Income tax expense is calculated on net income/ (loss) before income taxes
and before the $12.8 million Asia exit costs (there are no tax benefits
associated with these costs). Therefore, adding back the $12.8 million Asia exit
costs to net loss before income taxes in the 2002 first quarter net income
before taxes was $7.7 million.
Liquidity and Capital Resources
Cash flows from operating activities contributed $6.0 million during the
2002 first quarter compared to $42.2 million during the same period last year.In
the 2002 first quarter, cash flows from operating activities were negatively
impacted by our net loss of $77.7 million and an increase in accounts receivable
amounting to $8.3 million. Offsetting the aforementioned were the non-cash
write-off of goodwill at USF Worldwide amounting to $70.0 million and
depreciation of property and equipment and amortization of non-goodwill
intangibles of approximately $25.2 million. (See table below)
Quarter ended March 30, 2002
____________________________
Cash flows from operating activities:
Income before unusual charges $ 5,097
Subtract unusual charges:
Cash payment - Asia (10,000)
Non-cash Asia write-off (2,760)
Non-cash goodwill write-off (70,022)
_________
Net loss $(77,685)
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization $ 25,247
Increase in accounts receivable
and other current assets (9,866)
Goodwill write-off 70,022
Other, net (1,756)
_________
Net cash provided by operating activities $ 5,962
_________
Capital expenditures for the 2002 first quarter amounted to approximately
$26.6 million including additions of $9.7 million for revenue equipment, $8.6
million for terminal facilities, $8.3 million for information technology and for
other capital items. Last year for the same period, capital expenditures
amounted to approximately $15.7 million, including additions of $4.2 million for
revenue equipment, $2.5 million for terminal facilities, $5.8 million for IT
equipment and $3.2 million for other capital items.
Other cash flows used in operating activities included a $10.0 million cash
payment to USF Worldwide's former joint venture partner in Asia when we
relinquished our interest in the joint venture. We also incurred $6.0 million in
investing activities for loans to USF Asia Group, Ltd.
Cash flows provided by financing activities included $5.0 million of
proceeds from the sale of stock that resulted primarily from the exercise of
stock options occurring in the first quarter.
Total borrowings decreased by $0.4 million during the first quarter of 2002
and we had approximately $50.2 million invested in overnight money market
deposits. Our net debt to capital ratio was 24.2% at March 30, 2002 compared to
20.2% at December 31, 2001.
Our 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.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are 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 shown in our
consolidated statements. Our management 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, we announced the authorized buyback of up to 1 million
additional shares of our common stock. This repurchase program is not yet
completed. There were no shares repurchased in the first quarter of 2002 or the
first quarter of 2001. As of March 30, 2002, we had repurchased 454,200 shares.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
April 5, 2002 to shareholders of record on March 22, 2002.
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 a line of credit
agreement which has variable interest rates tied to the LIBOR rate. There have
been no borrowings under this agreement in the 2002 first quarter. The weighted
average annual interest rates on borrowings under this credit agreement were
6.3% in 2001. In addition, we have $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 March 30, 2002. We estimate that the fair
value of the notes approximated their carrying value at March 30, 2002. We have
no hedging instruments. From time to time, we invest excess cash in overnight
money market accounts. At March 30, 2002, we had invested approximately $50
million in overnight money market accounts that yielded approximately 2.0%.
Recent Accounting Pronouncement
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The standard is effective for 2003. We are currently reviewing the
requirements of this new standard and have not yet determined its impact, if
any, on our financial position or results of operations.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to a number of proceedings brought under
the Comprehensive Environmental Response, Compensation and
Liability Act, (CERCLA). The Company has been made a party to
these proceedings as an alleged generator of waste disposed of
at hazardous waste disposal sites. In each case, the Government
alleges that the parties are jointly and severally liable for
the cleanup costs. Although joint and several liability is
alleged, these proceedings are frequently resolved on the basis
of the quantity of waste disposed of at the site by the
generator. The Company's potential liability varies greatly
from site to site. For some sites the potential liability is de
minimis and for others the costs of cleanup have not yet been
determined. While it is not feasible to predict or determine
the outcome of these proceedings or similar proceedings brought
by state agencies or private litigants, in the opinion of
management, the ultimate recovery or liability, if any,
resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's
financial condition or results of operations and, to the
Company's best knowledge, such liability, if any, will
represent less than 1% of its revenues.
Also, the Company is involved in other litigation arising in
the ordinary course of business, primarily involving claims for
bodily injuries and property damage. In the opinion of
management, the ultimate recovery or liability, if any,
resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's
financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. Exhibit 10.-1 USFreightways Corporation Stock Option Plan
for Non-Employee Directors.
(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 12th day of
August, 2002.
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