EXHIBIT 13
PAGE 1
SELECTED CONSOLIDATED FINANCIAL DATA
(Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks 52 weeks 53 weeks
December 28, December 30, December 31, January 1, January 2,
1996 1995 1994 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Operating Revenue $ 1,330,972 $ 1,144,458 $ 1,016,464 $ 898,920 $ 774,678
Income from operations before
amortization of intangibles 69,605 (1) 70,126 72,686 64,260 44,892
Amortization of intangible assets (2,477) (2,583) (3,020) (3,038) (5,391)
--------------- ---------------- --------------- --------------- ---------------
Income from operations 67,128 67,543 69,666 61,222 39,501
--------------- ---------------- --------------- --------------- ---------------
Interest expense, net (11,495) (8,177) (8,417) (7,391) (1,632)
Other non-operating expense (704) (878) (2,011) (1,683) (1,067)
--------------- ---------------- --------------- --------------- ---------------
Net income from continuing
operations before income
taxes 54,929 58,488 59,238 52,148 36,802
Income tax expense (23,451) (25,150) (25,882) (23,603) (15,998)
--------------- ---------------- --------------- --------------- ---------------
Net income from continuing
operations 31,478 33,338 33,356 28,545 20,804
--------------- ---------------- --------------- --------------- ---------------
Discontinued operations -- -- -- (1,197) 288
Extraordinary item - operating
rights -- -- (1,291) -- --
Cumulative effect of
accounting change -- -- -- -- (14,190)
--------------- ---------------- --------------- --------------- ---------------
Net income $ 31,478 $ 33,338 $ 32,065 $ 27,348 $ 6,902
--------------- ---------------- --------------- --------------- ---------------
Net income per share from
continuing operations,
exclusive of restructuring
charge (1996 only) $ 1.51 (2) $ 1.51 $ 1.51 $ 1.25 $ 0.78
Net income per share 1.41 1.51 1.45 1.20 0.26
Cash dividends declared
per share $ 0.37 $ 0.37 $ 0.37 $ 0.37 $ 0.28
OPERATING STATISTICS
(in thousands)
Total tons 7,732 6,835 6,210 5,977 5,184
Total shipments 11,590 10,187 9,045 8,762 7,934
BALANCE SHEETS
ASSETS:
Current assets $ 203,577 $ 158,611 $ 144,615 $ 122,770 $ 108,553
Property and equipment, net 395,500 338,846 272,264 247,123 202,454
Intangible assets, net 79,559 69,918 72,194 77,132 79,665
Other assets 9,872 10,819 11,929 13,755 16,165
--------------- ---------------- --------------- --------------- ---------------
Total assets $ 688,508 $ 578,194 $ 501,002 $ 460,780 $ 406,837
--------------- ---------------- --------------- --------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current bank debt $ 333 $ 333 $ 333 $ 431 $ 874
Other current liabilities 144,015 128,151 118,114 97,313 83,999
Notes payable 100,000 100,000 100,000 100,000 --
Long-term bank debt, less
current maturities 78,000 37,333 5,667 24,085 47,024
Other non-current liabilities 96,900 79,225 68,794 58,442 45,161
Total stockholders' equity 269,260 233,152 208,094 180,509 229,779
--------------- ---------------- --------------- --------------- ---------------
Total liabilities and
stockholders' equity $ 688,508 $ 578,194 $ 501,002 $ 460,780 $ 406,837
--------------- ---------------- --------------- --------------- ---------------
(1) Income from operations, before the Red Star restructuring charge of $4,050,
is $73,655.
(2) Before the Red Star restructuring charge, net of tax, equivalent to $0.10
per share.
PAGE 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 28, 1996,
COMPARED TO FISCAL YEAR ENDED DECEMBER 30, 1995
Operating revenue for the 52 weeks ended December 28, 1996 ("Fiscal 1996")
increased by $186,514,000 (16.3%) to $1,330,972,000 from $1,144,458,000 for the
52 weeks ended December 30, 1995 ("Fiscal 1995"). Of the total operating revenue
increase, the regional less-than-truckload ("LTL") trucking companies accounted
for $155,704,000 (a 14.5% increase over the prior year) primarily as a result of
new customers, expanded business from existing customers and the acquisition of
Transus in the Southeast. Effective January 1, 1996, Dugan acquired the business
of Transus, a Southeastern LTL motor carrier, which included 29 terminals, some
of which were operating in cities where Dugan previously had an existing
presence. Those terminal locations which were duplicated in both systems were
consolidated. Also, during January 1996, Reddaway and United successfully
completed a merger of their separate operating systems resulting in elimination
of four redundant terminal locations. Finally, as a result of restructuring its
operations during the year, Red Star reduced its terminals by six to 26 with no
loss in geographic coverage.
In Fiscal 1996, LTL shipments increased by 15.4% while average revenue per LTL
shipment declined by 0.5% compared to Fiscal 1995. Additionally, in Fiscal 1996
LTL tonnage increased by 16.4% while revenue per LTL hundredweight declined by
1.4% compared to Fiscal 1995. At the Company's logistics subsidiaries, Logix and
Distribution Services, operating revenue grew by $21,508,000 from $64,093,000 in
Fiscal 1995 to $85,601,000 in Fiscal 1996 (a 33.6% increase over the prior year)
primarily due to the addition of new customers at Logix and its acquisition of
Interamerican, a provider of warehousing, transportation, distribution and other
logistics services, effective July 1, 1996.
In Fiscal 1996, the LTL regional trucking companies accounted for 92.5% of
consolidated operating revenue, the logistics and other subsidiaries accounted
for 7.5%. In Fiscal 1995, the LTL regional trucking companies accounted for
94.0% of all consolidated operating revenue, the logistics and other
subsidiaries for 6.0%.
Operating income in the first half of 1996 was adversely impacted by severe
weather during the winter months, intense industry competitive pricing and a
somewhat sluggish economy. In the last half of the year, industry pricing
firmed, the economy improved, and revenue growth returned to double digits. A
fuel surcharge was also implemented to partially offset the increase in fuel
prices. A dramatic turnaround was achieved at Red Star during the fourth quarter
where, despite a 5.2% reduction in total revenue, the operating ratio improved
from 104.3% in the 1995 fourth quarter to 99.5% in the 1996 fourth quarter. The
improvement at Red Star resulted from an increase in yield per shipment of 5.6%
together with a significant reduction in operating costs resulting from strict
cost control.
Income from operations, after a $4,050,000 restructuring charge at Red Star,
decreased by 0.6% to $67,128,000 in Fiscal 1996 from $67,543,000 in Fiscal 1995.
The restructuring charge at Red Star related primarily to ongoing lease
commitments for terminals no longer occupied and to severance pay incurred in
connection with the reduction in personnel. The decline in revenue per shipment,
costs incurred associated with the acquisition of Transus, and the Red Star
restructuring charge were major factors in the reduction in operating income.
Operating expenses and supplies increased to 13.3% of operating revenue In
Fiscal 1996 from 12.6% in Fiscal 1995, mainly due to higher fuel costs incurred
which were not recovered by surcharges in the first half of the year.
Depreciation and equipment leases increased to 4.9% of operating revenue during
Fiscal 1996 from 4.4% in Fiscal 1995 due mainly to revenue equipment purchased
and revenue equipment leases assumed with the purchase of Transus. These cost
increases were partially offset by a reduction in salaries, wages and benefits
from 64.1% in Fiscal 1995 to 63.7% in Fiscal 1996 due mainly to personnel
reductions at Red Star and improved operating efficiencies at Holland.
Interest expense, as a percentage of operating revenue, increased slightly to
0.9% in Fiscal 1996 from 0.8% in Fiscal 1995 despite a decrease in average
interest rates of approximately 0.4%, as average debt outstanding increased due
to the acquisitions of Transus and Interamerican and capital expenditures.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FISCAL YEAR ENDED DECEMBER 30, 1995
COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1994
Operating revenue for the 52 weeks ended December 30, 1995 ("Fiscal 1995")
increased by $127,994,000 (12.6%) to $1,144,458,000 from $1,016,464,000 for the
52 weeks ended December 31, 1994 ("Fiscal 1994"). Of the total operating revenue
increase, the regional less-than-truckload ("LTL") trucking companies accounted
for $110,785,000 (an 11.5% increase over the prior year) primarily as a result
of new customers, additional business from existing customers and the opening of
21 new terminals. In Fiscal 1995, LTL shipments increased by 12.8% while revenue
per LTL shipment declined by 0.1% over Fiscal 1994. Additionally, in Fiscal 1995
LTL tonnage increased by 12.9% while LTL revenue per hundredweight declined by
0.2% over Fiscal 1994. At the Company's logistics subsidiaries, Logix and
Distribution Services, operating revenue grew by $16,665,000 from $47,428,000 in
Fiscal 1994 to $64,093,000 in Fiscal 1995 (a 35.1% increase over the prior year)
primarily due to the addition of new customers at Logix.
In Fiscal 1995, the LTL regional trucking companies accounted for 94.0% of
consolidated operating revenue, with the logistics and other subsidiaries
accounting for 6.0%. In Fiscal 1994, the LTL regional trucking companies
accounted for 94.9% of all consolidated operating revenue, with the logistics
and other subsidiaries accounting for 5.1%.
Operating margins were adversely impacted at all of the regional trucking
companies by a combination of factors including the onset of a sluggish economy
coupled with the most severe pricing pressures witnessed in recent years, both
of which persisted throughout the entire year, but were most prevalent in the
fourth quarter of Fiscal 1995.
PAGE 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
These factors all but eliminated any gains resulting from an increase in the
number of shipments. At Red Star, which operates in a highly competitive region
of the country, pricing pressures resulted in an operating ratio of 101.1%.
Revenue per LTL shipment, for the regional trucking companies, declined during
the year from $99.72 in the 1995 first quarter to $95.98 in the 1995 fourth
quarter, a decline of 3.8%.
Income from operations decreased by 3.0% to $67,543,000 in Fiscal 1995 from
$69,666,000 in Fiscal 1994. The decline in revenue per LTL shipment is the major
factor in the reduction in operating margins. Contractual wage and benefit
increases at Holland and Red Star, equivalent to approximately 3.4%, contributed
to the increase in salaries, wages and benefits to 64.1% of operating revenue in
Fiscal 1995 from 62.3% of operating revenue in Fiscal 1994. These increases were
partially offset by the reduction in purchased transportation expense from 4.2%
of revenue in Fiscal 1994 to 3.8% of revenue in Fiscal 1995 resulting from a
decrease in the use of third party agents to transport freight; insurance and
claims expense decreased from 1.8% of revenue in Fiscal 1994 to 1.5% of revenue
in Fiscal 1995 primarily as a result of reduced casualty claims.
Interest expense, as a percentage of operating revenue, declined slightly to
0.8% in Fiscal 1995 from 0.9% in Fiscal 1994 despite an increase in average
interest rates of approximately 1.3%, as average debt outstanding declined due
to the timing of capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $87,599,000 in cash flows from operating activities during
Fiscal 1996. Capital expenditures during the year amounted to $125,322,000, of
which $64,630,000 was for revenue equipment, $17,539,000 for terminals,
$11,888,000 for other assets and $31,265,000 for the acquisitions of Transus and
Interamerican. Capital expenditures for Fiscal 1995 amounted to $116,675,000. In
light of current business levels, management expects that capital expenditures
during the fiscal year ending on January 3, 1998 ("Fiscal 1997") will
approximate $130 to $150 million.
The Company maintains a $160 million revolving credit facility with a syndicate
of commercial banks. The facility expires in 2000 and allows up to $100 million
for standby letters of credit to cover the Company's self insurance program, and
has optional pricing of interest rates, including LIBOR or Prime base rates. The
facility has an annual fee and contains customary covenants including
maintenance of minimum net worth and certain other ratios. During Fiscal 1996,
all borrowings were drawn at LIBOR base rates, with a weighted average interest
rate for the year of 5.8%, excluding fees charged on the facility. At December
28, 1996 the Company had borrowed $78,000,000 and had $46,116,000 outstanding
letters of credit under this facility.
In February 1997, the Company sold 3,105,000 of its shares in a public offering.
The net proceeds from the sale, amounting to approximately $69 million were
initially used to repay outstanding debt under the revolving credit facility. In
management's opinion, cash flows from operating activities, net proceeds from
the sale of the shares and funding from this facility are adequate to finance
the Company's anticipated business activity in Fiscal 1997.
In addition to the revolving credit facility, the Company maintains four
uncommitted lines of credit which provide $39 million short-term funds at rates
approximating LIBOR. These facilities are used in concert with a centralized
cash management system to finance short-term working capital needs, thereby
enabling the Company to maintain minimal cash balances.
During Fiscal 1996, the Company declared cash dividends of $8,315,000.
OTHER
The Company uses underground storage tanks at certain terminal facilities and
maintains a comprehensive policy of testing, upgrading, replacing or eliminating
these tanks to protect the environment and comply with various Federal and state
laws. Whenever any contamination is detected, the Company takes prompt remedial
action to remove the contaminants. It is management's opinion that the total
costs related to all known incidents have been provided for in the financial
statements and management is not aware of any potential contamination incidents
that would have a material effect on the results of the Company.
PAGE 4
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
USFreightways Corporation:
We have audited the accompanying consolidated balance sheets of USFreightways
Corporation and subsidiaries as of December 28, 1996 and December 30, 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 28,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USFreightways
Corporation and subsidiaries as of December 28, 1996 and December 30, 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 28, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 22, 1997,
except for note 12, which is as of February 10, 1997
PAGE 5
CONSOLIDATED BALANCE SHEETS
Years ended December 28, 1996 and December 30, 1995 (Thousands of dollars,
except per share amounts)
December 28, December 30,
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 4,090 $ 1,707
Accounts receivable, less allowances of $7,186 and $5,606, respectively 157,874 118,107
Parts, supplies and prepaid expenses 19,096 19,010
Deferred income taxes (note 6) 22,517 19,787
--------------- ---------------
Total current assets 203,577 158,611
Property and equipment at cost, net of accumulated depreciation (note 2) 395,500 338,846
Intangible assets, net of accumulated amortization (note 3) 79,559 69,918
Other assets 9,872 10,819
-------------- ---------------
$ 688,508 $ 578,194
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current bank debt (note 5) $ 333 $ 333
Accounts payable 41,734 36,209
Accrued liabilities:
Salaries, wages and benefits 49,528 47,230
Claims and other 50,442 42,882
Income taxes payable 2,311 1,830
--------------- ---------------
Total current liabilities 144,348 128,484
Long-term bank debt, less current maturities (note 5) 78,000 37,333
Notes payable (note 5) 100,000 100,000
Claims and other 50,303 38,656
Deferred income taxes (note 6) 46,597 40,569
-------------- ---------------
419,248 345,042
Stockholders' equity:
Cumulative preferred stock, $0.01 par value per share: 20,000,000 authorized,
none issued -- --
Common stock, $0.01 par value per share: 80,000,000 authorized,
22,594,890 and 21,920,390 issued, respectively 234 234
Paid in capital 180,269 176,378
Retained earnings 100,108 76,945
Treasury stock, 844,518 and 1,519,018 shares, respectively (11,351) (20,405)
--------------- ---------------
Total stockholders' equity 269,260 233,152
--------------- ----------------
$ 688,508 $ 578,194
--------------- ----------------
See accompanying notes to consolidated financial statements.
PAGE 6
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks
December 28, December 30, December 31,
1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
Operating revenue $ 1,330,972 $ 1,144,458 $ 1,016,464
--------------- --------------- ---------------
Operating expenses:
Salaries, wages and benefits 847,285 733,441 633,197
Purchased transportation 49,412 43,763 42,427
Operating expenses and supplies 176,764 144,702 125,936
Operating taxes and licenses 56,104 48,585 42,101
Insurance and claims 22,523 17,556 18,012
Communications and utilities 15,333 13,337 12,247
Depreciation and equipment leases 64,869 50,866 47,519
Building and office equipment rents 15,762 13,283 13,485
Amortization of intangible assets 2,477 2,583 3,020
Other operating expenses 9,265 8,799 8,854
Red Star restructuring charge (note 10) 4,050 -- --
--------------- --------------- ---------------
Total operating expenses 1,263,844 1,076,915 946,798
--------------- --------------- ---------------
Income from operations 67,128 67,543 69,666
--------------- --------------- ---------------
Non-operating income (expense):
Interest expense (12,144) (8,884) (9,081)
Interest income 649 707 664
Other, net (704) (878) (2,011)
--------------- --------------- ---------------
Total non-operating expense (12,199) (9,055) (10,428)
--------------- --------------- ---------------
Net income before income taxes and extraordinary item 54,929 58,488 59,238
Income tax expense (note 6) (23,451) (25,150) (25,882)
--------------- --------------- ---------------
Net income before extraordinary item 31,478 33,338 33,356
--------------- --------------- ---------------
Extraordinary item (note 3) -- -- (1,291)
--------------- --------------- ---------------
Net income $ 31,478 $ 33,338 $ 32,065
--------------- --------------- ---------------
Average shares outstanding 22,451,280 22,122,590 22,141,953
Earnings per common share:
Net income before extraordinary item $ 1.41 $ 1.51 $ 1.51
Extraordinary item (note 3) -- -- (0.06)
--------------- --------------- ---------------
Net income $ 1.41 $ 1.51 $ 1.45
--------------- --------------- ---------------
See accompanying notes to consolidated financial statements.
PAGE 7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(Thousands of dollars, except per share amounts)
Total
Common Paid in Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 1994 $ 234 $ 173,920 $ 27,867 $ (21,512) $ 180,509
Net income -- -- 32,065 -- 32,065
Dividends declared -- -- (8,153) -- (8,153)
Employee stock transactions
and other -- 1,367 -- 2,306 3,673
--------------- ---------------- --------------- --------------- ---------------
Balance December 31, 1994 234 175,287 51,779 (19,206) 208,094
Net income -- -- 33,338 -- 33,338
Dividends declared -- -- (8,172) -- (8,172)
Vesting of restricted stock
award -- 250 -- -- 250
Purchase of common stock -- -- -- (3,921) (3,921)
Employee stock transactions
and other -- 841 -- 2,722 3,563
--------------- ---------------- --------------- --------------- ---------------
Balance December 30, 1995 234 176,378 76,945 (20,405) 233,152
Net income -- -- 31,478 -- 31,478
Dividends declared -- -- (8,315) -- (8,315)
Vesting of restricted stock
award -- 250 -- -- 250
Employee stock transactions
and other -- 3,641 -- 9,054 12,695
--------------- ---------------- --------------- --------------- ---------------
Balance December 28, 1996 $ 234 $ 180,269 $ 100,108 $ (11,351) $ 269,260
--------------- ---------------- --------------- --------------- ---------------
See accompanying notes to consolidated financial statements.
PAGE 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 28, 1996, December 30, 1995 and December 31, 1994
(Thousands of dollars, except per share amounts)
52 weeks 52 weeks 52 weeks
December 28, December 30, December 31,
1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income from continuing operations $ 31,478 $ 33,338 $ 33,356
Reconciliation to net cash provided by operating activities:
Depreciation 61,397 47,747 41,286
Amortization of intangible assets 2,477 2,583 3,020
Deferred taxes 3,298 5,216 1,203
(Gain) loss on sale of property and equipment (1,283) (1,958) 84
Increase in other liabilities 11,647 2,921 6,847
Changes in working capital affecting operations:
Increase in accounts receivable (39,767) (7,752) (18,109)
(Increase) decrease in other current assets 455 (4,298) (565)
Increase in accounts payable 5,525 3,458 7,424
Increase in accrued liabilities 10,276 6,733 13,360
Other, net 2,096 1,161 1,309
--------------- --------------- ---------------
Net cash provided by operating activities 87,599 89,149 89,215
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures (94,057) (116,675) (68,836)
Proceeds from sale of property and equipment 4,246 3,792 2,325
Acquisitions (31,265) -- --
--------------- --------------- ---------------
Net cash used in investing activities (121,076) (112,883) (66,511)
--------------- --------------- ---------------
Cash flows from financing activities:
Capital contributions 250 250 --
Dividends paid (8,252) (8,172) (8,136)
Purchase of common stock -- (3,921) --
Proceeds from sale of treasury stock 3,195 3,563 3,673
Proceeds from long-term bank debt 41,000 38,000 15,000
Payments on long-term bank debt (333) (6,334) (33,516)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 35,860 23,386 (22,979)
--------------- --------------- ---------------
Net increase (decrease) in cash 2,383 (348) (275)
Cash at beginning of year 1,707 2,055 2,330
--------------- --------------- ---------------
Cash at end of year $ 4,090 $ 1,707 $ 2,055
--------------- --------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 11,715 $ 8,390 $ 8,334
Income taxes 18,105 20,507 25,003
See accompanying notes to consolidated financial statements.
PAGE 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of dollars, except per share amounts)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of USFreightways and
its wholly owned subsidiaries (the Company). Effective May 3, 1996, the
Company's shareholders approved a name change from TNT Freightways Corporation
to USFreightways Corporation. The Company's operations are further discussed in
periodic SEC filings. Intercompany balances and transactions have been
eliminated.
The Company reports on a 52/53-week fiscal year basis concluding on the Saturday
nearest to December 31. The three fiscal years covered in the consolidated
financial statements ended on December 28, 1996, December 30, 1995 and December
31, 1994.
Revenue Recognition
Transportation revenue is recognized when freight is picked up from the
customer, at which time the related estimated expenses of performing the total
transportation services are accrued.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Although actual
results could differ from estimates, significant adjustments historically have
not been required.
(2) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over periods ranging
from three to ten years for the majority of equipment and 30 years for
buildings. Property and equipment at December 28, 1996 and December 30, 1995
consist of the following:
December 28, December 30,
1996 1995
--------------- ------------
Land $ 53,904 $ 49,158
Buildings and leasehold improvements 114,513 99,425
Equipment 486,860 403,573
Furniture and fixtures 11,222 8,983
Data processing equipment 28,713 22,032
--------------- ---------------
$ 695,212 $ 583,171
Less accumulated depreciation 299,712 244,325
--------------- ---------------
$ 395,500 $ 338,846
--------------- ---------------
(3) INTANGIBLE ASSETS - EXTRAORDINARY ITEM
Intangible assets primarily represent goodwill which is amortized on a
straight-line basis over 40 years. The carrying value of goodwill is reviewed
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable through projected undiscounted future operating cash flows.
No reduction of the carrying value has been required for any year.
In August 1994, Congress passed the Federal Aviation Administration
Authorization Act of 1994 which includes provisions that effectively preempt
states from regulating intrastate operations. Accordingly, in the third quarter
of 1994 the Company recorded, as an extraordinary item, the write off of its
remaining carrying values of intrastate operating rights resulting in an
extraordinary charge of $1,291, net of income taxes of $992.
PAGE 10
(4) OPERATING LEASES
The Company leases certain terminals, vehicles and data processing equipment
under long-term lease agreements that expire in various years through 2011.
The following is a schedule of future minimum rental payments on leases that
have initial or remaining non-cancelable lease terms in excess of one year at
December 28, 1996.
Fiscal Year Payments
------------
1997 $ 17,278
1998 14,946
1999 10,866
2000 3,086
2001 3,356
Subsequent years 4,027
----------
$ 53,559
Rental expense in the accompanying consolidated statements of operations for the
years ended December 28, 1996, December 30, 1995 and December 31, 1994, was
$23,960, $19,804 and $20,700, respectively.
(5) LONG-TERM DEBT
Long-term debt at December 28, 1996 and December 30, 1995 consists of the
following:
December 28, December 30,
1996 1995
-------------- --------------
Unsecured notes (a) $ 100,000 $ 100,000
Unsecured lines of credit (b) 78,000 37,000
Other 333 666
--------------- ---------------
178,333 137,666
Less current maturities 333 333
--------------- ---------------
$ 178,000 $ 137,333
--------------- ---------------
(a) In May 1993, the Company issued $100,000 principal amount of unsecured
notes. The notes mature on May 1, 2000 and bear interest at 6 5/8%, payable
semi-annually. The notes are not subject to redemption prior to maturity and
have no sinking fund requirements. Based upon the Company's incremental
borrowing rates for similar types of borrowing arrangements, the fair value of
the notes at December 28, 1996 was approximately $100,000.
(b) At December 28, 1996, the Company has outstanding borrowings of $78,000 and
standby letters of credit outstanding of $46,116 on an unsecured credit facility
expiring September 30, 2000. This facility is with a syndicate of commercial
banks and provides revolving credit of $160,000 of which $100,000 can be used
for standby letters of credit. The credit facility allows interest rates for
funds borrowed based on either Prime or LIBOR. The weighted average interest on
borrowings at December 28, 1996 was 5.8%.
The aggregate annual maturities of debt at December 28, 1996 are as follows:
Fiscal Year Amount
-----------
1997 $ 333
1998 0
1999 0
2000 178,000
------------
$ 178,333
------------
The Company has an interest rate protection contract which limits the maximum
LIBOR rate on $40,000 loaned to the Company at 5.5% for a four year period
ending August 1997. As of December 28, 1996, the fair value of the interest rate
protection contract does not differ materially from the carrying value.
PAGE 11
(6) INCOME TAXES
A reconciliation of the statutory Federal income tax rate with the effective
income tax rate is as follows:
52 weeks 52 weeks 52 weeks
December 28, December 30, December 31,
1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
Federal income tax at statutory rate $ 19,225 $ 20,471 $ 20,733
State income tax 2,724 3,195 3,155
Goodwill amortization 823 766 766
Other 679 718 1,228
--------------- --------------- ---------------
Total income tax expense $ 23,451 $ 25,150 $ 25,882
--------------- --------------- ---------------
The components of the provision for income taxes are as follows:
52 weeks 52 weeks 52 weeks
December 28, December 30, December 31,
1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------------------------------
Current expense:
Federal $ 15,610 $ 16,024 $ 20,571
State 4,543 3,910 4,108
--------------- --------------- ---------------
20,153 19,934 24,679
--------------- --------------- ---------------
Deferred expense:
Accelerated depreciation 8,555 8,499 7,216
Insurance and claims (5,036) (1,841) (3,974)
Vacation pay 597 (1,111) (224)
Other (818) (331) (1,815)
--------------- --------------- ---------------
3,298 5,216 1,203
--------------- --------------- ---------------
Total income tax expense $ 23,451 $ 25,150 $ 25,882
--------------- --------------- ---------------
The following is a summary of the components of the deferred tax assets and
liabilities at December 28, 1996 and December 30, 1995:
December 28, December 30,
1996 1995
----------- ------------
Deferred tax assets:
Allowance for doubtful accounts and revenue adjustments $ 4,825 $ 4,224
Insurance and claims 26,294 21,258
Vacation pay 6,143 6,740
Other 2,670 2,114
--------------- ---------------
$ 39,932 $ 34,336
--------------- ---------------
Deferred tax liabilities:
Property and equipment, principally due to accelerated depreciation $ 64,012 $ 55,118
--------------- ---------------
PAGE 12
(7) EMPLOYEE BENEFIT PLANS
The Company maintains a salary deferral 401(k) plan covering substantially all
employees who are not members of a collective bargaining unit and who meet
specified service requirements. Contributions are based upon participants'
salary deferrals and compensation and are made within Internal Revenue Service
limitations. For the years ended December 28, 1996, December 30, 1995 and
December 31, 1994, Company contributions for these plans were $5,715, $4,876 and
$4,470, respectively. The Company does not offer unfunded post-employment
benefits or post-retirement benefits.
The Company contributes to several union-sponsored multi-employer pension plans.
These plans are not administered by the Company, and contributions are
determined in accordance with provisions of negotiated labor contracts. The
Multi-employer Pension Plan Amendments Act of 1980 established a continuing
liability to such union-sponsored pension plans for an allocated share of each
plan's unfunded vested benefits upon substantial or total withdrawal by the
Company or upon termination of the pension plans. To date, no withdrawal or
termination has occurred or is contemplated. For the years ended December 28,
1996, December 30, 1995 and December 31, 1994, Company contributions for these
pension plans were $45,094, $39,428 and $31,299, respectively.
(8) COMMON STOCK
The Company maintains an employee stock purchase plan which provides for the
purchase of an aggregate of not more than 900,000 shares of the Company's common
stock. Each eligible employee may designate the amount of regular payroll
deductions, subject to a yearly maximum, that is used to purchase shares at 90%
of the month-end market price.
The Company maintains stock option plans that provide for the granting of
options to key employees and non-employee directors to purchase an aggregate of
not more than 1,510,000 shares of the Company's common stock. Stock options
issued pursuant to the plans are exercisable for periods up to 10 years from the
date an option is granted. At December 28, 1996 there were 145,200 shares
available for granting under the plans.
In accordance with the provisions of SFAS No. 123, the Company applies APB
Opinion 25 and related interpretations in accounting for its stock option plans,
and accordingly, does not recognize compensation cost. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date, as prescribed by SFAS No. 123, net income and earnings
per share would have been reduced to the pro forma amounts indicated in the
table below:
1996 1995
- - --------------------------------------------------------------------------------
Net income--as reported $ 31,478 $ 33,338
Net income--pro forma 31,049 33,163
Earnings per share--as reported 1.41 1.51
Earnings per share--pro forma 1.38 1.50
As prescribed under SFAS No. 123, pro forma net income amounts presented above
reflect only options granted in 1996 and 1995 since compensation costs for
options granted prior to January 1, 1995 are not considered. Compensation cost
for options granted in 1996 and 1995 is reflected over the options' vesting
periods ranging from two to five years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 1.58% for all
years; expected volatility of 35.69%; risk-free interest rates at grant date
ranging from 6.07 to 7.46%; and expected lives of 6.4 years.
PAGE 13
(8) COMMON STOCK (CONTINUED)
A summary of the status of the Company's stock option plans as of December 28,
1996 and December 30, 1995, and changes during the years ended on those dates is
presented below:
December 28, 1996 December 30, 1995
--------------------------- -------------------
Weighted-avg Weighted-avg
Shares Exercise Price Shares Exercise Price
---------------- --------------- --------------- -----------------
Outstanding at beginning of year 758,800 $ 16.21 823,400 $ 15.72
Granted 479,000 19.49 58,500 22.80
Exercised (92,900) 13.65 (79,700) 13.53
Forfeited (37,650) 16.16 (43,400) 20.47
---------------- ---------------
Oustanding at end of year 1,107,250 17.84 758,800 16.21
---------------- ---------------
Options exercisable at year end 448,220 15.65 399,330 15.19
---------------- ---------------
Weighted-average fair value of
options granted during the year $ 8.18 $ 9.59
The following table summarizes information about stock options outstanding at
December 28, 1996:
Outstanding Options Options Exercisable
------------------- -------------------
Number Weighted-avg Number
Range of Outstanding Remaining Weighted-avg Exercisable Weighted-avg
Estimated Prices at 12/28/96 Contractual Life Exercise Price at 12/28/96 Exercise Price
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 13.00 - 15.00 438,550 5.81 years $ 13.92 354,700 $ 13.97
18.25 - 19.63 479,000 9.50 19.48 0 0
22.50 - 23.63 189,700 7.53 22.77 93,520 22.80
-------------- -------------
1,107,250 7.70 17.84 448,220 15.81
-------------- -------------
In February, 1994 the Board of Directors approved a stockholder rights plan
designed to deter coercive takeover tactics and to prevent an acquirer from
gaining control of the Company without offering a fair price to all of the
Company's stockholders. At that time, the Company declared a distribution of one
right for each share of common stock outstanding (effected as a stock dividend)
to stockholders of record as of February 11, 1994 and generally to shares
issuable under the Company's stock option plans. Each right entitles holders to
buy one-hundredth (1/100) of a share of the Company's newly designated Series A
Junior Participating Cumulative Preferred Stock, $0.01 par value per share, for
a purchase price of $110.00. Each right is exercisable ten days after the
acquisition of 15% or more of the Company's voting stock, or the commencement of
a tender or exchange offer under which the offeror would own 19.9% or more of
the Company's stock. In the event of a proposed takeover meeting certain
additional conditions, the rights could be exercised by all holders other than
the takeover bidder at an exercise price of half of the current market price of
the Company's common stock. This would have the effect of significantly diluting
the holdings of the takeover bidder. These rights expire on February 3, 2004.
PAGE 14
(9) COMMITMENTS AND CONTINGENCIES
The Company is routinely involved in a number of legal proceedings and claims
arising in the ordinary course of business, primarily involving claims for
bodily injury and property damage incurred in the transportation of freight. The
estimated liability for claims included in liabilities, both current and
long-term, reflects the estimated ultimate cost of self-insured claims incurred,
but not paid, for bodily injury, property damage, cargo loss and damage, and
workers' compensation. In the opinion of management, the outcome of these
matters is not expected to have any material adverse effect on the consolidated
financial position or results of operations of the Company and have been
adequately provided for in the financial statements.
At December 28, 1996, the Company had capital purchase commitments of
approximately $1,928 for land and improvements, $22,524 for transportation
equipment, and $2,078 for other equipment.
(10) RESTRUCTURING CHARGE
During the fourth quarter, management authorized a restructuring charge at its
USF Red Star subsidiary. The pre-tax restructuring charge of $4,050 relates
primarily to ongoing lease commitments for terminals no longer occupied and
severance paid in connection with the reduction of personnel.
(11) ACQUISITIONS
During 1996, the Company acquired all the outstanding shares of Interamerican, a
contract warehousing company, and the general commodities business of Transus
for an aggregate amount of $40,765.
(12) SUBSEQUENT EVENT
On February 10, 1997, the Company sold 3,105,000 shares of its Common Stock
under a Registration Statement effective as of February 3, 1997. The net
proceeds of the offering of approximately $69,000 were used principally to
reduce the outstanding borrowings under the Company's unsecured bank credit
facility.
(13) QUARTERLY FINANCIAL INFORMATION (unaudited)
Quarter
-------
First Second Third Fourth Total
----- ------ ----- ------ -----
Fiscal Year Ended December 28, 1996:
Operating revenue $ 313,705 $ 332,089 $ 343,203 $ 341,975 $ 1,330,972
Income from operations 10,412 17,231 22,528 16,957 67,128
Net income 4,349 8,137 11,024 7,968 31,478
Net income per share .20 .37 .49 .35 1.41
Dividends declared per share 0.0933 0.0933 0.0933 0.0933 0.3733
Market price per share
(calendar quarter) 23 1/4 - 18 1/4 24 1/4 - 19 3/8 22 1/2 - 16 3/4 28 1/4 - 19 1/2
Fiscal Year Ended December 30, 1995:
Operating revenue $ 278,923 $ 287,193 $ 289,964 $ 288,378 $ 1,144,458
Income from operations 16,437 19,462 17,326 14,318 67,543
Net income 8,136 9,767 8,739 6,696 33,338
Net income per share .37 .44 .40 .30 1.51
Dividends declared per share 0.0933 0.0933 0.0933 0.0933 0.3733
Market price per share
(calendar quarter) 28 11/16 - 20 1/4 25 - 18 1/8 24 3/8 - 17 3/4 21 1/8 - 16 1/4
PAGE 15
STATISTICAL INFORMATION
Operating Operating LTL Tons LTL Terminals Tractors Trailers Employees
Revenue Ratio Shipments
(millions) (thousands) (thousands)
--------- --------- ----------- ----------- --------- -------- -------- ---------
Holland 96 $ 595.4 91.4% 3,291.2 5,347.3 48 2,751 5,265 6,167
95 527.4 91.7% 2,924.7 4,750.5 47 2,507 4,487 5,490
Red Star 96 $ 196.4 102.0% 940.1 1,968.1 26 925 2,132 2,254
95 200.7 101.1% 955.5 2,038.3 32 932 2,159 2,295
Reddaway 96 $ 178.0 94.8% 751.2 1,585.3 55 938 2,519 2,225
95 163.5 92.6% 752.7 1,602.1 58 875 2,202 2,144
Bestway 96 $ 113.1 89.4% 545.7 1,027.4 25 548 1,785 1,271
95 107.6 90.6% 509.7 967.3 26 520 1,690 1,206
Dugan 96 $ 148.5 97.8% 777.1 1,471.9 57 818 2,504 1,923
95 76.5 93.2% 348.4 661.2 41 441 977 1,007
Logistics 96 $ 85.6 96.9% NA NA NA 544 1,345 1,484
95 64.1 95.3% NA NA NA 447 1,057 914