UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Period ended September 8, 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 000-32821
ROADWAY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 34-1956254
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(State or other jurisdiction of (I.R.S. Employer Identification No)
incorporation or organization)
1077 Gorge Boulevard, Akron, OH 44310
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
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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 .
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The number of shares of common stock ($.01 par value) outstanding as of
October 3, 2001 was 19,224,463.
Note: this 10Q/A is being issued to revise the 10Q for the third quarter ended
September 8, 2001, which was filed on October 23, 2001. Item 2, Management's
Discussion and Analysis is revised. In addition, the Exhibit Index in Item 6 of
the original filing did not list two exhibits that were filed with the 8-K that
was filed during the current quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations, third quarter ended September 8, 2001 compared to third
quarter ended September 9, 2000
The Company had net income of $8.2 million or $0.43 per share (diluted), for the
third quarter ended September 8, 2001, compared to net income of $10.8 million,
or $0.57 per share (diluted) in the same quarter last year, a decrease of 24.6%.
Revenues were $632 million in the current quarter, a 9.6% decrease from third
quarter 2000.
The Company delivered 1.7 million tons of freight in the current quarter, down
13% compared to the prior year quarter. Less-than-truckload (LTL) and truckload
tons were both down 13%. The tonnage decline is primarily attributable to the
national economic slowdown. Net revenue per ton was $374.09, up 4.1% compared to
the same quarter last year. The industry's pricing environment continues to
remain firm, which mitigates some of the impact of the reduced tonnage. The
improvement in revenue per ton was due to the general rate increase in the
fourth quarter of 2000, and adjustments in contract rates. The variable rate
fuel surcharge averaged 2.6% of revenue in the current quarter compared to 3.0%
in the prior-year quarter. Total operating expenses were down $63 million, but
increased 4.6% on a per-ton basis with the decline in tonnage. The operating
ratio deteriorated to 97.8% of revenue, compared to 97.3% in the same quarter
last year. When looking at the current year, the 97.8% operating ratio compares
favorably with the 98.4% operating ratio in the first half of 2001. Cost
controls and staffing reductions led to this improvement, despite the tonnage
decline.
Salaries, wages, and benefits increased to 64.1% of revenue, up from 62.6% in
the third quarter of 2000 due to increases in the cost of health care, pension
benefits, and driver wages. Reductions in variable pay related to performance
and workers compensation costs offset part of this increase. The reduction of
workers compensation expense is the result of the Company's Challenge 2000
program, which is a comprehensive effort to mobilize the entire workforce to
reduce the frequency and severity of injuries and accidents. Other salary and
wage expenses were up slightly as a percentage of revenue. Due to the reduced
business levels, the Company's workforce has been reduced by 10% through layoffs
and hiring restrictions, when compared to the third quarter of 2000.
Operating supplies and expenses were down 13%, reflecting reduced business
levels. Significant reductions in excess of the decline in business levels
occurred in the areas of fuel, pickup and delivery equipment rents, and terminal
supplies and services.
Purchased transportation expenses declined 14%, primarily due to a 23% reduction
of railroad miles in linehaul service. Rail miles were 25% of total miles,
compared to 28% in the same quarter last year. Canadian and Mexican
owner-operators miles were down 6% from last year.
Improved cargo handling performance, improvements in highway safety, and the
reduction in tonnage led to the 33% decline in claims and insurance expense. The
decrease in operating taxes reflects lower fuel taxes associated with the
decline in business levels. Depreciation expense increased $3 million and
reflects recent capital expenditures, primarily for revenue equipment and
information technology.
The tax rate for the third quarter of 2001 and 2000 differs from the Federal
statutory rate due to the impact of state taxes, taxes on foreign operations,
and non-deductible operating expenses. The variation in the tax rate from the
first half of 2001 resulted from changes in the annual effective rate due to
expectations of reduced earnings.
On August 20, 2001, the Company implemented a general freight rate increase of
approximately 5.9% that had a minor impact on third quarter results. Revenue is
only recognized as earned when freight is delivered. The full benefit of this
increase will become evident in the fourth quarter. Roadway continues to take
actions to increase operating margins and yield on freight, such as working with
specific customers to improve efficiencies and reduce unnecessary transportation
costs. Pricing adjustments are negotiated with contract customers throughout the
year under terms of the agreements.
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Results of operations third quarter year-to-date 2001 compared to the third
quarter year-to-date 2000
The Company had net income of $17.2 million or $0.91 per share (diluted), for
the three quarters ended September 8, 2001, compared to net income of $31.1
million, or $1.64 per share (diluted) in the same period last year, a decrease
of 44.8%. A one-time, non-operating charge incurred in the first quarter of 2001
reduced net income by $3.5 million, or $0.18 per share (diluted). This one-time
charge resulted from an adverse jury verdict, which the Company has appealed.
Revenues were $1,924 million, a 7.6% decrease from the same period last year.
The Company delivered 5.2 million tons of freight in the first three quarters
2001, down 12% compared to the prior year period. LTL tons were down 12%, and
truckload tons were down 13%. The tonnage decline is primarily attributable to
the national economic slowdown. Net revenue per ton was $371.73, up 5.3%
compared to the same period last year. The industry's pricing environment
continues to remain firm, which mitigates some of the impact of the reduced
tonnage. The improvement in revenue per ton was primarily due to the general
rate increase in the fourth quarter of 2000, and adjustments in contract rates.
The variable rate fuel surcharge averaged 3.0% of revenue in the current year
quarters compared to 2.7% in the prior-year period. Total operating expenses
were down $141 million, but increased 6.1% on a per-ton basis with the decline
in tonnage. The operating ratio deteriorated to 98.2% of revenue, compared to
97.5% in the same period last year.
Salaries, wages, and benefits increased to 63.9% of revenue, up from 62.7% in
the third quarter year-to-date of 2000 due to increases in the cost of health
care, pension benefits, and driver wages. Reductions in variable pay related to
performance and workers compensation costs offset part of this increase. Due to
the reduced business levels, the Company's workforce has been reduced by 8%
through layoffs and hiring restrictions when compared to year-to-date 2000.
Operating supplies and expenses were down 11%, reflecting reduced business
levels. Purchased transportation expenses declined 10%, primarily due to a 19%
reduction of railroad miles in linehaul service. Improved cargo handling
performance, improvements in highway safety, and the reduction in tonnage led to
the 17% decline in claims and insurance expense. The decrease in operating taxes
reflects lower fuel taxes associated with the decline in business levels.
Depreciation expense increased $11 million and reflects recent capital
expenditures, primarily for revenue equipment and information technology.
The tax rate for the third quarter year-to-date of 2001 and 2000 differs from
the Federal statutory rate due to the impact of state taxes, taxes on foreign
operations, and non-deductible operating expenses.
Liquidity and capital resources
At the end of the third quarter 2001, Roadway's cash and marketable securities
amounted to $82 million, an $18 million increase from year-end 2000. This
increase is due to a reduction of capital expenditures during the current year,
and an increase in cash flow from operations. Capital expenditures for the year
are expected to be $75 million, which has been reduced from second quarter
expectations of $80 million, and the original expectations of $90 million. The
capital expenditures are designated for revenue equipment, facilities, and
information systems. Roadway had a $60 million line of credit available at
September 8, 2001. The Company currently has no long-term debt.
On August 21, 2001, Roadway entered into an agreement to acquire Arnold
Industries, Inc. (Arnold) of Lebanon, Pennsylvania (NASDAQ: AIND) for $21.75 per
share in cash, an aggregate consideration of approximately $550 million.
Arnold's subsidiaries include New Penn Motor Express, a regional next-day ground
LTL carrier and Arnold Transportation Services, an irregular route truckload
carrier. Following the acquisition, New Penn and Arnold Transportation will
operate independently under their respective brand names. The acquisition is
expected to have an immediate, positive impact on Roadway's earnings. The
completion of this transaction is subject to the approval of Arnold's
shareholders and customary closing conditions. The transaction is expected to
close before the end of 2001, and will be accounted for as a purchase business
combination.
2
In conjunction with the acquisition of Arnold, Roadway has obtained a financing
commitment that it intends to use to finance the acquisition and to provide for
future working capital needs. The commitment includes $325 million of senior
credit facilities, consisting of a five-year $150 million revolving credit
facility and a five-year $175 million term loan, and a $225 million bridge
facility. The new senior credit facilities will substantially replace Roadway's
existing external financing sources. The Company intends to use the
approximately $75 million in net after-tax proceeds from the intended sale of
Arnold Logistics (discussed below under the caption "Subsequent event") to
prepay a portion of the borrowings under the new term loan. In connection with
the acquisition, Roadway also expects to enter into a $200 million accounts
receivable securitization facility, initially drawing $100 million to finance
the acquisition. Management believes that consolidated cash flow from operations
and financing sources will be sufficient to meet working capital needs.
Subsequent event
On October 17, 2001, Roadway entered into a definitive agreement with Arnold
Logistics, Inc. and E. H. Arnold, CEO of Arnold to sell Arnold's logistics
operations for $105 million in cash after Roadway's acquisition of Arnold is
completed. The transaction is subject to customary closing conditions and
regulatory approval.
The portions of narrative set forth in this discussion that are not historical
in nature are forward-looking statements intended to qualify for the safe harbor
from liability under the Private Securities Litigation Reform Act of 1995. The
Company's actual future performance and operating and financial results may
differ from those described in the forward-looking statements as a result of a
variety of factors that, besides those mentioned, include the condition of the
industry and the economy, capacity and rate levels in the motor freight
industry, government regulation, fuel prices, labor relations, and the success
of the Company's operating plans, including the consummation of its pending
acquisition of Arnold and sale of Arnold Logistics. These forward-looking
statements reflect management's analysis only as of the date of this filing. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
In addition to the disclosure contained herein, readers should carefully review
risks and uncertainties contained in other documents the Company files from time
to time with the Securities and Exchange Commission.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBIT INDEX AND REPORTS ON FORM 8-K
Exhibit No.
2.2 Agreement and Plan of Merger, dated August 21, 2001, by and among
Roadway Corporation, Lion Corp., and Arnold Industries, Inc. (filed as
exhibit 2.1 to the Form 8-K dated August 24, 2001, and incorporated
herein by reference).
99.1 Shareholder Voting Agreement, dated August 21, 2001, by and between
Roadway Corporation and Edward H. Arnold (filed as exhibit 99.1 to the
Form 8-K dated August 24, 2001, and incorporated herein by reference).
List of the Current Reports on Form 8-K which were filed during the current
quarter:
Date of Form 8-K Description
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August 21, 2001 Announcement of Roadway's agreement to acquire Arnold
Industries, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROADWAY CORPORATION
Date: October 25, 2001 By: /s/ J. Dawson Cunningham
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J. Dawson Cunningham, Executive Vice
President and Chief Financial Officer
Date: October 25, 2001 By: /s/ John G. Coleman
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John G. Coleman, Controller
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