1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Period ended September 13, 1997. 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 0-600 ROADWAY EXPRESS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 34-0492670 - ------------------------------------------------ ------------------ (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No) 1077 Gorge Boulevard Akron, OH 44310 - --------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (330) 384-1717 --------------- 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 . --- --- The number of shares of common stock ($.01 par value) outstanding as of October 11, 1997 was 20,542,171. 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 13, 1997 December 31, 1996 ---------------------------------------------------------------------- (dollars in thousands) Assets Current assets: Cash and cash equivalents $ 45,638 $ 36,243 Accounts receivable, net 308,347 260,789 Other current assets 21,462 16,847 ---------------------------------------------------------------------- Total current assets 375,447 313,879 Carrier operating property at cost 1,376,642 1,392,048 Allowance for depreciation 1,013,956 1,013,954 ---------------------------------------------------------------------- Net carrier operating property 362,686 378,094 Deferred income taxes 14,665 17,651 ---------------------------------------------------------------------- Total assets $ 752,798 $ 709,624 ====================================================================== Liabilities and shareholders' equity Current liabilities Accounts payable $ 163,759 $ 135,248 Salaries and wages payable 112,142 110,124 Other current liabilities 56,391 52,545 ---------------------------------------------------------------------- Total current liabilities 332,292 297,917 Long-term liabilities Casualty claims payable 60,550 66,674 Future equipment repairs 21,249 24,281 Accrued pension and retiree medical 96,963 96,156 ---------------------------------------------------------------------- Total long-term liabilities 178,762 187,111 Shareholders' equity Common Stock - $.01 par value Authorized - 100,000,000 shares Issued - 20,556,714 shares 206 206 Other shareholders' equity 241,538 224,390 ---------------------------------------------------------------------- Total shareholders' equity 241,744 224,596 ---------------------------------------------------------------------- Total liabilities and equity $ 752,798 $ 709,624 ====================================================================== Note: The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 1 3 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) Twelve Weeks Ended (Third Quarter) September 13, 1997 September 7, 1996 ---------------------------------------------------- (amounts in thousands, except per share data) Revenue $ 642,195 $ 540,942 Operating expenses: Salaries, wages and benefits 406,420 355,154 Operating supplies and expenses 107,125 89,491 Purchased transportation 68,144 44,893 Operating taxes and licenses 18,081 17,614 Insurance and claims expense 13,340 10,517 Provision for depreciation 10,847 14,213 Net (gain) on disposal of operating property (780) (935) ---------------------------------------------------- Total operating expenses 623,177 530,947 ---------------------------------------------------- Operating income 19,018 9,995 Other income (expense), net (209) (364) ---------------------------------------------------- Income before income taxes 18,809 9,631 Provision for income taxes 8,403 5,051 ---------------------------------------------------- Net income $ 10,406 $ 4,580 ==================================================== Net income per share $ 0.50 $ 0.22 Average shares outstanding 20,548 20,541 Thirty-six Weeks Ended (Three Quarters) September 13, 1997 September 7, 1996 ---------------------------------------------------- (amounts in thousands, except per share data) Revenue $ 1,842,244 $ 1,590,654 Operating expenses: Salaries, wages and benefits 1,176,128 1,052,349 Operating supplies and expenses 314,331 266,643 Purchased transportation 177,121 124,788 Operating taxes and licenses 54,474 53,300 Insurance and claims expense 44,202 30,523 Provision for depreciation 35,282 45,047 Net (gain) on disposal of operating property (2,671) (4,256) ---------------------------------------------------- Total operating expenses 1,798,867 1,568,394 ---------------------------------------------------- Operating income 43,377 22,260 Other income (expense), net (361) (874) ---------------------------------------------------- Income before income taxes 43,016 21,386 Provision for income taxes 19,321 10,130 ---------------------------------------------------- Net income $ 23,695 $ 11,256 ==================================================== Net income per share $ 1.15 $ 0.55 Average shares outstanding 20,544 20,527 See notes to condensed consolidated financial statements. 2 4 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) Thirty-six Weeks Ended (Three Quarters) September 13, 1997 September 7, 1996 ---------------------------------------------------- (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 23,695 $ 11,256 Depreciation and amortization 35,220 45,084 Other operating adjustments (20,518) (46,181) ---------------------------------------------------- Net cash provided by operating activities 38,397 10,159 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of carrier operating property (22,576) (20,102) Sales of carrier operating property 11,651 10,068 Business acquisition (15,000) - ---------------------------------------------------- Net cash used by investing activities (25,925) (10,034) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (3,077) (2,053) ---------------------------------------------------- Net cash used by financing activities (3,077) (2,053) Net increase (decrease) in cash and cash equivalents 9,395 (1,928) Cash and cash equivalents at beginning of period 36,243 23,341 ---------------------------------------------------- Cash and cash equivalents at end of period $ 45,638 $ 21,413 ==================================================== See notes to condensed consolidated financial statements. 3 5 Roadway Express, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements Note A--Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the thirty-six weeks ending September 13, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the registrant's annual report on Form 10-K for the year ended December 31, 1996. Note B--Accounting Period The registrant operates on 13 four-week accounting periods with 12 weeks in each of the first three quarters and 16 weeks in the fourth quarter. Note C--Provision for Income Taxes Taxes provided exceed the U.S. statutory rate primarily due to non-deductible operating costs, and foreign and state taxes. Twelve Weeks Ended Thirty-six Weeks Ended (Third Quarter) (Three Quarters) September 13, 1997 September 7, 1996 September 13, 1997 September 7, 1996 -------------------------------------------------------------------------------------- (amounts in thousands) U.S. Federal $ 5,875 $ 3,637 $14,004 $ 5,538 U.S. State 1,258 585 2,547 1,232 Foreign 1,270 829 2,770 3,360 -------------------------------------------------------------------------------------- Total $ 8,403 $ 5,051 $19,321 $10,130 ====================================================================================== Note D-Impact of Recently Issued Accounting Standards The Company will adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", as of December 31, 1997. The adoption of SFAS 128 is expected to have no impact on the Company's calculation of earnings per share. Note E-Acquisition of Reimer Express Lines, Ltd. On April 30, 1997, the Company acquired all of the outstanding shares of Reimer Express Lines, Ltd., a privately held common carrier in Winnipeg, Manitoba, Canada for $15 million in cash. The purchase agreement also contains provisions for additional payments of up to $10 million, subject to Reimer achieving defined performance criteria over a five year period. Reimer provides truckload and LTL service throughout Canada, and international service to and from Canada. 4 6 Note E-Acquisition of Reimer Express Lines, Ltd. (continued) The acquisition was funded with existing cash, and was recorded under the purchase method of accounting. The results of Reimer's operations subsequent to the date of acquisition are included in the Company's consolidated financial statements. The excess of the purchase price over the net assets acquired has been recorded as goodwill, which will be amortized on a straight-line basis over 20 years. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company had net income of $10,406,000 or $0.50 per share, for the third quarter ended September 13, 1997, compared to income of $4,580,000, or $0.22 per share, in the same quarter last year. This improvement in earnings is primarily the result of revenue growth, stable prices, and cost controls relating to our ongoing network improvements. Revenues were $642,195,000 for the third quarter of 1997, an 18.7% improvement over third quarter 1996 revenue of $540,942,000. Total tonnage was up 11.8% in the third quarter compared to the prior year quarter. The addition of Reimer accounted for 44% of this increase. Less-than-truckload (LTL) tons were up 11.1% and truckload tonnage was up 14.9%. Net revenue per ton has increased 6.2% above the third quarter 1996. This increase reflects the impact of the January 1 price increase and the variable fuel surcharge which was instituted at the end of the third quarter, 1996, as well as a temporary influx of small-package freight during the UPS work stoppage. During the third quarter of 1997, shipments were up 21.0% over the prior year quarter. Small-package freight accounted for nearly half of this growth in shipments, increased revenues by 3.0%, and adversely impacted operating costs per ton. Operating expenses per ton (excluding gain on sale of operating property) were up 5.0% compared to third quarter 1996. Salaries and wages per ton increased by 2.4% due to the additional small shipments and the 3.8% wage and benefit increase on April 1, 1997, under the terms of the Teamster contract, as well as by an increase in workers' compensation expenses. Operating supplies and expenses were up 19.7% due largely to additional equipment lease expense brought on by the increased volume of freight and the operating lease agreement discussed below. Purchased transportation and insurance costs increased faster than business levels this quarter. Purchased transportation costs increased 51.8%, reflecting the Company's increasing use of railroads in certain linehaul operations, the increased use of commission agents for pickup and delivery service, and Reimer's use of union owner-operators for linehaul service. Insurance and claims expense increased $2.8 million over third quarter 1996, primarily due to an intensive review to settle existing claims in 1996, which resulted in non-recurring cost reductions related to liability insurance. Depreciation expense continues to decline as more revenue equipment becomes fully depreciated and as we reduce the number of terminal facilities. The Company's system count has been reduced to 409 terminals, compared to 436 terminals at the end of the third quarter 1996. The tax expense for the first three quarters of 1997 and 1996 differs from the Federal statutory rate due to the impact of state taxes, taxes on profitable foreign operations, and non-deductible operating expenses as described in Note C to the Condensed Consolidated Financial Statements. At the end of the quarter, there were no borrowings against the credit facilities; cash flow from operations has been sufficient to meet working capital needs. As previously reported, the Company entered into a second operating lease agreement to replace an additional 3,250 linehaul trailers during 1997 (11% of the fleet). Under these agreements, we have now replaced approximately 5,700 aging trailers with new leased units. 5 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The National Master Freight Agreement, our Contract with the International Brotherhood of Teamsters, expires on March 31, 1998. There was an announcement on September 16, 1997 that the Teamsters and Trucking Management, Inc., the multi-employer bargaining agent for our industry, began meeting as the Joint Industry Development Committee. Through the Committee, the Teamsters and Trucking Management Inc. will make joint recommendations to assist the negotiators of the Contract. Formal Contract talks are expected to begin later this year. The portions of narrative set forth in this discussion that are not historical in nature are forward-looking statements. 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 and the success of the Company's operating plans. PART II -- OTHER INFORMATION ITEM 5. OTHER INFORMATION On October 8, 1997, the Board of Directors announced a cash dividend of $0.05 per share on the Company's common stock payable on December 1, 1997, to shareholders of record on November 14, 1997. The annual meeting of shareholders of Roadway Express, Inc. will be held on Wednesday, March 25, 1998, at 9:00 a.m. Eastern Standard Time at the Sheraton Suites Hotel, 1989 Front St., Cuyahoga Falls, Ohio. Formal notice and proxy statement, with proxy, and the Annual Report To Shareholders will be mailed on or about February 20, 1998, to each shareholder of record as of February 10, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit No. - ----------- 27 Financial Data Schedule. List of the Current Reports on Form 8-K which were filed during the current quarter--none. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROADWAY EXPRESS, INC. Date: October 24, 1997 By: /s/ J. Dawson Cunningham ---------------- -------------------------------------------- J. Dawson Cunningham, Vice President-Finance and Administration, and Treasurer (Principal Financial and Accounting Officer) 6