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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 June 19, 1999.
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.
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(Exact name of registrant as specified in its charter)
Delaware 34-0492670
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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 ___ .
The number of shares of common stock ($.01 par value) outstanding as of July 17,
1999 was 19,388,714.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 19, 1999 December 31, 1998
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(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 76,495 $ 60,232
Accounts receivable, net 267,044 280,170
Other current assets 18,160 18,978
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Total current assets 361,699 359,380
Carrier operating property, at cost 1,337,007 1,341,496
Less allowance for depreciation 971,402 984,380
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Net carrier operating property 365,605 357,116
Goodwill, net 8,506 8,382
Deferred income taxes 33,740 23,955
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Total assets $ 769,550 $ 748,833
======================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 167,599 $ 177,641
Salaries and wages 116,492 103,723
Other current liabilities 47,362 47,249
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Total current liabilities 331,453 328,613
Long-term liabilities
Casualty claims payable 51,550 51,812
Future equipment repairs 12,925 14,708
Accrued pension and retiree medical 111,051 104,091
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Total long-term liabilities 175,526 170,611
Shareholders' equity
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 262,365 249,403
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Total shareholders' equity 262,571 249,609
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Total liabilities and shareholders' equity $ 769,550 $ 748,833
======================================================================
Note: The balance sheet at December 31, 1998 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.
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Twelve Weeks Ended
(Second Quarter)
June 19, 1999 June 20, 1998
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(in thousands, except per share data)
Revenue $ 621,122 $ 609,352
Operating expenses:
Salaries, wages and benefits 400,524 397,748
Operating supplies and expenses 105,242 103,883
Purchased transportation 61,789 58,089
Operating taxes and licenses 17,483 18,098
Insurance and claims expense 12,843 13,405
Provision for depreciation 10,228 9,512
Net loss (gain) on disposal of operating property 232 (461)
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Total operating expenses 608,341 600,274
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Operating income 12,781 9,078
Other income, net 594 178
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Income before income taxes 13,375 9,256
Provision for income taxes 5,751 3,949
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Net income $ 7,624 5,307
====================================================
Earnings per share - basic $ 0.41 $ 0.26
Earnings per share - diluted $ 0.40 $ 0.27
Average shares outstanding - basic 18,831 20,110
Average shares outstanding - diluted 19,101 20,352
Dividends declared per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Twenty-four Weeks Ended
(Two Quarters)
June 19, 1999 June 20, 1998
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(in thousands, except per share data)
Revenue $ 1,226,400 $ 1,231,015
Operating expenses:
Salaries, wages and benefits 795,854 798,231
Operating supplies and expenses 203,159 214,085
Purchased transportation 120,123 115,126
Operating taxes and licenses 35,621 37,451
Insurance and claims expense 25,945 28,383
Provision for depreciation 19,567 19,407
Net (gain) on disposal of operating property (122) (1,570)
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Total operating expenses 1,200,147 1,211,113
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Operating income 26,253 19,902
Other income, net 1,049 880
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Income before income taxes 27,302 20,782
Provision for income taxes 11,739 8,866
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Net income 15,563 11,916
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Net income per share - basic $ 0.83 $ 0.59
Net income per share - diluted $ 0.82 $ 0.59
Average shares outstanding - basic 18,829 20,109
Average shares outstanding - diluted 19,075 20,344
Dividends declared per share $ 0.10 $ 0.10
See notes to condensed consolidated financial statements.
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Twenty-four Weeks Ended
(Two Quarters)
June 19, 1999 June 20, 1998
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,563 $ 11,916
Depreciation and amortization 19,443 19,840
Other operating adjustments 11,090 15,119
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Net cash provided by operating activities 46,096 46,875
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (31,893) (19,761)
Sales of carrier operating property 3,959 6,038
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Net cash used by investing activities (27,934) (13,723)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,926) (2,053)
Issuance of treasury shares 27 4,528
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Net cash (used) provided from financing activities (1,899) 2,475
Net increase in cash and cash equivalents 16,263 35,627
Cash and cash equivalents at beginning of period 60,232 58,505
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Cash and cash equivalents at end of period $ 76,495 $ 94,132
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See notes to condensed consolidated financial statements.
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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 twelve weeks ending June 19, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998.
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--Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Twelve Weeks Ended Twenty-four Weeks Ended
(Second Quarter) (Two Quarters)
June 19, 1999 June 20, 1998 June 19, 1999 June 20, 1998
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(in thousands, except per share data)
Net income $ 7,624 $ 5,307 $ 15,563 $ 11,916
==============================================================================
Weighted-average shares for
basic earnings per share 18,831 20,110 18,829 20,109
Management incentive stock plans 270 242 246 235
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Weighted-average shares for
diluted earnings per share 19,101 20,352 19,075 20,344
==============================================================================
Earnings per share - basic $ 0.41 $ 0.26 $ 0.83 $ 0.59
Earnings per share - diluted $ 0.40 $ 0.27 $ 0.82 $ 0.59
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Note D--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments as shown below:
Twelve Weeks Ended Twenty-four Weeks Ended
(Second Quarter) (Two Quarters)
June 19, 1999 June 20, 1998 June 19, 1999 June 20, 1998
------------------ ----------------- ------------------ --------------------
(in thousands)
Net income $ 7,624 $ 5,307 $ 15,563 $ 11,916
Foreign currency translation
adjustments 529 (523) 1,126 (567)
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Comprehensive income $ 8,153 $ 4,784 $ 16,689 $ 11,349
=============================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company had net income of $7.6 million or $0.40 per share (diluted), for the
second quarter ended June 19, 1999, compared to income of $5.3 million, or $0.27
per share (diluted) in the same quarter last year, an increase of 43.7%.
Revenues were $621.1 million in the current quarter, a 1.9% increase from second
quarter 1998.
Tonnage was down 0.6% in the current quarter compared to the prior year quarter.
Less-than-truckload (LTL) tons were up 0.2% and truckload tons were down 3.7%.
Net revenue per ton increased 2.5% compared to the same quarter last year. This
increase is lower than the increase in the underlying freight rates, as the
average shipment size increased by 1.2% and the average length of haul decreased
slightly, effectively reducing revenue per ton. These changes in the shipment
characteristics reflect the strategic direction of the Company relative to
freight mix and regional service offerings.
Operating expenses per ton were up 2.0% compared to the second quarter of 1998.
Salaries, wages, and benefits increased 1.3% per ton, reflecting the terms of
the Teamster contract, increased costs associated with Company sponsored health
and pension benefits, and variable compensation related to Company performance.
Dock wages declined 1.9% per ton due to improved productivity impacted by the
changing freight mix. The increased use of railroads led to a 7.0% increase in
purchased transportation expense per ton. The portion of linehaul miles
utilizing rail was 28.0% in the second quarter of 1999 versus 24.8% during the
second quarter of 1998. Operating supplies and expenses increased 1.9% per ton
due to the increased use of long term tractor and trailer leases and higher fuel
costs, offset by a decrease in the cost of purchased information systems
services. Insurance and claims expense decreased 3.6% per ton, which reflects
reductions in cargo loss and damage claims. Increased depreciation charges
related to recent purchases of computer equipment were partially offset as
revenue equipment becomes fully depreciated and the Company increases its use of
leased equipment.
The tax rate for the second quarter of 1999 and 1998 differs from the Federal
statutory rate due to the impact of state taxes, taxes on foreign operations,
and non-deductible operating expenses.
At the end of the quarter, cash and marketable securities amounted to $76.5
million, a $16.3 million increase from year-end 1998. Cash flow from operations
has been sufficient to meet working capital needs.
The Company is taking actions to improve operating margins, such as cost
controls, sales and marketing initiatives, working with specific customers to
improve the yield on freight, and changing the freight mix as noted above.
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Roadway has plans in place that will ensure the ability to process transactions
in the year 2000. The final part of these plans includes a full system
integration test of all identified mission-critical systems in July and August
of 1999. Any systems vital to moving freight, paying employees, or doing
business with customers have been deemed mission-critical. As of June 1, 1999,
the Company has successfully completed its plans to remediate all
mission-critical systems. This completes the largest and most essential portion
of the project. A new compliant accounts receivable system is being tested by
users, will be included in the August 1999 system integration tests, and will be
in use in September 1999. A new maintenance management system, which is
compliant, is under development and is expected to be in use in October 1999.
Contingency plans for the maintenance management system are being prepared
should they be needed. New, compliant desktop equipment will continue to be
implemented through September 1999. There have been no material impacts due to
delays in other Information Systems projects.
Letters were sent to key vendors and suppliers requesting information regarding
their compliance plans. Targeted vendors included utilities, computer suppliers,
fuel suppliers, railroads, interlines, ocean carriers, and banks. Most have
indicated compliance or satisfactory plans for compliance. For those who have
not, alternate vendors and suppliers are being identified. Many customers have
requested Roadway's compliance plans, and all inquiries have been fulfilled.
Roadway's internal EDI system is Year 2000 compliant. The Company will continue
testing with customers who choose to convert their systems through the end of
1999, as customer needs dictate. If a customer chooses to remain on a previous
version, which uses the current YYMMDD format, Roadway will not force an
upgrade. Our internal systems that receive and send EDI data are able to handle
either format.
The Company's most likely worst case scenario is a localized utility outage,
which would affect a portion of the operations, including the ability to
effectively plan equipment and human resource needs, the result being an
increased potential for service delays. The Company's contingency plan's
assessment and preparation phase includes action items that anticipate and
mitigate the impact of these risks. Roadway's approach to contingency planning
is to prepare employees to quickly and effectively address any failure that may
occur, rather than attempting to pre-identify every specific failure that may
occur. The corporate office and all field locations will have individual
contingency plans to ensure a seamless transition into the new millennium. These
contingency plans are comprised of four phases and are proactive in nature. The
four phases are:
1. Pre-millennium rollover assessment and preparation (April 1999 -
December 31, 1999) consists of vendor and equipment assessments
and alternative plans, task list development, and deployment of
pre-event action items.
2. Post-millennium rollover site check and assessment (January 1,
2000) consists of staff at each location checking the location
and assessing the impact of any failures.
3. Post-millennium rollover assessment reporting and communications
(January 2, 2000) consists of each location reporting on its
status. These individual reports will be compiled into an overall
corporate status report and will be disseminated to the executive
officers for external notifications.
4. Post-millennium rollover failure remediation (January 1, 2000)
consists of on-site remediation teams prepared to immediately
address any problems encountered.
Roadway's Year 2000 compliance cost is projected to use approximately 10.7% of
the total Information Technology budget in 1999. The Year 2000 project is
financed from operating cash flow and all phases have been budgeted. Total costs
during 1997, 1998, and 1999 to bring the internal systems into compliance are
estimated at $7.6 million in capital expenditures and $6.8 million in expense.
Through the second quarter of 1999, the actual expenditures have been $3.3
million in capital and $5.8 million in expense.
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,
labor relations, and the success of the Company's operating plans.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any market risk sensitive instruments for trading
purposes. The Company's primary market risks include fluctuations in interest
rates, currency exchange rates, and fuel prices.
The Company's earnings are affected by changes in interest rates related to its
trailer leases. During 1998, the Company entered into interest rate swap
agreements with major commercial banks to fix the interest rate of its trailer
leases from previous variable interest rates. The value of the leases upon which
the payments are based was not changed. The agreements, which expire from 2002
to 2004, fix the Company's interest costs at rates varying from 6.07% to 7.12%
on leases valued at $43.2 million. An interest rate variation of 1% would have
no material impact on the Company.
Roadway may incur economic losses due to adverse changes in foreign currency
exchange rates, primarily with fluctuations in the Canadian dollar and Mexican
peso. An instantaneous 10% adverse change in foreign currency exchange rates
would have no material impact on future cash flows of the Company.
An increase in fuel prices would be mitigated by fuel purchase contracts in
place throughout 1999, which protect the Company from a significant portion of
the exposure. In addition, a variable rate fuel surcharge, which is assessed by
Roadway when the national average price of diesel fuel exceeds $1.10 per gallon,
was reinstated on July 6, 1999.
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PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 16, 1999, the Board of Directors declared a cash dividend of $0.05 per
share on the Company's common stock payable on September 7, 1999, to
shareholders of record on August 20, 1999.
The Board also elected William W. Michael, 36, to the position of Vice President
- - Marketing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
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10.27 Operating lease agreement between Roadway Express, Inc. and
ICX Corporation.
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: July 30, 1999 By: /s/ J. Dawson Cunningham
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J. Dawson Cunningham, Executive Vice President,
Chief Financial Officer, and Treasurer
Date: July 30, 1999 By: /s/ John G. Coleman
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John G. Coleman, Controller
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