<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required)
For the fiscal year ended December 31, 1994
-----------------
OR
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required)
For the transition period from_________________to_________________
Commission file number 0-10716
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ROADWAY SERVICES, INC.
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(Exact name of registrant as specified in its charter)
Ohio 34-1365496
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1077 Gorge Boulevard, P.O. Box 88, Akron, Ohio 44309-0088
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 384-8184
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock-without par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1995 was $1,169,474,000.
The number of shares of the issuer's common stock outstanding as of February
28, 1995 was 39,069,158.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1994 are incorporated by reference into Parts I and II.
Certain portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 10, 1995 are incorporated by reference into Part
III.
<PAGE> 2
PART I
Item 1. - Business.
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Roadway Services, Inc. (registrant), a corporation organized in 1982
under the laws of the State of Ohio, is a holding company engaged through its
operating companies in the transportation and logistics businesses. Its
operating companies are Roadway Express, Inc., Roadway Package System, Inc.
(RPS), Roadway Global Air, Inc. (RGA), Roberts Express, Inc., (Roberts),
Roadway Logistics Systems, Inc. (ROLS), and Roadway Regional Group, Inc. (RRG),
which is the corporate parent of Viking Freight System, Inc., Spartan Express,
Inc., Coles Express, Inc. and Central Freight Lines Inc.
The registrant's largest operating group consists of Roadway Express,
Inc. (Akron, Ohio), its subsidiary Roadway Express (Canada), Inc. (Calgary,
Alberta, Canada), and joint venture TNL-Roadway (Mexico City, D.F., Mexico).
Collectively, this group is one of the industry's major carriers of long haul,
less-than-truckload (LTL) general freight. Roadway Express, providing common
carrier interstate transportation since 1930, serves North America, including
all 50 states, South America, Europe, Asia and Australia through 577 terminal
facilities. The Roadway Express system primarily handles long haul, interstate
shipments of LTL freight. No single carrier, or small number of carriers, is
dominant in the portion of the industry in which Roadway Express operates.
Additional information concerning this operating group is set forth in the
discussion contained on pages 4 through 7, except for the section entitled
Quality, of the Annual Report to Shareholders for the year ended December 31,
1994, and is incorporated herein by reference.
The registrant's other motor carrier subsidiaries provide service to
various portions of the motor carrier transportation market, none of which is
dominated by a single carrier or small number of carriers with one exception.
The surface small package shipping market area, in which RPS competes, is
dominated by United Parcel Service. Additional information concerning the
registrant's other motor carrier subsidiaries is set forth in the discussion
contained on pages 8 through 11, except for the sections entitled People and
Quality, the discussion contained on pages 14 through 17, except for the
sections entitled People and Quality, and except for the second paragraph under
each of the sections entitled Viking Freight System, Central Freight Lines,
Spartan Central, Spartan South and Coles Express, and the discussion contained
on page 18 and 19, except for the sections entitled People and Quality, of the
registrant's Annual Report to Shareholders for the year ended December 31,
1994, and is incorporated herein by reference.
RGA provides air cargo service to customers worldwide through 77 air
logistics centers in North America, Europe, Asia and Australia, including a hub
facility in Terre Haute, Indiana. Additional information concerning RGA is set
forth in the discussion contained on pages 12 and 13, except for the sections
entitled People and Quality, of the registrant's Annual Report to Shareholders
for the year ended December 31, 1994, and is incorporated herein by reference.
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<PAGE> 3
ROLS provides contract logistics services. Additional information
concerning ROLS is set forth in the discussion contained on pages 20 and 21,
except for the sections entitled People and Quality, of the registrant's Annual
Report to Shareholders for the year ended December 31, 1994, and is
incorporated herein by reference.
All domestic motor carrier subsidiaries are subject to regulation by the
Interstate Commerce Commission and the Department of Transportation. At the
end of 1994 the registrant and its affiliates employed approximately 50,600
persons (on a full time equivalent basis) and utilized the services of
approximately 8,000 independent contractors.
Item 2. - Properties.
- ------- -----------
Roadway Services, Inc.
- ----------------------
Corporate offices of the registrant and its information systems
subsidiary are located in Akron, Ohio in facilities leased from one of the
registrant's subsidiaries. Limited additional corporate office space is
located in nearby leased facilities.
Roadway Express, Inc.
- ---------------------
As of December 31, 1994, the Roadway Express operating group owned or
leased 577 terminal facilities, of which 29 were major consolidation and
distribution facilities referred to as "breakbulk terminals." Of the total
facilities, 356 were owned and 221 were leased, generally for terms of three
years or less. The number of loading spaces, a measure of freight handling
capacity, totaled 15,079 at year end 1994, of which 12,857 were at owned
facilities and 2,222 were at leased facilities. All significant leased and
owned facilities were being utilized at year end 1994, and are adequate to meet
current needs.
The 29 major breakbulk terminals, all of which are owned by Roadway
Express, are located in strategic locations throughout the continental United
States. These facilities, averaging 87,000 square feet, range in size from
31,000 to 220,000 square feet.
The general offices are located in the company-owned headquarters building
in Akron, Ohio. Limited additional general office space is located in nearby
leased facilities. Divisional offices are located throughout the United
States, generally in office space at company-owned terminal facilities.
The investment by Roadway Express in its revenue vehicle fleet
represents 50% of the investment in revenue vehicles by the registrant and its
subsidiaries. At the end of 1994, the average age of the Roadway Express
intercity tractors was 5.8 years and that of the intercity trailers was 7.3
years. There is sufficient capacity to meet normal requirements. Leased
equipment may be utilized to meet peak demands.
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Roadway Package System, Inc.
- ----------------------------
As of December 31, 1994, Roadway Package System operated 317 terminals,
including 22 hub facilities. Forty-four of the terminals, 18 of which are hub
facilities, are owned and 273 terminals, including the other four hub
facilities, are leased, generally for terms of three years or less. Twelve of
the terminals, including three hub facilities, are operated by Roadway Package
System, Ltd. in Canada. The 22 hub facilities are strategically located to
cover the geographic area served by RPS. These facilities, averaging 78,000
square feet, range in size from 22,000 to 143,000 square feet.
The general offices and information systems center are located in leased
facilities in the Pittsburgh, Pennsylvania area. A new 300,000 square foot
corporate headquarters and data center is nearing completion and will be
occupied by RPS in 1995. The owned facility is located in suburban Pittsburgh.
Roadway Global Air, Inc.
- ------------------------
As of December 31, 1994, Roadway Global Air, Inc. operated 77 leased air
logistics centers located in North America, Europe, Asia and Australia, and a
leased hub facility in Terre Haute, Indiana. These facilities, averaging
10,400 square feet, range in size from 1,000 to 42,000 square feet. The
company's general offices are located in leased facilities in Indianapolis,
Indiana.
Roadway Regional Group, Inc.
- ----------------------------
As of December 31, 1994, Roadway Regional Group occupied 14 regional sales
offices located primarily in the midwestern and eastern United States. RRG's
general offices are located in San Jose, California in a leased facility.
As of December 31, 1994, Viking Freight System, Inc. operated 48
terminals located in eight western states. Twenty-nine of the terminals, with
1,342 loading spaces, are owned and the remaining 19 terminals, with 479
loading spaces, are leased. The largest terminal facility, located in San
Leandro, California, has 132 loading spaces and is leased by Viking Freight
System, Inc. The company's general offices are located in leased facilities in
San Jose, California.
As of December 31, 1994, Central Freight Lines Inc. operated 85
terminals located primarily in eight southwestern and midwestern states.
Fifty-five of the terminals, with 2,726 loading spaces, are owned and the
remaining 30, with 417 loading spaces, are leased. The largest terminal,
located in Dallas, Texas, has 525 loading spaces and is owned by Central
Freight Lines Inc. The company's general offices are located in Waco, Texas in
owned facilities.
As of December 31, 1994, Spartan Express, Inc. operated 74 terminals
located in 17 central and southern states through two divisions: Spartan
Central and Spartan South. Thirteen of the terminals, with 437 loading spaces,
are owned and the remaining 61, with 1,373 loading spaces, are leased. The
largest terminal, a leased facility located in the Atlanta, Georgia area, has
102 loading spaces. The general offices of Spartan South are located in Greer,
South Carolina in facilities owned by Spartan Express. Spartan Central's
general offices are located in a leased facility in Worthington, Ohio.
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As of December 31, 1994, Coles Express, Inc. operated 25 terminals
located in 11 New England and Middle Atlantic states. Five of the terminals,
with 127 loading spaces, are owned and the remaining 20, with 401 loading
spaces, are leased. The largest terminals have 39 loading spaces each, and are
located in leased facilities in Elizabeth, New Jersey and in facilities owned
by Coles Express, Inc. in Portland, Maine. The company's general offices are
located in Bangor, Maine.
Roberts Transportation Services, Inc.
- -------------------------------------
The company's general offices are located in Akron, Ohio in facilities
owned by its principal operating subsidiary, Roberts Express, Inc. Terminal
facilities are not required, due to the exclusive use service provided.
Roadway Logistics Systems, Inc.
- -------------------------------
The company's general offices are located in Hudson, Ohio in leased
facilities.
Item 3. - Legal Proceedings.
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During 1989, the Internal Revenue Service (IRS) completed an examination
of the registrant's employment tax returns for the years 1985 and 1986
proposing changes in classification of certain drivers at RPS and subjecting
the registrant to payment of approximately $5 million of certain employment
taxes for those years. The registrant paid the amounts claimed although it
disagreed with the IRS position both as to liability for and amounts of taxes
claimed. Suit was filed in the United States Court of Claims to recover the
amounts paid. In 1992, the IRS completed its examination of the registrant's
1987 through 1989 employment tax returns and proposed additional employment
taxes of approximately $27 million. The registrant estimates that the total
potential liability could have been as much as $119 million through 1993 on the
same basis as adjustments proposed for years 1985 through 1989.
The registrant has reached agreement with the IRS and the Department of
Justice in full settlement of all assessed, asserted or potential employment
tax deficiencies and interest related to this matter through 1993. The net
after-tax cost of the settlement amounted to $13.7 million or $.35 per share
and is included in the 1994 statement of consolidated income.
As an incident of the settlement, the IRS provided a letter of assurance
that states that operations conducted in accordance with the terms of an
arrangement described therein would not be inconsistent with an independent
contractor relationship within the meaning of the Internal Revenue Code. Since
January 1, 1994, RPS has executed revised agreements with its pickup and
delivery owner-operators that coincide with the terms described in the letter
of assurance.
Various other legal proceedings arising from the normal conduct of
business are pending but, in the opinion of management, the ultimate
disposition of these matters will have no material effect on the financial
condition of the registrant.
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Item 4. - Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of 1994.
Executive Officers of the Registrant.
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Name and Age Present Positions and Recent Business Experience
- ------------ ------------------------------------------------
Donald C. Brown, 39 Vice President-Corporate Support Services since
January 1995; previously he served as Assistant
Controller from January 1992 through 1994;
Assistant to Vice President and Controller from
December 1990 thru 1991; previous to employment
with the registrant he was an audit senior
manager with Ernst & Young LLP since 1984.
John P. Chandler, 51 Vice President-Administration and Treasurer
since January 1994; previously he served as Vice
President-Administration during 1993; President
of Roadway Package System, Inc. from July 1990
to December 1992 and Vice President-Finance and
Administration of Roadway Package System, Inc.
through June 1990.
Joseph M. Clapp, 58 Director since 1982, and Chairman and Chief
Executive Officer since January 1994;
previously he served as Chairman and President
from 1987 through December 1993.
John M. Glenn, 63 Vice President and General Counsel since 1987.
Roy E. Griggs, 58 Vice President and Controller since August
1990; previously he served as Assistant
Controller.
William F. Klug, 55 Vice President-Real Estate and Environmental
Services since January 1995; previously he
served as Vice President-Properties and Material
Management from 1988 through 1994.
Rodger G. Marticke, 46 Vice President and Group Executive since August
1994; previously he served as Assistant to the
President since January 1993; previous to
employment with the registrant he was a
Principal with Temple, Barker and Sloan/Mercer
Management, a management consulting firm since
1988.
Jonathan T. Pavloff, 45 Vice President-Corporate Planning since
February 1991; previously he served as
President of Roadway Information Technology,
Inc. (formerly Summit Information Systems,
Inc.) a company owned management information
subsidiary, from 1989 to February 1991.
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<PAGE> 7
Daniel J. Sullivan, 48 Director since August 1990 and President and
Chief Operating Officer since January 1994;
previously he served as Senior Vice President
and President-National Carrier Group during
1993; Vice President and President-National
Carrier Group during 1992; Vice President and
Group Executive from July 1990 through 1991 and
President of Roadway Package System, Inc.
through June 1990.
D. A. Wilson, 50 Senior Vice President-Finance and Planning,
Secretary and Chief Financial Officer since
January 1994; previously he served as Senior
Vice President-Finance and Planning and
Secretary during 1993 and as Vice President-
Finance and Secretary from 1989 through 1992.
Officers are elected to serve on a calendar year basis except for the
Chairman, President, Treasurer and Secretary, who are elected for an annual
term following the annual meeting of shareholders. No family relationships
exist between any of the executive officers named above or between any
executive officer and any director of the registrant.
PART II
Item 5. - Market for Registrant's Common Equity and Related Stockholder
- ------- -------------------------------------------------------------
Matters.
--------
In response to the information called for by this Item, the material set
forth under the heading "Common Stock and Dividends" on page 38 of the
registrant's Annual Report to Shareholders for the year ended December 31,
1994, is incorporated herein by reference.
Item 6. - Selected Financial Data.
- ------- ------------------------
In response to the information called for by this Item, the historical
data set forth for the years 1994, 1993, 1992, 1991 and 1990, and Notes (1) and
(2) on pages 36 and 37 of the registrant's Annual Report to Shareholders for
the year ended December 31, 1994, are incorporated herein by reference.
Item 7. - Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations.
----------------------
In response to the information called for by this Item, the material set
forth on pages 23 through 25 of the registrant's Annual Report to Shareholders
for the year ended December 31, 1994, is incorporated herein by reference.
Item 8. - Financial Statements and Supplementary Data.
- ------- --------------------------------------------
The consolidated financial statements of the registrant and its
subsidiaries set forth on pages 26 through 34 and the Report of Independent
Auditors on page 35 of the registrant's Annual Report to Shareholders for the
year ended December 31, 1994, are incorporated herein by reference.
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<PAGE> 8
The Report of Independent Auditors on the Financial Statement Schedule
listed in Item 14(a) is included as Exhibit 99 of this report.
The material set forth under the heading "Summary of Quarterly Results
of Operations" on page 38 of the registrant's Annual Report to Shareholders for
the year ended December 31, 1994, is incorporated herein by reference.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
PART III
Item 10. - Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
In response to the information called for by Item 401 of Regulation S-K
with respect to directors of the registrant, the material set forth under the
heading "Information About Nominees for Directors" in the registrant's proxy
statement for the annual meeting of shareholders to be held on May 10, 1995,
which will be filed pursuant to Regulation 14A with the Securities and Exchange
Commission, is incorporated herein by reference.
In response to the information called for by Item 401 of Regulation S-K
with respect to executive officers of the registrant, the material set forth
under the heading "Executive Officers of the Registrant" in Part I of this Form
10-K Annual Report for the year ended December 31, 1994, is incorporated herein
by reference.
Item 11. - Executive Compensation.
- -------- -----------------------
In response to the information called for by this Item with respect to
directors of the registrant, the material set forth under the heading "Director
Compensation" in the registrant's proxy statement for the annual meeting of
shareholders to be held on May 10, 1995, which will be filed pursuant to
Regulation 14A with the Securities and Exchange Commission, is incorporated
herein by reference.
In response to the information called for by this Item with respect to
executive officers of the registrant, the material set forth under the heading
"Executive Compensation and Shareholdings by Executive Officers" in the
registrant's proxy statement for the annual meeting of shareholders to be held
on May 10, 1995, which will be filed pursuant to Regulation 14A with the
Securities and Exchange Commission, is incorporated herein by reference.
Item 12. - Security Ownership of Certain Beneficial Owners and Management.
- -------- ---------------------------------------------------------------
In response to the information called for by this Item, the material set
forth under the heading "Principal Holders of Company Common Stock on February
28, 1995," including the notes thereto, the material set forth under the
heading "Information About Nominees for Directors," including the notes thereto
and the material set forth under the heading "Ownership of Company Common Stock
by Management," including the notes thereto, in the registrant's proxy
statement for the annual meeting of shareholders to be held on May 10, 1995,
which will be filed pursuant to Regulation 14A with the Securities and Exchange
Commission, is incorporated herein by reference.
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Item 13. - Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
None.
PART IV
Item 14. - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) (1) and (2) List of Financial Statements and Financial
Statement Schedules--The response to this
portion of Item 14 is submitted as a separate
section of this report.
(3) Exhibit Index--The response to this portion of Item 14 is
submitted as a separate section of this report.
(b) Reports on Form 8-K Filed in the Fourth Quarter of
1994--None.
(c) Exhibits--The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules--The response to this
portion of Item 14 is submitted as a separate section of
this report.
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<PAGE> 10
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 SERVICES, INC.
Date March 8, 1995 By Joseph M. Clapp
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Joseph M. Clapp, Chairman and
Chief Executive Officer
Date March 8, 1995 By D. A. Wilson
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D. A. Wilson, Senior Vice President-
Finance and Planning, Secretary and
Chief Financial Officer
Date March 8, 1995 By R. E. Griggs
-------------- ------------------------------------
Roy E. Griggs,
Vice President and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
ROADWAY SERVICES, INC.
Date March 8, 1995 By G. B. Beitzel
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G. B. Beitzel, Director
Date March 8, 1995 By R. A. Chenoweth
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R. A. Chenoweth, Director
Date March 8, 1995 By Joseph M. Clapp
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Joseph M. Clapp, Director
Date March 8, 1995 By Norman C. Harbert
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Norman C. Harbert, Director
Date March 8, 1995 By Charles R. Longsworth
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Charles R. Longsworth, Director
Date March 8, 1995 By Daniel J. Sullivan
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Daniel J. Sullivan, Director
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ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) AND (2), AND 14(d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
ROADWAY SERVICES, INC.
AKRON, OHIO
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FORM 10-K--ITEM 14(a) (1) AND (2)
ROADWAY SERVICES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements, included in the registrant's
Annual Report to Shareholders for the year ended December 31, 1994, are
incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1994 and 1993--pages 26 and 27
Statements of Consolidated Income--Years ended December 31, 1994,
1993 and 1992--page 28
Statements of Consolidated Earnings Reinvested in the Business--
Years ended December 31, 1994, 1993 and 1992--page 28
Statements of Consolidated Cash Flows--Years ended December 31, 1994,
1993 and 1992--page 29
Notes to Consolidated Financial Statements--December 31, 1994--
pages 30 through 34
The following consolidated financial statement schedule of Roadway Services,
Inc. and subsidiaries is included in Item 14(d):
Schedule VIII-Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
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<PAGE> 13
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS
ROADWAY SERVICES, INC. AND SUBSIDIARIES
Years Ended December 31, 1994, 1993 and 1992
(dollars in thousands)
<TABLE>
<CAPTION>
COL.A COL.B COL.C COL.D COL.E
- ----------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
DESCRIPTION Balance at (1) (2) Deductions- Balance at End
Beginning Charged Charged to Describe of Period
of Period to Cost Other Accounts-
and Expenses Describe
- ----------------------------- ----------- ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
(A)
1994
Allowance for uncollectible
accounts $11,505 $17,847 $ - $13,192 $16,160
1993
Allowance for uncollectible
accounts $10,200 $12,576 $486 (B) $11,757 $11,505
1992
Allowance for uncollectible
accounts $ 7,457 $11,848 $145 (B) $ 9,250 $10,200
<FN>
(A) Uncollectible accounts written off, net of recoveries.
(B) Additions from business acquisitions.
</TABLE>
<PAGE> 14
EXHIBIT INDEX
3.1 Restated Amended Articles of Incorporation of the Registrant (filed as
Exhibit 4(a) to Post-Effective Amendment No. 1 to Registration
Statement No. 33-44502 and incorporated herein by reference).
3.2 Restated Amended Code of Regulations of the Registrant effective May
10, 1989 (filed as Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).
9 Amended Restated Voting Trust Agreement effective November 1, 1992
(filed as Exhibit 9 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, and incorporated herein
by reference).
*10.1 Roadway Services, Inc. Long-Term Stock Award Incentive Plan (as
Amended and Restated December 1992) (filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
*10.2 Restricted Book Value Shares Plan for Roadway Services, Inc. and
Certain Operating Companies (as Amended and Restated as of January
13, 1994) (filed as Exhibit 4(c) to Post-Effective Amendment No. 3 to
Registration Statement No. 33-44502 and incorporated herein by
reference).
*10.3 Roadway Services, Inc. Directors' Deferred Fee Plan (filed as Exhibit
10.5 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by reference).
*10.4 Roadway Services, Inc. 1994 Nonemployee Directors' Stock Plan.
*10.5 Roadway Services, Inc. Retirement Plan for Nonemployee Directors (as
Amended as of February 10, 1993) (filed as Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated herein by reference).
*10.6 Written description of Officers' Incentive Compensation Plan.
*10.7(a) Roadway Services, Inc. Excess Plan effective January 1, 1993 (filed
as Exhibit 10.7(a) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated herein by
reference).
*10.7(b) Roadway Services, Inc. 401(a)(17) Benefit Plan effective January 1,
1993 (filed as Exhibit 10.7(b) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).
________________________________
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of this report.
<PAGE> 15
EXHIBIT INDEX
*10.7(c) Roadway Services, Inc. Administrative Document for Excess Plan and
401(a)(17) Benefit Plan effective January 1, 1993 (filed as Exhibit
10.7(c) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, and incorporated herein by reference).
10.8 Credit Agreement among Roadway Services, Inc., Several Lenders and
Chemical Bank dated as of March 31, 1994 (filed as Exhibit 10 to the
Registrant's Current Report on Form 8-K dated January 17, 1995, and
incorporated herein by reference).
13 Annual Report to Shareholders for the year ended December 31, 1994.
21 Significant Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
99 Report of Independent Auditors on Financial Statement Schedule.
________________________________
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 14(c) of this report.
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<PAGE> 1
Exhibit 10.4
ROADWAY SERVICES, INC.
1994 NONEMPLOYEE DIRECTORS' STOCK PLAN
ARTICLE I
PURPOSE
The purpose of the Roadway Services, Inc. Nonemployee Directors' Stock
Plan (the Plan) is to continue to attract and retain nonemployee directors of
exceptional ability and to solidify the common interest of directors and
shareholders in enhancing the value of the Company's common stock.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following words and phrases shall have
the meanings indicated:
2.1 Annual Meeting means an annual meeting of shareholders of the
Company.
2.2 Award Date means the date of the Annual Meeting as of which an
award and grant under the Plan is effective.
2.3 Board means the Board of Directors of the Company.
2.4 Company means Roadway Services, Inc., an Ohio corporation, and any
successor thereto.
2.5 Fair Market Value means the average of the highest and lowest
sales prices of the Shares on a specified date (or, if Shares were not traded
on such day, the next preceding day on which Shares were traded) as reported in
The Wall Street Journal under the heading "NASDAQ National Market Issues" or
any similar or successor heading.
2.6 Nonemployee Director means a member of the Board who is not
employed by the Company or any of its subsidiaries.
2.7 Option Right means the right to purchase Shares granted pursuant
to Article IV.
2.8 Restricted Stock means Shares awarded pursuant to Article IV which
are neither non-forfeitable nor transferable pursuant to Articles V and VI.
1
<PAGE> 2
2.9 Shares means shares of common stock, without par value, of the
Company.
ARTICLE III
SHARES AVAILABLE FOR GRANTS
Subject to adjustment as provided in Section 8.4, the Shares which may
be sold upon the exercise of Option Rights, or awarded as Restricted Stock and
released from restrictions upon becoming non-forfeitable and transferable,
shall not exceed in the aggregate 80,000 Shares. Shares which are subject to
the unexercised portions of any Option Rights that expire, terminate or are
cancelled, and Shares of Restricted Stock that are forfeited or otherwise
reacquired by the Company pursuant to the restrictions thereon, shall again
become available for the award of Restricted Stock and grant of Option Rights
under the Plan, provided that Shares of Restricted Stock shall not become so
available if any dividends have been paid thereon prior to such reacquisition.
ARTICLE IV
AWARDS OF RESTRICTED STOCK
IN TANDEM WITH GRANTS OF OPTION RIGHTS
4.1 Awards and Grants. Each Nonemployee Director elected or re-elected
to the Board at the 1994 Annual Meeting other than Robert E. Mercer shall be
awarded, effective as of the date of such meeting, Restricted Stock having a
Fair Market Value on the Award Date of One Hundred Twenty-Five Thousand Dollars
($125,000), in tandem with a grant of Option Rights to purchase that number of
Shares as shall be equal to four (4) times the number of Shares included in
such award of Restricted Stock. Each Nonemployee Director first elected to the
Board at an Annual Meeting after the 1994 Annual Meeting and Mr. Mercer, if he
is re-elected to the Board at an Annual Meeting after the 1994 Annual Meeting,
shall be awarded, effective as of the date of the meeting at which he or she is
so elected, Restricted Stock having a Fair Market Value on the Award Date of
One Hundred Twenty-Five Thousand Dollars ($125,000), in tandem with a grant of
Option Rights to purchase that number of Shares as shall be equal to four (4)
times the number of Shares included in such award of Restricted Stock.
4.2 Execution of Agreement. Each award and grant hereunder shall be
contingent upon execution by the Nonemployee Director of a document agreeing to
the terms and conditions set forth in the Plan, and any other terms and
conditions required by the Company.
2
<PAGE> 3
ARTICLE V
LAPSE OF RESTRICTIONS ON RESTRICTED
STOCK; EXERCISABILITY OF OPTION RIGHTS
Shares of Restricted Stock awarded under the Plan shall be forfeited or
become non-forfeitable, and Option Rights granted under the Plan shall be
cancelled or become exercisable, on the following basis:
(a) Forty percent (40%) of the total number of Shares of
Restricted Stock awarded to any Nonemployee Director shall become
non-forfeitable on the date of the second Annual Meeting following the
Award Date, provided that on the date of such second Annual Meeting the
Fair Market Value of one Share shall be less than or equal to one
hundred thirty-three and one-third percent (133-1/3%) of its Fair
Market Value on the Award Date, and in such event the Option Rights
granted in tandem with such Shares of Restricted Stock thereupon shall
be cancelled. If on the date of such second Annual Meeting the Fair
Market Value of one Share is greater than one hundred thirty-three and
one-third percent (133-1/3%) of its Fair Market Value on the Award Date,
such Shares of Restricted Stock instead shall be forfeited and shall
revert to the Company, and the Option Rights granted in tandem
therewith shall continue to be held by such Nonemployee Director
pursuant to the terms hereof and thereupon shall become exercisable.
(b) Twenty percent (20%) of the total number of Shares of
Restricted Stock awarded to any Nonemployee Director shall become
non-forfeitable on the dates of each of the third, fourth and fifth
Annual Meetings following the Award Date, provided that on the date of
such third, fourth or fifth Annual Meeting the Fair Market Value of one
Share shall be less than or equal to one hundred thirty-three and
one-third percent (133-1/3%) of its Fair Market Value on the Award Date,
and in such event the Option Rights granted in tandem with such Shares
of Restricted Stock thereupon shall be cancelled. If on the date of
such third, fourth or fifth Annual Meeting the Fair Market Value of one
Share is greater than one hundred thirty-three and one-third percent
(133-1/3%) of its Fair Market Value on the Award Date, such Shares of
Restricted Stock instead shall be forfeited and shall revert to the
Company, and the Option Rights granted in tandem therewith shall
continue to be held by such Nonemployee Director pursuant to the terms
hereof and thereupon shall become exercisable.
(c) In the event of the death or disability of a Nonemployee
Director while he or she remains a director prior to the date of the
fifth Annual Meeting following his or her Award Date, notwithstanding
anything to the contrary
3
<PAGE> 4
contained herein, all outstanding Shares of Restricted Stock
theretofore awarded to him or her that have not yet become
non-forfeitable shall thereupon become non-forfeitable, provided that
on the Determination Date (as hereinafter defined) the Fair Market
Value of one Share shall be less than or equal to one hundred
thirty-three and one-third percent (133-1/3%) of its Fair Market Value
on the Award Date, and in such event all Option Rights granted in tandem
therewith thereupon shall be cancelled. If on such Determination Date
the Fair Market Value of one Share is greater than one hundred
thirty-three and one-third percent (133-1/3%) of its Fair Market Value
on the Award Date, all such Shares of Restricted Stock instead shall be
forfeited and shall revert to the Company, and all Option Rights
granted in tandem therewith shall continue to be held by such
Nonemployee Director or his estate pursuant to the terms hereof and
thereupon shall become exercisable. For purposes of this paragraph
(c), Determination Date shall mean, as applicable, the date of the
Nonemployee Director's death or the date on which the Nonemployee
Director ceases to serve as a director of the Company as a result of
disability.
(d) In the event of the retirement of a Nonemployee Director
pursuant to the Company's director tenure policy prior to the date of
the fifth Annual Meeting following his or her Award Date,
notwithstanding anything to the contrary contained herein, the schedule
of non-forfeitability set forth in paragraph (a) and paragraph (b) of
this Article V shall be modified so that outstanding Shares of
Restricted Stock theretofore awarded to him or her that have not yet
become non-forfeitable shall thereupon become non-forfeitable on a
schedule that is one year earlier than provided in such paragraphs (a)
and (b) so that forty percent (40%) of the total number of Shares of
Restricted Stock shall become non-forfeitable on the date of the first
Annual Meeting following the Award Date as provided in paragraph (a) if
such First Annual Meeting has not yet occurred, and twenty percent
(20%) of the total number of Shares of Restricted Stock shall become
non-forfeitable on the dates of each of the second, third and fourth
Annual Meetings following the Award Date as provided in such paragraph
(b), provided that on the Determination Date (as hereinafter defined)
the Fair Market Value of one Share shall be less than or equal to one
hundred thirty-three and one-third percent (133-1/3%) of its Fair
Market Value on the Award Date, and in such event all Option Rights
granted in tandem with such Shares of Restricted Stock thereupon shall
be cancelled. If on such Determination Date the Fair Market Value of
one Share is greater than one hundred thirty-three and one-third
(133-1/3%) of its Fair Market Value on the Award Date, all such Shares
of Restricted Stock instead shall be forfeited and shall revert to the
Company, and all Option Rights granted in tandem therewith shall
continue to be held
4
<PAGE> 5
by such Non-Employee Director pursuant to the terms hereof and
thereupon shall become exercisable. For purposes of this paragraph
(d), Determination Date shall mean the date service as a Director
terminates.
(e) Except as otherwise provided in paragraph (c) or paragraph
(d) above, should any Nonemployee Director cease to serve as such for
any reason prior to the date of the fifth Annual Meeting following his
or her Award Date, all outstanding Shares of Restricted Stock awarded
to such Nonemployee Director that have not yet become non-forfeitable
shall be forfeited and shall revert to the Company, and all Option
Rights granted in tandem therewith shall be cancelled, on the day
following the date on which such service ceases.
ARTICLE VI
TERMS AND CONDITIONS OF AWARDS OF RESTRICTED STOCK
6.1 Rights as Shareholder. Each award of Restricted Stock under the
Plan shall constitute a transfer of the ownership of Shares to the Nonemployee
Director in consideration of the performance of services, entitling such
Nonemployee Director to voting, dividend and other ownership rights, but
subject to the forfeiture and transfer restrictions provided herein. No
additional consideration shall be due in connection with any such award.
6.2 Transfer Restrictions. Shares of Restricted Stock awarded
pursuant to the Plan which have not yet become non-forfeitable may not be
sold, transferred (including, without limitation, transfer by gift or
donation), pledged or encumbered prior to the date, if any, on which they
become non-forfeitable and shall bear appropriate legends.
6.3 Additional Securities. Any new or additional Shares or other
securities to which a Nonemployee Director, by virtue of awards of Restricted
Stock hereunder, becomes entitled due to a stock dividend, stock split,
recapitalization, merger or other event shall be subject to all terms and
conditions of the Plan, including this Article VI.
5
<PAGE> 6
ARTICLE VII
TERMS AND CONDITIONS OF GRANTS OF OPTION RIGHTS
7.1 Option Price. The option price per share of each Share included
in a grant of Option Rights shall be the Fair Market Value of such Share as of
the Award Date. Such Option price shall be payable by check, by transfer to
the Company of Shares (not subject to restrictions pursuant to Article VI)
having a Fair Market Value equal, at the time of exercise of the Option Right,
to the option price or by a combination of such methods of payment.
7.2 Expiration of Option Rights; Transfer Restrictions. Option Rights
granted to a Nonemployee Director under the Plan which become exercisable
pursuant to Article V shall expire upon the earlier of the following: (i) ten
(10) years after the Award Date or (ii) three (3) months after the director
ceases to serve as such for reasons other than death, disability, retirement as
a director pursuant to the Company's director tenure policy, or other
termination of service as a director of the Company with the consent of a
majority of the members of the Board who are not then participating in the
Plan. Option Rights granted to a Nonemployee Director pursuant to the Plan in
no event shall be sold or transferred other than by will or the laws of descent
and distribution. Option Rights are exercisable during the Nonemployee
Director's lifetime only by him or her or his or her legal representative.
ARTICLE VIII
ADMINISTRATION
8.1 Committee; Duties. The administrative committee for the Plan (the
Committee) shall consist of the Chairman of the Board (provided that he is not
a Nonemployee Director) and two Company officers or directors who are not
Nonemployee Directors, who shall be appointed by the Chairman of the Board.
The Committee shall supervise the administration of the Plan, may from time to
time adopt procedures governing the Plan and shall have authority to give
interpretive rulings with respect to the Plan, provided that the Committee
shall not, except as provided in Section 8.4, have any authority or discretion
as to the selection of persons eligible to participate in the Plan, the timing
of awards under the Plan, the number of Shares to be included in awards of
Restricted Stock or to be subject to Option Rights or the purchase price for
any such Shares.
8.2 Agents. The Committee may appoint an individual, who may be an
employee of the Company, to be the Committee's agent with respect to the
day-to-day administration of the Plan. In addition, the Committee may, from
time to time, employ other
6
<PAGE> 7
agents and delegate to them such administrative duties as it sees
fit, and may from time to time consult with counsel who may be
counsel to the Company.
8.3 Binding Effect of Decisions. Any decision or action of the
Committee with respect to any question arising out of or in connection with the
administration, interpretation or application of the Plan shall be final and
binding upon all persons having any interest in the Plan.
8.4 Adjustments. In the event of (a) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital
structure of the Company, (b) any merger, consolidation, separation,
reorganization, partial or complete liquidation, issuance of rights or warrants
to purchase stock or (c) any other corporate transaction or event having an
effect similar to any of the foregoing, the Committee shall make or provide for
such adjustments in (i) the number or kind of Shares or other securities of the
Company available for grants under Article III, (ii) the kind of securities of
the Company to be covered by awards of Restricted Stock, (iii) the option price
and the number or kind of Shares or other securities of the Company covered by
outstanding Option Rights and (iv) such other matters as the Committee may
determine is equitably required to prevent dilution or enlargement of the
rights of participants in the Plan.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment. The Board may at any time amend, suspend or terminate
any or all of the provisions of the Plan, except that (i) no such amendment,
suspension or termination shall adversely affect any Restricted Stock or Option
Rights theretofore awarded or granted under the Plan to any Nonemployee
Director without the written consent of such director and (ii) except as
provided in Section 8.4, any amendment to the Plan that would have the effect
of changing the persons eligible to participate in the Plan, the timing of
awards under the Plan, the number of Shares to be awarded or granted to
participants under the Plan or the purchase price thereof shall be approved by
the shareholders of the Company prior to effectiveness. In no event shall the
provisions of the Plan relating to the matters set forth in clause (ii) of this
Section 9.1 be amended more than once every six months, other than to comport
with changes in the Internal Revenue Code.
9.2 Effective Date. The Plan shall be effective upon the later of (i)
its approval by the shareholders of the Company or (ii) the receipt by the
Company of such rulings, interpretive letters, legal opinions and other
professional advice as to the
7
<PAGE> 8
tax, securities and other legal ramifications of the Plan as the Company shall
deem necessary.
9.3 Governing Law. The provisions of the Plan shall be construed and
interpreted according to the laws of the state of Ohio.
9.4 Successors. The provisions of the Plan shall bind and inure to
the benefit of the Company and its successors and assigns. The term successors
as used herein shall include any corporate or other business entity which
shall, whether by merger, consolidation, purchase or otherwise, acquire all or
substantially all of the business and assets of the Company and successors of
any such corporation or other business entity.
9.5 Right to Continued Service. Nothing contained herein shall be
construed to confer upon any director the right to continue to serve as a
director of the Company or in any other capacity.
9.6 Rule 16b-3. This Plan is intended to comply with Rule 16b-3 under
the Securities Exchange Act of 1934 as in effect prior to May 1, 1991. The
Board or the Committee may elect at any time to make Rule 16b-3 as in effect on
and after such date applicable to the Plan.
8
<PAGE> 1
Exhibit 10.6
DESCRIPTION OF OFFICERS' INCENTIVE COMPENSATION
-----------------------------------------------
Officers are assigned earnings allocation factors related to their
responsibility. The amount of incentive compensation depends on the Company's
attainment of applicable standards. Performance above or below the standards
affects incentive compensation accordingly. An officer shall receive 100% of
his allocation in cash unless he elects to take a portion in the form of
Restricted Book Value Shares pursuant to an election procedure established by
the Company. Early in 1994 the Company's Board of Directors authorized the
Compensation Committee to appropriately amend the Plan in the event of a strike
at Roadway Express. A 24-day strike did occur and the Plan subsequently was
amended to (1) delete the penalty factor for revenue below target; (2) reduce
to 6% the threshold percentage of shareholder's equity, below which no bonuses
would be payable, from the previous 10% figure; (3) exclude from the formula
the operations of Roadway Express for the second quarter; and (4) exclude the
impact of the settlement with the Internal Revenue Service of the Roadway
Package System, Inc. employment tax case.
Subject to the conditions set forth below, approximately 75% of the cash
portion of the officer's allocation shall be estimated and paid as soon as
possible after January 1 of the year following the year for which the incentive
compensation was calculated (the Plan Year); and the balance of the cash and
any Restricted Book Value Shares shall be distributed at the Company's
convenience after RSI's independent auditors certify the total amount of
incentive compensation payable, but in no case later than March 16 of the year
after the Plan Year.
Notwithstanding the provision requiring completion of service in the Company's
employ for the full Plan Year, if the officer is not in the Company's employ on
December 31 of the Plan Year, the officer shall be allocated a portion (based
upon full weeks of service during the Plan Year) of the amount of his officer's
allocation that would otherwise have been earned for a full year performance if
any of the events of termination of employment described in Items (a), (b), (c)
and (d) below (including any conditions applicable to such events) have
occurred during the Plan Year; but the officer shall be allocated his entire
officer's allocation if his employment has been terminated pursuant to the
event described in Item (e) below. Any amounts shall then be paid in the
manner described above. The events of termination referred to above in this
paragraph are as follows:
(a) Death;
(b) Disability requiring retirement from gainful employment, provided
that the terms of Items (d)(ii) and (iii) below are complied with,
unless waived by the Company's Board of Directors;
(c) Retirement at or after the officer's normal retirement date provided
the terms of Items (d)(i), (ii) and (iii) below are complied with,
unless waived by the Company's Board of Directors;
(d) Termination of employment for reasons other than as set forth in the
preceding Items (a), (b), (c) or Item (e) below, provided that, in
each such case, such termination shall have occurred under such
circumstances that the Board of Directors shall determine that the
officers acted at all times in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of
the Company; and upon condition that he execute an agreement
obligating him:
<PAGE> 2
(i) not to accept employment with or render service in any
manner to a competitor of the Company for the period ending
with the distribution in full of 100% of the cash portion
of the officer's allocation;
(ii) not to disclose to anyone confidential and secret
information that is a competitive asset of the Company,
including, without limitation, (1) customer information
such as names, addresses, sales histories, purchasing
habits, credit status and pricing levels, (2) prospective
customer information and lists, (3) product and system
specifications, schematics, designs and concepts developed
by the Company, (4) personnel data, (5) Company policy and
procedural manuals and memoranda, and (6) other
confidential information used by the Company to conduct its
business; and
(iii) to deliver to the Company at the time of his termination of
employment all originals and copies of documents of every
kind and nature received by him in the course of his
employment with the Company which are in his care, custody
and control, except only such documents as are necessary to
evidence rights and obligations after the date of
termination.
(e) Termination of employment initiated by the Company for reasons other
than as set forth in Item (a), (b) or (c) above, provided that, in
each case, such termination shall have occurred under such
circumstances that the Board of Directors shall determine that the
officer acted at all times in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
the Company and upon condition that he execute an agreement
obligating him to comply with at least the provisions of Items
(d)(ii) and (iii) above.
In the event the officer's employment terminates prior to December 31 of the
Plan Year and his termination does not fall within any of the events (including
any of the conditions applicable to such events, set forth in Items (a), (b),
(c), (d) or (e) above) then the officer shall not receive any part of his
officer's allocation of incentive compensation for the Plan Year in question.
<PAGE> 1
EXHIBIT 13
ROADWAY SERVICES, INC.
1994 ANNUAL REPORT
<PAGE> 2
MISSION
ROADWAY SERVICES, INC., THROUGH ITS OPERATING COMPANIES, IS IN THE BUSINESS OF
SATISFYING CUSTOMERS BY MEETING THEIR REQUIREMENTS FOR VALUE ADDED
TRANSPORTATION AND LOGISTICS SERVICES, THEREBY CREATING VALUE FOR OUR
SHAREHOLDERS.
- We will be quality driven and customer focused in pursuit of this
mission. We will be the best there is at the art and science of
satisfying the customer.
- We will be efficient in the use of human and other
resources.
- We will provide our people with a challenging and
satisfying work experience.
- We will conduct our affairs with integrity as a responsible corporate
citizen.
<TABLE>
TABLE OF CONTENTS
<S> <C>
Financial Highlights . . . . . . . . . . . 1
To Our Shareholders . . . . . . . . . . . . 2
Review of Operations . . . . . . . . . . . 4
Glossary . . . . . . . . . . . . . . . . . 22
Management's Discussion . . . . . . . . . . 23
Consolidated Financial Statements . . . . . 26
Notes to Consolidated Financial Statements. 30
Report of Independent Auditors . . . . . . 35
Historical Data . . . . . . . . . . . . . . 36
Summary of Quarterly Results of Operations. 38
Common Stock and Dividends . . . . . . . . 38
Corporate Information. . . . . . . . . . . 39
Directors and Officers . . . . . . . . . . 40
</TABLE>
PAPER FORMAT DOCUMENT INSIDE FRONT COVER
<PAGE> 3
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
1994 1993
----------- -----------
(dollars in thousands,
except per share data)
<S> <C> <C>
Revenue.............................................................. $ 4,572,004 $ 4,155,940
Income Before Income Taxes and
Cumulative Effect of Accounting Changes.............................. $ 52,438 $ 214,405
Income Before Cumulative Effect of Accounting Changes................ $ 19,560 $ 119,335
Net Income........................................................... $ 19,560 $ 101,204
Earnings per Share:
Before Cumulative Effect of Accounting Changes.................. $ .50 $ 3.02
Net Income...................................................... $ .50 $ 2.56
Cash Dividends Paid per Share........................................ $ 1.40 $ 1.35
Purchases of Carrier Operating Property.............................. $ 300,139 $ 309,560
Long-Term Debt....................................................... $ - 0 - $ - 0 -
Total Shareholders' Equity........................................... $ 1,015,394 $ 1,047,151
</TABLE>
BAR GRAPH NO. 1
BAR GRAPH NO. 2
PAPER FORMAT DOCUMENT PAGE 1
<PAGE> 4
TO OUR SHAREHOLDERS
"We have a company which endured a 24-day strike at its largest
operating unit while sustaining heavy startup losses at another, and
yet remained profitable. . . .
It is a company which took important steps during 1994 to prepare
for the future."
February 15, 1995
Dear Shareholder:
In 1994, new records were set by the Roadway Services operating
companies, unfortunately at both ends of the spectrum. The April Teamsters
strike at Roadway Express resulted in a second quarter loss of $.96 per share
for that company. Startup losses at Roadway Global Air (RGA) and a settlement
with the Internal Revenue Service (IRS) of an employment tax dispute by Roadway
Package System (RPS) lowered earnings by $1.46 and $.35 per share,
respectively. Yet RPS, Viking Freight System, Central Freight Lines, and
Roberts Express reached new highs in revenue and earnings and Roadway Logistics
Systems (ROLS) recorded its first operating profit.
As a result, revenue in 1994 was $4,572,004,000 and net income was
$19,560,000 or $.50 per share compared with 1993 revenue of $4,155,940,000 and
net income of $119,335,000 or $3.02 per share before the cumulative effect of
accounting changes for retiree health care benefits and deferred income taxes.
Clearly, these results are disappointing to a company accustomed to solid
earnings performances. It is, then, appropriate to assess the state of the
business after such an eventful year.
We have a company which endured a 24-day strike at its largest
operating unit while sustaining heavy startup losses at another, and yet
remained profitable; one that invested $300 million in capital expenditures for
trucks, trailers, terminals and technology, while paying $55 million in
dividends -- and which still has a strong balance sheet. It is a company which
took important steps during 1994 to prepare for the future.
Our vision is to put in place an organization capable of improving
outcomes for our customers whose needs for transportation and logistics are
rapidly evolving. Supply lines will be both local and global and consist of
smaller, more frequent shipments which require fast and precise delivery
schedules and about which detailed information is required at the speed of
light.
We believe that neither we nor anyone else now has an organization
fully capable of responding to these needs. But we will respond by continuing
to build a portfolio of service providers consisting of North America's premier
network carrier; a group of regional carriers with the most comprehensive
coverage in the country; the most technologically advanced small package
carrier; and the nation's newest global air express company. The group includes
the best urgent shipment carrier and a highly regarded logistics management
organization. All are supported by an advanced information technology
organization. That portfolio consists of Roadway Express, Roadway Package
System, Roadway Global Air, the Roadway Regional Group (RRG), Roberts Express,
Roadway Logistics Systems and Roadway Information Technology. We would like to
briefly report on how these companies are addressing their individual roles in
this view of the future.
At the cost of a major strike in 1994, Roadway Express gained much
needed flexibility under the new labor contract to allow it to compete more
effectively in today's market. Significant changes in linehaul and terminal
operations have since been implemented, facilitating measurably improved
service and cost reductions. During 1995, most linehaul operations will be
converted to a scheduled basis and major terminals will be totally reengineered
to improve efficiency. The important steps taken give us every reason to expect
a resumption of profitable growth at Roadway.
RPS, already a major contributor to earnings, grew revenue nearly 20
percent in 1994 with a commensurate earnings increase before giving effect to
the IRS settlement. By 1996, its coverage will reach the entire U.S. An
aggressive expansion is now underway to address the most important remaining
gap in RPS' service offering: the overnight
PAPER FORMAT DOCUMENT PAGE 2
<PAGE> 5
ground delivery market. The recent deregulation of intrastate transportation
will significantly aid this effort. However, the limiting factor in fully
serving the next day market is hub capacity. Therefore, 17 new regional hubs
will be built in the next four years.
The favorable settlement with the IRS strengthens the entrepreneurial
nature of the partnership between RPS and its independent contractors. The
contractors' business objectives and those of RPS, to grow their customers'
business, are well aligned. We expect continued strong growth from RPS.
RGA completed its first full year of operation in 1994 with major
network expansion that will continue this year. It has cost more to establish
RGA than we originally anticipated. The principal factor was a shortfall in
revenue yield related to shipment mix which included less than planned higher
rated overnight traffic. This is a market coverage issue which will be
addressed with the opening of 30 air logistics centers this year. Overnight
service capability will be extended to 71 percent of the U.S. population, up
from the current 62 percent. In conjunction with a 22 percent increase in
airlift capacity, RGA has the potential to double its revenue in 1995 with a 50
percent increase in expense; operating losses in 1995 can be expected in the
range of $1.30 to $1.50 per share.
It is certainly appropriate to challenge this level of spending to
develop our air freight service. We have done so. When we critically examine
the underlying trends in transport demand -- the needs of our customers -- it
becomes apparent that the capabilities provided by RGA are important to our
future. RGA fills a very important service requirement in our "product line."
RGA also provides synergy and serves as a resource to other Roadway Services
operating units, including RPS for whom it carries one third of RPS' second day
air product. Finally, RGA enables us to meet customer requirements for
international and global service; that segment has exceeded planned volume. We
fully expect RGA to be a successful company on a stand-alone basis. We believe
profitability should be attained in 1998.
Our regional carriers, Viking, Central, Spartan South, Spartan Central,
and Coles, while separately managed, were brought together in 1994 under the
name "Roadway Regional Group" to improve brand recognition and facilitate
marketing efforts with customers who distribute within multiple regions of the
country. Internal expansion continued in 1994 with the opening of 35 additional
terminals. In 1995, 17 more will be added providing the nation's most
significant regional coverage. A major reengineering project called PRISM
will, when completed in four years, equip our regional carriers with superior
customer information and operations control systems. Development costs will
reduce 1995 earnings approximately $.25 per share, but the project is expected
to pay for itself in less than four years and provide important ongoing
savings.
The record earnings at Viking and Central Freight Lines in 1994 were
partially offset by losses associated with aggressive expansion at Coles and
Spartan Central, as well as a write off of the remaining value of intrastate
operating authorities. In 1995, earnings will be impacted by PRISM and
continued but lesser expansion costs. Long term, the RRG should be an important
source of earnings growth.
ROLS recorded its first operating profit in 1994, ahead of schedule.
Revenue increased more than 60 percent last year as ROLS further penetrated the
high tech, manufacturing and retail industries. ROLS' variety of innovative
logistics solutions is gaining wide acceptance among firms seeking competitive
advantage by outsourcing logistics activities to professional providers like
ROLS, which has firmly established an enviable reputation for performance. This
is a fast growing market in which our company is well represented.
Fast, precision delivery of urgent and critical shipments has propelled
Roberts Express into leadership of another emerging market which it essentially
created. Roberts is exceptional in the execution of its demanding mission,
delivering on time within 15 minutes of promise 95 percent of the time. Tight
supply lines increasingly make Roberts a strategic, rather than unplanned,
choice for immediate response transportation. Roberts grew U.S. revenues and
earnings at a robust rate in 1994 and should experience another strong year in
1995.
Together, these operating companies comprise the essential components
of an organization which will have unmatched capabilities to meet the future
needs of the customer base we have long served. True, our companies are in
varying stages of development of these complementary services. Whether the
shipment is 15 pounds or 15,000 pounds; whether next door or next country;
whether delivery is required this evening, tomorrow, next Friday or at 500
stores on the same day -- a Roadway Services carrier should be the preferred
choice. In shaping our company to meet these requirements, we are not straying
from our roots -- we are following our customer.
To the extent we are successful in delighting our customers, we should
please our shareholders. The steps we are taking will allow us, in 1995 and
beyond, to make measurable, significant progress in meeting our objectives to
do both. The year just past was one which greatly tested our people. They met
many challenges with exceptional effort and often sacrifice. They are a
talented and dedicated group with whom we are proud to be associated in the
endeavor to produce this preeminent logistics organization.
Sincerely,
/s/ Joseph M. Clapp /s/ Daniel J. Sullivan
- ------------------------ ------------------------
Joseph M. Clapp Daniel J. Sullivan
Chairman & CEO President & COO
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ROADWAY
PHOTO NO.1
MISSION STATEMENT NO. 1
PHOTO NO. 2
Roadway Express is a long haul, less-than-truckload (LTL) carrier
serving over half a million customers in North America and offering export
service to 62 countries on five continents.
The year 1994 saw a number of significant events, including a major
strike and the implementation of several important operational changes.
Reflecting the impact of the strike, revenue at Roadway Express was $2.2
billion, down 6.6 percent from 1993. Shipments handled by Roadway Express in
1994 totaled 7,037,000 tons, a decrease of 10.5 percent compared to 1993. By
the end of 1994, the company had regained 95.4 percent of its pre-strike
tonnage and 99.9 percent of its pre-strike revenues.
CUSTOMERS
Roadway Express' objective is to be North America's premier network
carrier. To that end, Roadway is reengineering its operations for faster
transit times and unsurpassed reliability.
New Scheduled Operations are being instituted to provide time-definite
service on selected lanes between major metro-to-metro areas; between satellite
terminals and their consolidation/distribution center; and for freight moving
in the company's rail and sleeper operations between five midwestern and
southwestern gateways and the West. Terminal specific measurement and
accountability systems are central to the success of Scheduled Operations.
Further service enhancements are planned for 1995 as Scheduled Operations will
be expanded to include most lanes between a total of 34 major metro-to-metro
areas.
During 1994, 33 terminals were consolidated into larger, neighboring
facilities, resulting in more direct loading, reduced freight handling and
costs, and reduced transit times.
The flexibilities obtained in the new labor agreement allowed
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Roadway Express to implement one of the most significant changes of operation
in the company's history. This change combined Roadway's traditional
single-driver relay system with expanded use of sleeper teams. The company's 13
western relays were downsized and four were closed. These changes have reduced
linehaul costs, helped improve service, and increased operational flexibility,
ensuring that the company remains competitive in the long haul LTL freight
market.
Continuing its pricing leadership, Roadway Express implemented a modest
general rate increase effective January 1, 1995. Following the company's prior
policy, early notification of this increase was provided to assist customers in
their transportation planning. The adjustment reflects rising labor costs
associated with the new contract as well as other increasing costs.
Following two-and-one-half years of development, the Correctly Invoice
the Customer (CIC) system was put into operation. CIC is an automated program
designed to perform rating and invoicing with minimal manual intervention. The
system provides computer-based rating and billing quickly and accurately for
customers. As a successful, cross-functional reengineering project, CIC also
represents the future method of managing business processes and change at
Roadway Express.
PEOPLE
The year 1994 was unusually difficult for Roadway Express
PHOTO NO. 3
PHOTO NO. 4
PHOTO NO. 5
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PHOTO NO. 6
employees. As a result of the strike, the company endured the most trying
period in recent history. Beginning April 6, and ending with a tentative
agreement on April 29, the work stoppage was the primary factor in the
company's significant earnings decline and reduced business levels during the
year. It also caused the temporary layoff of approximately 10 percent of the
company's nonunion employees. On June 6, a four-year contract was ratified by
a four-to-one margin. Previous contracts were three years in length.
The new contract includes the opportunity to use rail for up to 28
percent of the company's total intercity miles. It also allows increased use of
casual employees to meet peak labor requirements and reduce dock overtime
hours. The right to strike over deadlocked local grievances was also
eliminated. Drivers facing displacement by the expanded use of rail received
job protection, and bargaining unit members gained wage and benefit increases
totalling $3.20 per hour over the life of the contract.
In order to implement Scheduled Operations and rail and sleeper team
operations, 487 drivers were relocated in the fall of 1994. The expanded use of
rail helps minimize empty return trips associated with directional traffic
imbalances while sleeper teams provide improved service with more efficient
driver and equipment utilization.
QUALITY
Roadway's management approach is defined by total quality management
(TQM) criteria. The business planning process addresses TQM gaps, ensuring
Roadway's future capability to identify and respond to the needs of customers
and employees.
Roadway was the first carrier to win the national "Carrier of the Year"
award from the National Small Shipment Traffic Conference (NASSTRAC) five times
in a row. It is the sixth time overall the company earned this honor. Criteria
for the NASSTRAC award include on-time performance, expedient claim processing,
simplified and accurate billing, overall high quality service and demonstration
of industry leadership. This award is significant because it is based on a
survey sent to a large base of customers representing a wide variety of
businesses and products. Additionally, Distribution magazine's "Quest for
Quality" award was presented to Roadway Express for the eleventh consecutive
year.
In the safety area, Roadway drivers attained an accident frequency of
594,476 miles per incident, representing a decline of one percent from the
previous year. For the eleventh year in a row, Roadway Express' pickup and
delivery drivers earned first place honors in the American Trucking
Associations' (ATA) National Truck and Industrial Safety Contest. For 1995,
Roadway Express will be represented on the ATA "America's Road Team" by
Clarence Walker, an intercity driver from Valdosta, Georgia; and Richard Root,
an intercity driver from Omaha, Nebraska.
TECHNOLOGY
Roadway's sleeper tractors have been equipped with on
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board computer systems which maintain continuous, interactive communications
with the dispatch terminal and the company's corporate headquarters via
satellite. The system provides greater operational flexibilities and improves
driver and vehicle reliability.
Supply Chain Systems (SCS) is the latest package of programs to
increase the ties between the carrier, the manufacturer and the retailer. SCS
extends the retail concept of Quick Response to manufacturers using electronic
data interchange capabilities. Three SCS modules are scheduled for release in
1995: Purchase Order Management, which validates purchase order numbers prior
to and during the shipping process; Advance Shipping Notice, which shares
packing slip information at the stock keeping unit (SKU), or item, level; and
E-Z PACK, a PC-based system that bridges the information gap between small-and
medium-sized manufacturers and large retailers by creating and sending
electronic packing slip information.
To achieve its reliability, responsiveness and efficiency objectives,
Roadway Express continues to evaluate and develop its Automated Freight
Handling System (AFHS) technologies. The AFHS is presently in use at the
company's consolidation breakbulk in Winston-Salem, North Carolina, which began
operations in December 1993 and employs the most innovative material handling
systems and technology ever used in the LTL industry.
PHOTO NO. 7
PHOTO NO. 8
PHOTO NO. 9
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RPS
ROADWAY PACKAGE SYSTEM
PHOTO NO. 10
MISSION STATEMENT NO. 2
PHOTO NO. 11
Roadway Package System (RPS) serves customers in the small-package
market throughout North America, focusing primarily on the business-to-
business segment. RPS also offers service offshore to Puerto Rico, Alaska, and
Hawaii via a ground/air network operation. The company serves a number of niche
markets as well by offering specialized services to meet specific customer
requirements.
RPS continued its aggressive expansion in 1994, increasing revenue
nearly 20 percent over 1993 with a commensurate increase in earnings before
giving effect to a charge of $.35 per share to reflect the settlement of a
dispute with the Internal Revenue Service (IRS). This resolved a long standing
dispute with the IRS, determining that pickup and delivery contractors may
properly be treated as independent contractors for Federal employment tax
purposes, removing a substantial uncertainty in the operation of the business.
It is, therefore, significant that this matter was resolved.
CUSTOMERS
During 1994, RPS opened 46 terminals, increasing the company's network
to 317 facilities in North America. These new facilities brought RPS' service
to 96 percent of the United States population and 86 percent of the Canadian
population. In 1995, RPS will open 28 additional facilities, extending service
to 47 states and 98 percent of the U.S. population, following a commitment to
provide 100 percent coverage of the U.S. by 1996.
In 1994, RPS expanded capacity in the Northeast corridor by opening a
hub in Queens, New York. Ground was broken for a new hub facility in
Willington, Connecticut, which will replace two existing facilities in the
Hartford area upon completion in 1996. There were three major hub expansions
completed in 1994: Fort Worth, Texas; Memphis, Tennessee; and Toledo, Ohio.
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RPS plans to open 17 additional hubs over the next four years to
support the company's entry into the overnight ground market. Although a
substantial undertaking, entry into this market in conjunction with full U.S.
coverage will fulfill the company's promise to provide complete coverage for
RPS' commercial shippers.
RPSAIR experienced significant growth during 1994. Utilizing Roadway
Global Air (RGA) for a portion of its air lift, RPSAIR provides satisfaction
guaranteed second day air service between all RPS locations in the continental
United States. The company also provides a deferred land/air product to Alaska,
Mexico, Puerto Rico, and Hawaii. Late in 1994, RPS began a direct service from
the continental U.S. to Puerto Rico through a daily flight provided by RGA.
RPS, Ltd. continued to gain market share in Canada. Domestic Canadian
traffic grew substantially as both northbound and southbound traffic between
the United States and Canada reached record levels.
RPS Multiweight(SM), a cost effective service for multi-package
shipments, enjoyed rapid growth in 1994. Two new product features were
introduced in late 1994 -- Multiweight to Canada and RPSAIR Multiweight. Both
of these product introductions allow RPS to target larger shipments in
international and second day air markets. Multiweight to Canada will give the
company a complete range of service offerings and enhance penetration into this
growing market.
PHOTO NO. 12
PHOTO NO. 13
PHOTO NO. 14
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PHOTO NO. 15
In the second quarter of 1995, RPS will begin a new transatlantic
service through an agreement with General Parcel, GMBH, a European small-
package delivery consortium. This alliance offers service to 28 countries in
Europe utilizing the capabilities of domestic small package carriers resident
in each country. The new service will provide expedited air service in both
directions across the Atlantic Ocean.
PEOPLE
Effective January 1, 1994, the company and its pickup and delivery
contractors began operating under a revised agreement which enhances the
entrepreneurial nature of the relationship between RPS and the package van
operators. These drivers, who own and operate their own package vans, have
performed virtually all of RPS' pickup and delivery activities since the
company began operations in 1985.
RPS' commitment to the company's most important asset, its people, was
further reaffirmed in 1994 as a variety of training programs were introduced to
increase the skills of employees and contractors. A new performance management
program was implemented companywide, enhancing communication and feedback
between supervisors and employees and focusing on continuous improvement.
QUALITY
RPS continues to make quality a way of doing business by integrating
the "Circle of Continuous Improvement" to enhance company processes. The
company completed quality awareness training for all employees and contractors,
and trained dozens of new quality coaches throughout the organization. RPS
continues to participate in intercompany quality programs with both shippers
and suppliers.
RPS received a number of awards in 1994, including Baxter Healthcare
Corporation's Business Partner Award, AT&T's Quality Excellence Award, GTE
Directories Supplier Quality Program Excellence Award, SmithKline Beecham's
(N.E.) Outstanding Service Award, Carlson Marketing Group's Partner in
Excellence Award, the Alcon Supplier Award, and the National Association of
College Stores Outstanding Service Award. RPS was also the recipient of the
American Trucking Associations' National Safety Contest Award, winning second
place in the General Commodities Line-Haul division, over 100 Million Miles
category.
TECHNOLOGY
RPS continued to provide technology-based information products to
increase market share and meet customer requirements. The company's numerous
value-added services enabled RPS shippers to deliver on their promises to
provide quality delivery to their customers.
The RPS STAR SYSTEM(R) integrates a hand-held microcomputer with a
nationwide cellular network to provide "real time" enroute delivery information
from each package van at no additional charge to customers. This information is
integrated with a new generation of RPS ACCESS(R), the company's PC-based EDI
software, and allows
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customers to directly link their computer system with the RPS database. RPS
ACCESS, introduced companywide in 1994, provides a Windows(TM)-based solution to
a customer's small-package information needs, including tracing, call tags, and
proofs of delivery. The product also supports transactions from other Roadway
Services companies using the same software.
RPS further expanded the placement of MULTISHIP(SM) systems, a
multicarrier, PC-based hardware and software system installed at the customer's
shipping point, designed to weigh, rate, route, and print combination barcode
and address labels for RPS packages. The system is provided free of charge to
high volume customers and is integrated via EDI with RPS' information system.
MULTISHIP can also link directly with a customer's order entry, inventory, and
distribution systems. RPS MULTISHIP provides a complete parcel processing
solution for larger RPS shippers. The system not only improves the quality and
efficiency of a customer's shipping operation, but also improves RPS data
quality.
In the fall of 1994, RPS unveiled a new program to replace the current
RPS barcode label in the company's operation. This new two-dimensional code
named MULTICODE(SM) utilizes PDF417 symbology to produce a dense code that
contains over 300 characters in a two-square-inch symbol. MULTICODE can be
read with new generation laser scanners and will enable RPS to develop new
information products for shippers and consignees.
PHOTO NO. 16
PHOTO NO. 17
PHOTO NO. 18
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RGA(SM)
Roadway Global Air
PHOTO NO. 19
MISSION STATEMENT NO. 3
PHOTO NO. 20
Roadway Global Air (RGA), the newest member of the Roadway Services
family, is an integrated air freight and package carrier providing expedited
worldwide service. In 1994, the company's first full year of operation, RGA
incurred substantial operating losses while aggressively expanding facilities
and technological capabilities to meet and exceed customers' time-sensitive
transportation needs.
CUSTOMERS
Since September 13, 1993, the first day RGA took flight to deliver its
first air cargo shipments worldwide, RGA has responded quickly to increasing
customer demand for value in this market segment.
Highlights of RGA's expansion activities in 1994 include increasing the
global network of air logistics centers (ALCs) to a total of 77. At year end,
the network included 231 ALCs and agent operating centers (AOCs). The number of
planes in the dedicated air fleet increased twice during the year, expanding
RGA's all important overnight service coverage area to more than 25,000
locations throughout North America.
Expansion will continue in 1995 with the opening of an additional 30
ALCs worldwide in the second quarter, bringing the total number of company
operated facilities to 107, more than a 100 percent increase in the first year
and a half of operation.
PEOPLE
Above all else, a committed team of RGA associates stands behind the
dedicated air network, ground operations and centralized customer service, all
equipped with advanced technology systems designed to achieve zero defect
service.
From RGA's global headquarters in Indianapolis, the centralized pickup
and delivery, air operations and agent coordination groups manage the movement
of freight worldwide in conjunction with local RGA personnel.
QUALITY
As Roadway Global Air moves towards it second anniversary, the
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commitment to quality continues to be an important goal. The results of
quarterly customer satisfaction surveys indicate that RGA customers recognize
the company's dedication to meeting and exceeding their needs, ranking RGA
better than or equal to its major competitors in nearly all service areas.
TECHNOLOGY
The implementation in 1994 of RGA ACCESS(SM), an electronic data
interchange (EDI) application, allows customers to track their shipments from
their own PC workstation. Enhancements to the EDI system in 1995 will enable
customers to utilize the ACCESS system worldwide. RGA will also introduce a
voice response system, providing customers with the option to obtain shipment
information via automated phone access.
In addition to on-line shipment tracking, RGA customers can take
advantage of RGA's new MultiShip(SM) system, an automated shipment processing
system for high volume customers. The MultiShip system enables customers to
create barcode labels and manifests before shipments leave their facility.
Another technology advance in 1995 will be the introduction of the
Electronic Service Guide. RGA's custom designed multi-media software program
will allow customers to access RGA shipping information, time-definite service
descriptions, destinations, service times, and international documentation
requirements via an interactive computer software program.
PHOTO NO. 21
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PHOTO NO. 23
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ROADWAY
REGIONAL GROUP
PHOTO NO. 24
MISSION STATEMENT NO. 4
PHOTO NO. 25
Roadway Regional Group (RRG) was formally launched in 1994 as the
culminating step in the development of a nationwide network of regional
less-than-truckload (LTL) carriers. Headquartered in San Jose, California, the
Roadway Regional Group is comprised of five regional LTL carriers: Central
Freight Lines, serving the Southwest; Coles Express, serving the Northeast;
Spartan Express, serving the Midwest through Spartan Central and the Southeast
through Spartan South; and Viking Freight System, serving the West.
For the RRG, 1994 was characterized by increased business levels
associated with major network expansion.
CUSTOMERS
The RRG provides customers with the ability to more effectively manage
their regional LTL shipments throughout the U.S. Customers can initiate
shipments within any one region or between any of the five regions covering the
nation through a single sales and service contact.
The RRG also provides customers with the value-added services of
assembly and distribution, appointment pickup and deliveries, liftgate and
slipsheet services, and electronic data interchange (EDI). To ensure that the
RRG is continuously improving customer satisfaction levels, a uniform,
systemwide customer satisfaction measurement process has been initiated
throughout the five carriers.
PEOPLE
The Roadway Regional Group actively seeks, recruits and promotes
employees who are committed to providing the best service in the industry.
Each regional carrier has developed sales and operations training programs to
ensure that employees have the knowledge to perform their jobs today and to
prepare them for the challenges of tomorrow.
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QUALITY
The business processes of each of the regional carriers have been
evaluated and the best business practices of each identified and adopted for
use as the standard for all five carriers. These changes impact dock, pickup
and delivery, intercity, and clerical activities and are being phased into each
carrier's operations. As the new business processes are integrated into each
carrier, so, too, is a continuous improvement program. The result is an
organization that can better respond to customer requirements and achieve a
higher level of customer satisfaction and operating efficiency.
TECHNOLOGY
An important development at the RRG is a reengineering project called
PRISM. The goal of PRISM is to develop customer driven state-of-the-art
information systems to support the RRG, utilizing optimum manual and automated
processes. The objective is to reduce costs by eliminating redundant systems
development at each of the operating companies; assist in providing a
consistent view to common customers; create a synergistic relationship between
the five companies; and develop the best processes to improve service and
productivity.
The entire effort will last four years and is expected to pay for
itself within that period. When completed, the regional carriers will be
equipped with superior customer information and operations control systems.
PHOTO NO. 26
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PHOTO NO. 29
PHOTO NO. 30
VIKING FREIGHT SYSTEM
Viking Freight System was founded in 1966 and is the leading regional
carrier in the western region of the United States. Viking provides service
through 48 terminals to 12 western states: Alaska, Arizona, California,
Colorado, Hawaii, Idaho, Montana, Nevada, Oregon, Utah, Washington and Wyoming.
Viking has been recognized in all three editions of the nationwide best
seller, The Top 100 Companies to Work for in America. This achievement
symbolizes the commitment to providing a quality service for customers and a
quality environment for employees.
CENTRAL FREIGHT LINES
Central Freight Lines began operations in 1925. Central Freight is the
largest intrastate carrier in Texas and provides interstate service throughout
10 southern and western states: Arkansas, Colorado, Kansas, Louisiana,
Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas; and Illinois.
During 1994, Central Freight expanded its network to 85 terminals,
including Chicago, Illinois, and now serves over 4,000 communities.
Enhancements to the company's imaging system and freight bill entry and rating
system, combined with the team-based continuous improvement program and the
employee development program, Team 2000, will enable Central Freight to
continue to provide the outstanding customer service on which the company has
built its market leader position.
PHOTO NO. 31
SPARTAN CENTRAL
Spartan Central has embarked on an aggressive growth plan that will
result in the operation of 29 terminals in 10 midwestern states by the end of
1995: Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Nebraska, Ohio,
West Virginia and Wisconsin.
Spartan Central's primary focus is on providing the highest level of
quality service in the Midwest. A total quality management (TQM) program
reinforces this effort. In addition, dispatchers utilize network optimization
software to help determine the fastest, most cost effective method to load
customers' freight.
Tom Connard, who previously managed Roadway Express' Kansas City,
Kansas district, was appointed president of Spartan Central during 1994.
SPARTAN SOUTH
Spartan South, founded in 1966, has consistently provided high
PHOTO NO. 32
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quality service to customers in eight southern states: Alabama, Florida,
Georgia, Maryland, North Carolina, South Carolina, Tennessee and Virginia, and
Puerto Rico.
Spartan South continued to expand its terminal network in 1994 and now
offers service from 45 facilities. The "Whatever It Takes" quality improvement
program and investment in people differentiates Spartan South's superior level
of customer service. Small-shipment and guaranteed service programs are two of
the new services being offered by Spartan South as part of the company's
intense focus on satisfying customer needs.
PHOTO NO. 33
COLES EXPRESS
Coles Express, founded in 1917, is the oldest and yet the fastest
growing regional LTL carrier in the Northeast. Coles has virtually doubled in
size, growing from a small New England carrier to a full service regional
carrier in 1994. Coles provides service to 11 states through 26 terminals,
including Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire,
New Jersey, New York, Pennsylvania, Rhode Island and Vermont, and a portion of
eastern Canada.
Coles' longstanding commitment to quality customer service, a
progressive employee work environment, and information technology set the
standard of excellence for customers in the entire Northeast market.
PHOTO NO. 34
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ROBERTS EXPRESS
PHOTO NO. 35
MISSION STATEMENT NO. 5
PHOTO NO. 36
During 1994, Roberts Express further solidified its position as the
world's largest surface expedited carrier, providing critical needs shipping
and transportation for emergency shipments in a growing market. The company's
revenue growth and earnings performance were outstanding.
In 1994, Roberts Express strengthened its traditional commitment to
superior customer service using its core strengths: motivated, service- driven
people; an absolute dedication to quality; and the technology to bring these
elements together.
CUSTOMERS
One thing Roberts' customers have in common is a critical need: an
emergency to deal with or a shipment that demands special care and handling. A
Roberts Express customer needs more than just speed; he/she needs speed,
guaranteed reliability and proactive communications as well.
Working with a fleet of over 2,000 trucks - from mini-vans to tractors,
from "standard" to specially equipped - Roberts delivers shipments for
customers throughout North America and western Europe. The company's CharterAir
service offers customers even greater speed over longer distances as well as
increased flexibility and cost-effective service combinations.
PEOPLE
To serve more customers and to serve them better, Roberts continues to
develop its fundamental resource: people. In 1994, Roberts expanded the number
of Customer Assistance Teams, self-directed work teams that handle the entire
shipment process from the initial customer call through final delivery. There
are now 26 teams serving a specific geographic area and dedicated exclusively
to the customers within that area.
Now in the third year of a five-year initiative, Roberts Express is
developing employees by redefining their job functions, enhancing their
personal skills and promoting team leadership. A broad range of training
ensures that new responsibilities filter down throughout the organization. At
Roberts, the people who are closest
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to the customer have a personal stake in every shipment.
QUALITY
In a year of rapid growth, Roberts again achieved an enviable service
record, delivering over 95 percent of shipments within 15 minutes of the
promised delivery time. The company earned several quality awards from
customers, including the prestigious Westinghouse Gold Transportation Quality
Award, and achieved an overall rating of 3.87 (on a 4.0 "perfect" scale) in
monthly customer satisfaction surveys.
At Roberts, quality is a matter of continuous improvement, based on
demanding performance measures, personal and team objectives, and companywide
incentive programs. All of these work together to support the
"whatever it takes" attitude that drives quality improvements in satisfying
customers.
TECHNOLOGY
For Roberts Express, technology is more than a working tool; it is a
core competency that, in many ways, defines the nature of the company's
business.
In 1994, each element in the information system, including telephones,
satellite tracking and communications, and computer hardware and software, was
upgraded. The result is an information network that is not only seamless, but
totally integrated into operational processes. Ongoing developments, such as a
new telephone system that will identify callers automatically while routing
them to the service team covering their geographic area, will ensure that
Roberts continues to exceed customer expectations.
PHOTO NO. 37
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PHOTO NO. 39
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ROLS
ROADWAY LOGISTICS SYSTEMS
PHOTO NO. 40
MISSION STATEMENT NO. 6
PHOTO NO. 41
Since its founding in 1989, Roadway Logistics Systems (ROLS) has
provided "intelligent" logistics solutions for its customers. The
"intelligence" is the result of ROLS' investment in resources -- logistics
professionals and technology-driven leading edge logistics management systems.
In 1994, the company earned its first operating profit, ahead of plan.
Revenue growth was also significant while ROLS provided revenue opportunities
for other Roadway Services units as well.
CUSTOMERS
ROLS serves customers in many industries, including high tech,
automotive, manufacturing, and retail. ROLS logistics management services
include transportation management, dedicated transportation, warehouse
management, routing administration, and other supply chain management
activities.
ROLS Dedicated Transportation (RDT), part of the company's contract
services division, expanded in 1994 with several important new customers. RDT
provides dedicated contract carriage, often a critical component to a
customer's total logistics system. RDT also continues to support ROLS'
automotive customers with time-definite just-in-time services.
PEOPLE
ROLS challenges, empowers and rewards employees through a clearly
defined management by objectives (MBO) program based upon measurable corporate
and individual goals. The objectives are tied directly to meeting customers'
requirements, promoting an attitude of teamwork and an environment structured
toward continuous improvements. ROLS people often work on-site at customer
locations, becoming an integral part of the customers' logistics team.
QUALITY
In 1994, ROLS implemented total quality management (TQM) and provided
formal training for all employees. TQM techniques give ROLS and its customers
the competitive advantage needed in
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today's marketplace. ROLS' use of TQM techniques during 1994 resulted in a
dramatic increase in inventory accuracy for a high-tech customer and reduced
cycle time from seven days to two. ROLS' TQM framework involves viewing
problems as opportunities for improvement.
TECHNOLOGY
MediQuik Express continued to grow in 1994 by focusing on the
healthcare, diagnostic equipment manufacturing, and pharmaceutical markets.
Technological developments dramatically improved the linkages between pickup
locations, drivers and final destinations in this time-sensitive, critical
market.
ROLS also made significant strides in the company's contract
warehousing business in 1994. ROLS brings the new perspective of a logistics
provider that fully understands how to link warehousing and transportation
operations for maximum effectiveness. ROLS provides optimum warehouse design
and distribution solutions to customers, helping them satisfy their strategic
business objectives. Warehouse customers are also offered additional support
services such as kitting, merging, assembly and packaging. Implementation of
automated handling equipment brought added efficiencies to the ROLS-managed
Hewlett-Packard warehouse in Vancouver, Washington in 1994.
ROLS Rite Routing Systems(R) directs all of a customer's transportation
responsibilities into one streamlined logistics operation. Selecting from a
roster of carriers, Rite Routing identifies the one that can best meet a
customer's delivery requirements at the lowest possible cost.
PHOTO NO. 42
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GLOSSARY
ACCESS(SM): A Windows(TM)-based PC software system provided to customers which
offers a single point of access for data on their shipments or packages across
the Roadway Services family of companies.
AIR LOGISTICS CENTERS (ALCS): A facility in the Roadway Global Air system which
consolidates, sorts and processes inbound and outbound air cargo.
BREAKBULK: Consolidation and distribution center; a facility in the Roadway
system which unloads and consolidates shipments received from its satellites as
well as from other breakbulks.
CUSTOMER ASSISTANCE TEAMS: Roberts Express' process of empowering team members
at all levels of the organization. The purpose of the program is to allow
employees to participate in shared decision making in areas where supervisors
or managers previously made the decisions.
DEDICATED CONTRACT CARRIAGE: Providing customized equipment, personnel, and
fleet management and route analysis services on a contractual basis either as a
stand- alone or as part of an integrated package of logistics services.
ELECTRONIC DATA INTERCHANGE (EDI): The exchange of information between one
computer and another in a format or language that is understood by both the
sender and receiver.
GENERAL FREIGHT: All commodities except household goods, refrigerated goods,
bulk commodities or commodities requiring specialized equipment (e.g. heavy
machinery trailers or armored trucks.)
IMBALANCE: Uneven freight flow into or out of a particular geographic area
resulting in either a surplus or shortage of truck equipment.
INTERMODAL: Movement of freight using a combination of transport modes i.e.
truck, rail, ocean or air transportation.
JUST-IN-TIME: A distribution and materials handling system which keeps
inventory levels to a minimum by ordering and delivering supplies only as
needed.
LESS-THAN-TRUCKLOAD (LTL): Shipments weighing less than 10,000 pounds each.
Many LTL shipments weigh less than 500 pounds; most are below 1,000 pounds.
LOGISTICS: The integrated system of managing, planning, allocating and
controlling financial, physical and human resources committed to physical
distribution, manufacturing support and purchasing operations.
LONG HAUL: The movement of freight requiring three or more days.
MULTICODE(SM): A redesign of RPS' current barcode system which includes the
linear Code 128 barcode and the two-dimensional (2-D) PDF417 symbol.
MULTISHIP(SM): A PC-based multicarrier parcel processing system provided
to RGA and RPS customers that automatically weighs, rates and processes
packages for all the major package carriers.
MULTIWEIGHT: A cost effective RPS shipping alternative for multiple-package
shipments (totaling at least 200 pounds) destined to a single consignee.
QUALITY: "Meeting the requirements." To have quality, three things must happen.
First, the customer must understand and accurately define the requirements.
Second, the customer must clearly communicate the requirements to the supplier.
Third, the supplier must understand and be able to meet the requirements.
REAL TIME: Recording the data transaction at the immediate point in time that
it occurs.
REENGINEERING: The fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical contemporary measures of
performance, such as cost, quality, service and speed.
REGIONAL CARRIER: A carrier serving customers within a specific geographic
region of the country, usually within a distance which can be served overnight
or in two days.
SHORT HAUL: The movement of freight requiring two days or less.
SLEEPER TEAMS: Pairs of drivers dispatched together in tractors that are
equipped with a sleeping berth.
SLIPSHEET: A flat, plastic or cardboard replacement for wooden pallets
used for storage and shipment purposes.
TIME-DEFINITE/CRITICAL SHIPMENTS: Shipments usually of an expedited
nature and for which a commitment has been made for delivery at a specific
time.
TRUCKLOAD: Shipments weighing 10,000 pounds or more.
PAPER FORMAT DOCUMENT PAGE 22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS -- 1994 vs. 1993
In 1994, consolidated revenue increased $416,064,000 or 10% over 1993
revenue. This increase was achieved in spite of the adverse impact of the
24-day Teamsters strike in the second quarter against Roadway Express, the
company's largest operating company, when revenue was reduced by approximately
$190,000,000. This reduction was largely offset by increased business volumes
at all of the company's other operating companies. Revenue at Roadway Express
decreased in 1994 by 6.6% from 1993 levels. Total tonnage at Roadway Express
decreased 10.5% with a similar reduction in less-than-truckload (LTL) tons.
Although tonnage was down, revenue per ton averaged 4.5% higher in 1994 than in
1993 due primarily to a rate increase in January 1994. LTL revenue per ton at
Roadway Express increased 3.9%. Revenue gains were experienced during 1994 by
all of the other operating companies. Excluding Roadway Express, these gains
amounted to a 31% increase over 1993 annual revenue. The largest share of this
growth was attributable to Roadway Package System (RPS), which reported a 20%
increase in revenue with record revenue also reported by Viking Freight System
(Viking), Central Freight Lines (Central), and Roberts Express (Roberts).
Operations at Roadway Global Air (RGA) also contributed to the 1994 revenue
increase.
Operating expenses increased $568,737,000 or 14.4% during 1994 over
prior year levels. Increased operating expenses resulted from higher business
volumes at all of the operating companies except Roadway Express. At Roadway
Express, operating expenses were down $41,028,000 or 1.8%, primarily a result
of reduced volume. Included in operating costs for 1994 was the effect of a
1.2% increase in Teamster wage rates and benefits agreed to under the terms of
the labor contract effective April 1, 1994, and expenditures for the closing of
certain terminals as well as the relocation of personnel to realign linehaul
operations for greater efficiency as permitted under the new contract. Fuel
prices in 1994, on a per gallon basis, averaged 5.8% below 1993 levels.
Purchased transportation increased 42.7% in 1994, reflecting increased use of
rail at Roadway Express, increased business levels at RPS and Roberts, and a
full year of operations at RGA, which utilizes independent contractors and
commercial carriers for its air and ground transportation services. As a result
of Federal legislation enacted during 1994, which effectively preempts state
regulation of motor carrier rates, routes and services, the remaining asset
values of intrastate operating rights were charged to operating expenses in the
third quarter. This charge reduced net earnings by $.06 per share.
The company's operating income as a percentage of revenue, the
operating margin, was 1.1%, a decrease from 4.9% in 1993. As a result,
operating income declined by $152,673,000 due in part to the second quarter
operating loss of $68,353,000 experienced by Roadway Express as a result of the
Teamsters strike previously mentioned. Also reducing earnings were startup
losses at RGA, which amounted to $1.46 per share. Record earnings were
recorded by RPS, Viking, Central and Roberts. RPS experienced an earnings
increase commensurate to its increase in revenue before giving effect to a
settlement with the IRS as discussed in Note G to the consolidated financial
statements. The net after-tax cost of the settlement amounted to $13.7 million
or $.35 per share and was charged to 1994 operations. Roadway Logistics Systems
(ROLS) earned its first operating profit since commencing operations in 1989.
The effective income tax rate increased from 44.3% to 62.7% due to the
impact of non-deductible operating costs and losses in state and foreign tax
jurisdictions for which a current tax benefit is not available. The rate is
expected to decline in 1995 as applied to higher pre-tax earnings.
Income before cumulative effect of accounting changes declined $2.52
per share from 1993 levels. Record earnings at RPS, Viking, Central and Roberts
only partially offset the decline.
RESULTS OF OPERATIONS - 1993 vs. 1992
Revenue for 1993 increased $578,339,000 or 16.2% over 1992 levels,
including an increase of 6.3% at Roadway Express. Accounting for $177,216,000
of the increase was the inclusion of Central which was acquired by the company
on April 6, 1993. Tonnage at Roadway Express increased 5.4%, including an
increase of 5.9% in LTL tons. Due to continued competitive pressures, freight
rates at Roadway Express increased only slightly in 1993 resulting in revenue
per ton only 0.9% above 1992 levels. LTL revenue per ton at Roadway Express
increased only 0.5%. Excluding Central and Roadway Express, 1993 revenue from
the company's other operations increased over 1992 levels by 18.9%. The largest
share of this growth was attributable to RPS, due to package volume growth and,
to a lesser extent, an increase in the average revenue per package.
PAPER FORMAT DOCUMENT PAGE 23
<PAGE> 26
Operating expenses in 1993 increased $610,710,000 or 18.3% over 1992
levels. Central accounted for $163,822,000 of the increase. In addition to
higher volume levels, Roadway Express incurred higher compensation costs under
the industry labor contract which included wage and benefit increases of 3.4%
effective April 1, 1993. Productivity decreased at Roadway Express during the
first quarter due to the implementation of faster transit schedules on many
traffic lanes. Fuel prices in 1993 averaged 2.1% above 1992 levels. Fuel prices
increased in the second half of 1993 in response to federally mandated
reductions in diesel fuel sulfur levels and federal fuel tax increases of $.043
per gallon effective October 1. Also affecting 1993 operating expenses were
increases of $18.7 million in pension plan expenses for employees not subject
to labor contracts due to plan amendments to increase benefits and changes in
actuarial assumptions, and $7.0 million in retiree medical expenses increased
due to the accounting change discussed below, and to a lesser degree from the
inclusion of Central' s operations since its acquisition. Purchased
transportation increased 24.7% in 1993 reflecting increased business levels at
RPS and Roberts. Purchased transportation in 1993 also increased at Roadway
Express where shipments to foreign markets increased, and due to the September
13 startup of RGA. Greater than normal expenditures for technology and systems
development also occurred in 1993.
The company's operating margin was 4.9% in 1993, a substantial drop
from 6.6% in 1992. As a result, operating income declined by $32,371,000,
primarily due to the performance at Roadway Express, and the expected startup
losses at RGA. The company's other operations provided a net gain in operating
income, led by RPS, even with its startup losses at RPS, Ltd. in Canada, along
with Roberts and Viking, and the inclusion of Central since its acquisition.
The increase in the effective income tax rate from 41.1% in 1992 to
44.3% in 1993 resulted primarily from the increase, effective January 1, 1993,
in the statutory federal rate to 35%, and increases in state taxes.
Contributing to the increase to a smaller degree are startup losses at RGA and
RPS, Ltd. in state or foreign tax jurisdictions for which no current tax
benefit is available.
As discussed in Notes D and E to the consolidated financial statements,
the company recorded the cumulative effect of two accounting changes in 1993
which resulted in a net charge to 1993 earnings of $18,131,000, or $0.46 per
share. By adopting the Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
the company recognized the entire December 31, 1992 accumulated postretirement
benefit obligation of $38,496,000 ($23,867,000 after tax) as a charge to
earnings and, as discussed above, also increased the 1993 provision for retiree
medical costs. Also adopted by the company in 1993 was SFAS No. 109,
"Accounting For Income Taxes," which resulted in an increase in 1993 earnings
of $5,736,000. Under SFAS 109, the company now recognizes deferred tax
liabilities and assets on the liability method whereby such amounts are
adjusted and earnings are affected in the periods when changes in tax rates are
legislated.
Income before the cumulative effect of accounting changes dropped $0.71
per share from 1992 levels. Increases at Roberts, RPS and Viking, together with
the positive contribution from newly acquired Central, only partially offset
the decline.
LIQUIDITY AND CAPITAL RESOURCES
The company normally finances capital expenditures from internally
generated funds. It is anticipated that cash and current investments in
marketable securities, funds generated from future operating activities, and
financing sources readily available to the company will finance projected 1995
capital expenditures and provide adequate levels of working capital, funds for
payment of dividends and interest, and for business expansion, including funds
required by RGA. Capital expenditures in 1995 are projected at $415 million.
Additionally, the Board has authorized the purchase of up to $30 million of the
company's common stock in 1995. The funds for that purchase would be available
from the sources discussed above.
IMPACT OF INFLATION AND CURRENT TRENDS
Roadway Express implemented a general freight rate increase effective
January 1, 1995 and intends this to be its only general rate increase in 1995.
RPS also announced a rate increase effective February 6, 1995. Rate increases
implemented during 1994 at the regional carriers did not provide revenue yield
improvements due to intense price competition. Price competition is anticipated
to continue in 1995 in many of the markets served by the company's operations,
and it is expected that industry margins will remain under pressure. As a
result of Federal
PAPER FORMAT DOCUMENT PAGE 24
<PAGE> 27
legislation during 1994, which preempts state regulation of motor carrier
rates, routes and services, competition will increase in 1995 in certain
markets served by the company's regional LTL carriers.
The transportation, intermodal and logistics marketplace continues to
experience rapid change in response to demand for quality and time based
management. The company's capabilities will be expanded to meet emerging
customer requirements, even at the expense of short term profits. Management
expects that 1995 spending for expansion, in particular by increasing the
markets served by RGA and RPS, and for systems development, will be substantial.
RPS will open additional terminals during 1995, extending service to 47 states
and 98% of the U.S. population. RPS will also add 17 new regional hub
facilities in the next four years and enter the market for overnight ground
service as the new facilities are completed. This initiative will have limited
impact on 1995, but should begin to affect business levels as early as 1996.
RGA will add 23 new "air logistics centers" in North America and seven
overseas. In 1995, RGA expansion will provide overnight service to 71% of the
U.S. population, up from 62%. The company estimates revenue at RGA could
double in 1995, RGA's second full year of operation, with losses projected to
be in the range of $1.30 to $1.50 per share. It is estimated that losses should
decline significantly in 1996 as RGA moves toward break even in 1997 and
profitability in 1998. At Roadway Express, Teamster wage rates and benefits
will increase by 3.1% effective April 1, 1995 under the terms of the labor
contract negotiated during 1994. Roadway Express, which accounts for about
one-half of consolidated revenue, is expected to exhibit slow growth but
generate adequate returns.
Investments in technology and systems development will include a major
reengineering and information technology project called PRISM, which was
launched during 1994 at the Roadway Regional Group, which includes Viking,
Central, Spartan Express and Coles Express. The PRISM project is estimated to
cost $.25 per share in 1995 and a lesser amount in 1996. The PRISM systems
development will continue for approximately four years, with operating savings
expected to exceed the cost within that period, while delivering new and
improved services to customers. The company estimates the regional group will
grow revenue by $100 million in 1995. In addition to pressures on margins from
price competition and these additional planned expenses, uncertainties exist
regarding future costs of necessary operating expenses such as fuel and related
taxes, freight and casualty claims, and employee wages and benefits. All of
these factors affect the outlook for 1995.
The impact of inflation on operating expenses has been moderate in
recent years. Most of the company's operating expenses reflect current costs.
Depreciation expense is reflected in the financial statements based on
historical cost of the assets and, therefore, has less impact on the results of
operations than if such expenses were based on current replacement costs. As
assets are replaced, the cost of the new assets will generally be higher,
resulting in increased depreciation charges. However, technological
improvements may result in operating cost savings. The majority of the
company's carrier operating property is revenue equipment having relatively
short service lives of four to six years. Therefore, annual depreciation
expense more closely reflects current costs than for companies in industries
with substantial investments in property with longer useful lives. It is
anticipated that although the company will continue to expand its presence in
the global marketplace, the effects of foreign currency fluctuations will
remain relatively insignificant.
PAPER FORMAT DOCUMENT PAGE 25
<PAGE> 28
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Roadway Services, Inc. and Subsidiaries
ASSETS
DECEMBER 31
1994 1993
------------ ------------
(dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash .................................................................. $ 29,075 $ 27,628
Marketable securities ................................................. 7,976 83,943
Accounts receivable, net of allowance for uncollectible accounts....... 492,560 401,777
Prepaid expenses and supplies.......................................... 77,361 77,160
Deferred income taxes -- Note D........................................ 35,806 28,765
------------ ------------
TOTAL CURRENT ASSETS............................................ 642,778 619,273
CARRIER OPERATING PROPERTY -- at cost
Land................................................................... 185,794 172,694
Structures............................................................. 667,079 595,973
Revenue equipment...................................................... 1,182,404 1,106,000
Other operating equipment.............................................. 653,000 565,522
------------ ------------
2,688,277 2,440,189
Less allowances for depreciation....................................... 1,478,560 1,313,974
------------ ------------
TOTAL CARRIER OPERATING PROPERTY................................ 1,209,717 1,126,215
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED -- net of amortization -- Note B.................... 96,940 100,914
------------ ------------
$ 1,949,435 $ 1,846,402
============ ============
</TABLE>
PAPER FORMAT DOCUMENT PAGE 26
<PAGE> 29
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31
1994 1993
----------- ------------
(dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable -- Note C......................................... $ 339,859 $ 268,103
Salaries and wages................................................. 219,747 178,536
Income taxes payable............................................... 8,946 18,864
Freight and casualty claims payable within one year................ 114,880 99,340
Dividend payable................................................... 13,653 13,646
----------- ------------
TOTAL CURRENT LIABILITIES................................... 697,085 578,489
LONG-TERM LIABILITIES
Casualty claims payable after one year............................. 107,427 86,546
Future equipment repairs........................................... 26,639 23,148
Retiree medical -- Note E.......................................... 59,243 53,448
Deferred income taxes -- Note D.................................... 43,647 57,620
----------- ------------
TOTAL LONG-TERM LIABILITIES................................. 236,956 220,762
SHAREHOLDERS' EQUITY -- Note F
Serial preferred stock -- without par value:
Authorized -- 40,000,000 shares
Issued -- none
Common stock -- without par value:
Authorized -- 200,000,000 shares
Issued -- 40,896,414 shares................................ 39,898 39,898
Additional capital.................................................. 51,153 50,446
Earnings reinvested in the business................................. 978,459 1,013,519
----------- ------------
1,069,510 1,103,863
Less cost of common stock in treasury
(1994 -- 1,477,000 shares, 1993 -- 1,527,000 shares)....... 54,116 56,712
----------- ------------
TOTAL SHAREHOLDERS' EQUITY.................................. 1,015,394 1,047,151
----------- ------------
$ 1,949,435 $ 1,846,402
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
PAPER FORMAT DOCUMENT PAGE 27
<PAGE> 30
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED INCOME
Roadway Services, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31
1994 1993 1992
----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
REVENUE........................................................... $ 4,572,004 $ 4,155,940 $ 3,577,601
OPERATING EXPENSES
Salaries, wages and benefits.................................... 2,420,716 2,242,628 1,908,425
Purchased transportation........................................ 889,476 623,358 500,001
Operating supplies and expenses................................. 776,366 678,872 591,438
Operating taxes and licenses.................................... 120,249 115,942 96,266
Insurance and claims............................................ 107,372 95,136 74,380
Provision for depreciation...................................... 207,267 197,232 170,287
Net (gain) loss on sale of carrier operating property .......... (1,179) (1,638) 23
---------- ---------- ----------
TOTAL OPERATING EXPENSES ......................... 4,520,267 3,951,530 3,340,820
---------- ---------- ----------
OPERATING INCOME ................................. 51,737 204,410 236,781
Other income -- net, including interest of $2,856 in 1994,
$10,305 in 1993 and $15,850 in 1992............................. 701 9,995 13,685
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGES........... 52,438 214,405 250,466
Provision for income taxes -- Note D.............................. 32,878 95,070 103,059
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGES ............................ 19,560 119,335 147,407
Cumulative effect of accounting changes -- Notes D and E ......... -- (18,131) --
---------- ---------- ----------
NET INCOME........................................ $ 19,560 $ 101,204 $ 147,407
=========== ========== ==========
EARNINGS PER SHARE
Before cumulative effect of accounting changes.................. $ .50 $ 3.02 $ 3.73
Cumulative effect of accounting changes:
Income taxes, liability method -- Note D...................... -- .15 --
Retiree medical, net of tax benefit -- Note E................. -- (.61 ) --
---------- ---------- ----------
-- (.46 ) --
---------- ---------- ----------
NET INCOME ....................................... $ .50 $ 2.56 $ 3.73
========== ========== ===========
STATEMENTS OF CONSOLIDATED EARNINGS REINVESTED IN THE BUSINESS
YEAR ENDED DECEMBER 31
1994 1993 1992
----------- ----------- -----------
(dollars in thousands, except per share data)
Balance at beginning of year...................................... $ 1,013,519 $ 966,061 $ 868,777
Net income for the year........................................... 19,560 101,204 147,407
----------- ----------- -----------
1,033,079 1,067,265 1,016,184
Less dividends declared .......................................... 54,620 53,746 50,123
----------- ----------- -----------
BALANCE AT END OF YEAR ........................... $ 978,459 $ 1,013,519 $ 966,061
=========== =========== ===========
Dividends declared per share...................................... $ 1.40 $ 1.375 $ 1.275
<FN>
See notes to consolidated financial statements.
</TABLE>
PAPER FORMAT DOCUMENT PAGE 28
<PAGE> 31
<TABLE>
<CAPTION>
STATEMENTS OF CONSOLIDATED CASH FLOWS
Roadway Services, Inc. and Subsidiaries
YEAR ENDED DECEMBER 31
1994 1993 1992
----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income........................................................ $ 19,560 $ 101,204 $ 147,407
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting changes..................... -- 18,131 --
Depreciation and amortization............................... 211,241 200,080 172,695
(Gain) loss on sale of carrier operating property........... (1,179) (1,638) 23
Issuance of treasury shares for stock plans................. 3,143 2,564 18,507
Changes in assets and liabilities, net of effects from
business acquisitions:
Accounts receivable.................................... (90,783) (76,823) (39,999)
Other current assets................................... (7,242) (12,901) (13,637)
Accounts payable and accrued items..................... 128,507 60,499 34,269
Current income taxes payable........................... (9,918) (3,901) (782)
Long-term liabilities.................................. 16,194 16,205 20,382
----------- ----------- -----------
Total adjustments........................................... 249,963 202,216 191,458
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 269,523 303,420 338,865
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property........................... (300,139) (309,560) (211,073)
Sales of carrier operating property............................... 10,549 9,376 10,062
Purchases of marketable securities................................ (2,892) (100,151) (197,263)
Sales of marketable securities.................................... 78,859 291,106 124,787
Business acquistions, net of cash acquired........................ -- (98,349) (866)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.................. (213,623) (207,578) (274,353)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.................................................... (54,613) (52,903) (48,984)
Purchases of common stock for treasury............................ -- (24,231) --
Repayment of borrowings of acquired business...................... -- (32,116) --
Proceeds from exercise of stock options........................... 160 -- 186
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES..................... (54,453) (109,250) (48,798)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH........................... 1,447 (13,408) 15,714
CASH AT BEGINNING OF YEAR................................. 27,628 41,036 25,322
----------- ----------- -----------
CASH AT END OF YEAR....................................... $ 29,075 $ 27,628 $ 41,036
============ =========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
PAPER FORMAT DOCUMENT PAGE 29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Services, Inc. and Subsidiaries
December 31, 1994
NOTE A -- ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts and operations of the company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Operations are exclusively within the transportation industry.
Cash and Marketable Securities -- For purposes of reporting cash flows, cash
includes cash on hand and cash held by banks which is subject to immediate
withdrawal. Marketable securities, principally U.S. government securities, are
treated as available-for-sale securities and are stated at cost which
approximates fair value.
Depreciation -- Depreciation of carrier operating property is computed
by the straight line method based on the useful lives of the assets.
Cost in Excess of Net Assets of Businesses Acquired -- These costs
($113,940,000) are being amortized on the straight line method over a 40 year
period from the respective acquisition dates of the acquired businesses. The
carrying value of cost in excess of net assets of businesses acquired
("goodwill") is reviewed to determine if an impairment is suggested. If this
review indicates that goodwill may not be recoverable, the company's carrying
value of the goodwill would be reduced.
Casualty Claims Payable -- These accruals include claims for property damage
and public liability, and workers' compensation. Expenses resulting from
workers' compensation claims are included in salaries, wages and benefits in
the accompanying statement of consolidated income.
Future Equipment Repairs -- This accrual represents the estimated costs of
anticipated major future repairs on intercity tractors.
Revenue -- The company recognizes revenue as earned on the date of freight
delivery to consignee.
Earnings Per Share -- Earnings per share is computed on the
average number of shares of common stock outstanding during each year:
39,392,000 in 1994 and 39,521,000 in 1993 and in 1992.
NOTE B -- ACQUISITIONS
On April 6, 1993, the company acquired Central Freight Lines Inc., Texas'
largest regional carrier. The company used internally generated funds to
acquire the common stock of Central at a total cost of $102,142,000.
On June 24, 1992, the company acquired Cole Enterprises, Inc., the parent
company of Coles Express, Inc., a New England regional carrier based in
Bangor, Maine, for $4,617,000 in cash and 235,892 shares of the company's
common stock valued at $15,127,000.
The acquisitions of Central and Coles were accounted for as purchases and the
cost in excess of net assets acquired was $16,432,000 and $3,441,000,
respectively. The earnings of Central and Coles are included in the
accompanying statements of consolidated income since their respective
acquisition dates, and are not material in relation to consolidated operations.
<TABLE>
NOTE C -- ACCOUNTS PAYABLE
Items classified as accounts payable consist of the following:
<CAPTION>
<S> <C> <C>
1994 1993
-------- --------
(dollars in thousands)
Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $226,937 $191,073
Drafts outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,444 41,468
Taxes, other than income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,478 35,562
-------- --------
Total accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $339,859 $268,103
======== ========
</TABLE>
PAPER FORMAT DOCUMENT PAGE 30
<PAGE> 33
NOTE D -- INCOME TAXES
Effective January 1, 1993, the company adopted the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." The cumulative effect of adopting SFAS 109 resulted in an increase in
1993 earnings of $5,736,000 or $.15 per share.
In accordance with SFAS 109 the company uses the liability method of
accounting for income taxes. Deferred income taxes are provided for temporary
differences between financial statement and income tax reporting, using tax
rates scheduled to be in effect at the time the items giving rise to the
deferred taxes reverse.
Significant components of the company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $121,087 $121,321
Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,961 20,723
-------- --------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,048 142,044
Deferred tax assets:
Freight and casualty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,241 63,116
Retiree medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,098 20,891
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,868 29,182
-------- --------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,207 113,189
-------- --------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,841 $ 28,855
======== ========
</TABLE>
<TABLE>
The provision for income taxes consists of the following:
<CAPTION>
1994 1993 1992
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Taxes currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,770 $ 80,268 $102,853
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,122 19,391 20,430
-------- -------- --------
53,892 99,659 123,283
Deferred taxes (credits):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,220) (3,923) (17,214)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,794) (666) (3,010)
-------- -------- --------
(21,014) (4,589) (20,224)
-------- -------- --------
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,878 $ 95,070 $103,059
======== ======== ========
Income tax payments amounted to $60,218,000 in 1994, $101,217,000 in 1993 and $99,362,000 in 1992.
</TABLE>
Deferred income taxes (credits) include the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (234) $ 2,389 $ (7,296)
Freight and casualty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,125) (11,202) (3,338)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,655) 4,224 (9,590)
-------- -------- --------
$(21,014) $ (4,589) $(20,224)
======== ======== ========
</TABLE>
PAPER FORMAT DOCUMENT PAGE 31
<PAGE> 34
The effective tax rate differs from the federal statutory rate as set forth in
the following reconciliation:
<TABLE>
<CAPTION> 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate ...................... 35.0% 35.0% 34.0%
State income taxes, net of federal tax benefit .. 9.1 5.7 4.6
Non-deductible operating costs .................. 10.7 1.5 1.2
Impact of loss operations ....................... 6.9 1.5 1.1
Other, net ...................................... 1.0 .6 .2
---- ---- ----
Effective tax rate .......................... 62.7% 44.3% 41.1%
==== ==== ====
</TABLE>
NOTE E -- EMPLOYEE BENEFIT PLANS
The company charged to operations $94,245,000 in 1994, $97,682,000 in 1993
and $90,229,000 in 1992 for contributions to multiemployer pension plans for
Roadway Express, Inc. employees subject to labor contracts. The company also
charged to operations $112,947,000 in 1994, $114,167,000 in 1993 and
$102,127,000 in 1992 for contributions to multiemployer plans that provide
health and welfare benefits to employees and retirees of Roadway Express, Inc.
who are or were subject to labor contracts. These amounts were determined in
accordance with provisions of industry labor contracts.
The company has defined benefit pension plans covering employees not subject
to labor contracts. The benefits are based on, among other things, years of
service and average compensation during employment with the company. The
company's funding policy is to contribute amounts to the plans sufficient to
meet the minimum funding requirements, plus such additional amounts the company
may determine to be appropriate.
The following table sets forth the company plans' funded status and amounts
recognized in the balance sheet:
<TABLE>
<CAPTION>
1994 1993
---- ----
(dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$275,611 in 1994 and $264,908 in 1993 ........................................................ $ 313,130 $ 302,638
========= =========
Projected benefit obligation for service rendered to date ...................................... $ 384,016 $ 380,034
Plan assets at fair value, primarily listed stocks, bonds and U.S. government securities ........ 391,319 364,792
--------- ---------
Plan assets greater (less) than projected benefit obligation .................................... 7,303 (15,242)
Unrecognized net gain ........................................................................... (35,010) (25,812)
Unrecognized prior service cost ................................................................. 75,959 81,216
Unrecognized net asset at transition ............................................................ (39,209) (42,009)
--------- ---------
Prepaid (accrued) pension cost .................................................................. $ 9,043 $ (1,847)
========= =========
</TABLE>
<TABLE>
Net pension cost of company plans includes the following components:
<CAPTION>
1994 1993 1992
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Service cost of benefits earned during the year ................................ $ 25,127 $ 21,633 $ 13,474
Interest cost on projected benefit obligation ................................... 25,778 22,915 15,769
Actual loss (return) on assets ................................................. 4,984 (19,986) (20,888)
Net amortization and deferral ................................................... (28,861) (65) (2,532)
-------- -------- --------
Net pension cost ................................................................ $ 27,028 $ 24,497 $ 5,823
======== ======== ========
</TABLE>
PAPER FORMAT DOCUMENT PAGE 32
<PAGE> 35
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7% and 4% in 1994, and 6.5% and 4% in 1993.
The expected long-term rate of return on assets was 7.75%. If the assumed
discount rate had remained unchanged during 1994, the projected benefit
obligation would have been $36 million higher. Net pension cost increased in
1993 by approximately $8 million for amendments to increase benefits to
participants effective January 1, 1993, and approximately $5 million due to the
lower assumed discount rate.
The company provides health care benefits to certain retirees who were
not subject to labor contracts. During 1993, eligible new retirees began
contributing to the cost of these benefits. Prior to 1993 the cost of these
benefits was recognized when incurred. Effective January 1, 1993, the company
adopted the provisions of SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Under SFAS 106, the costs of these benefits is
recognized during eligible employment. The company recorded the entire
transition obligation of $38,496,000 ($23,867,000 after tax or $.61 per share)
as a one time charge against 1993 earnings.
<TABLE>
The following table sets forth the amounts recognized in the balance
sheet:
<CAPTION>
1994 1993
---------- -----------
(dollars in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,136) $ (7,497)
Fully eligible active plan participants . . . . . . . . . . . . . . . . (7,738) (8,501)
Other active plan participants . . . . . . . . . . . . . . . . . . . . . (39,554) (45,299)
----------- ----------
(56,428) (61,297)
Unrecognized net (gain) loss . . . . . . . . . . . . . . . . . . . . . . (2,815) 7,849
----------- ----------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . $ (59,243) $ (53,448)
============ ==========
</TABLE>
<TABLE>
Net periodic postretirement benefit cost includes the following
components:
<CAPTION>
1994 1993
---------- -----------
(dollars in thousands)
<S> <C> <C>
Service cost of benefits earned during the year . . . . . . . . . . . . $ 3,759 $ 4,000
Interest cost on accumulated postretirement benefit obligation . . . . . 3,776 3,737
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . 10 75
----------- ----------
Net postretirement benefit cost . . . . . . . . . . . . . . . . . . . . $ 7,545 $ 7,812
============ ===========
</TABLE>
Post retirement benefit payments amounted to $1,750,000 in 1994,
$1,717,000 in 1993 and $852,000 in 1992.
At December 31, 1994, the assumed health care cost trend rate is 12% for
1995 and is assumed to decrease gradually to 6.25% by 2006 and remain at that
level thereafter. At December 31, 1993, the assumed rate was 12.75% for 1994,
decreasing gradually to 6.25% by 2006. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1994 and 1993 by $8 million and $9 million, respectively, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by $1.3 million.
The weighted average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation was 7% and
6.5% at December 31, 1994 and 1993, respectively.
The company contributed $25,517,000 in 1994, $28,207,000 in 1993 and
$27,665,000 in 1992 to various employee defined contribution plans which invest
primarily in company stock. These plans generally cover employees not subject to
labor contracts. Annual contributions are related to company profitability and
employees' salaries and wages.
PAPER FORMAT DOCUMENT PAGE 33
<PAGE> 36
NOTE F -- SHAREHOLDERS' EQUITY
The Board of Directors is authorized to issue shares of serial
preferred stock in one or more series and to fix the terms and conditions of
the preferred shares, including: dividend rates and payment dates; liquidation
prices; redemption rights and prices; sinking fund requirements; conversion
rights; and restrictions on issuance. Voting rights would be on the same basis
as outstanding common shares.
The company issued from treasury 33,544 shares of its common stock in
1994, 86,624 shares in 1993 and 301,221 shares in 1992 in connection with
employee stock plans. The company purchased 448,533 shares of its common stock
in 1993.
The fair market value of treasury shares issued in connection with
stock plans and the 1992 acquisition of Cole Enterprises, Inc. discussed in
Note B exceeded cost by $707,000 in 1994, $54,000 in 1993 and $19,121,000 in
1992. The excess has been recorded as additional capital.
During 1994 the shareholders approved the Roadway Services, Inc. 1994
Nonemployee Directors' Stock Plan which allows for the awarding of stock and
stock options not to exceed in the aggregate 80,000 shares. Under a similar
1989 plan 10,442 shares were awarded and 41,768 options were granted in prior
years. A maximum of 60,000 shares may be issued under the 1989 Plan.
<TABLE>
Activity under the plans is as follows:
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Shares awarded . . . . . . . . . . . . . . . . . . . . . . . . 13,209 -- --
Shares forfeited . . . . . . . . . . . . . . . . . . . . . . . 2,085 2,091 2,313
Options granted at $66.25 . . . . . . . . . . . . . . . . . . . 52,836 -- --
Options exercised at $30 . . . . . . . . . . . . . . . . . . . 5,332 -- 6,200
Options outstanding at year end . . . . . . . . . . . . . . . 83,072 35,568 35,568
</TABLE>
NOTE G -- CONTINGENCIES AND COMMITMENTS
During 1989, the Internal Revenue Service (IRS) completed an examination
of the company's employment tax returns for the years 1985 and 1986 proposing
changes in classification of certain drivers at Roadway Package System, Inc.
(RPS) and subjecting the company to payment of approximately $5 million of
certain employment taxes for those years. The company paid the amounts claimed
although it disagreed with the IRS position both as to liability for and
amounts of taxes claimed. The company then filed suit in the United States
Court of Claims to recover the amounts paid. In 1992, the IRS completed its
examination of the company's 1987 through 1989 employment tax returns and
proposed additional employment taxes of approximately $27 million. The company
estimates that the total potential liability could have been as much as $119
million through 1993 on the same basis as adjustments proposed for years 1985
through 1989.
The company has reached agreement with the IRS and the Department of
Justice in full settlement of all assessed, asserted or potential employment tax
deficiencies and interest related to this matter through 1993. The net after-tax
cost of the settlement amounted to $13.7 million or $.35 per share and is
included in the 1994 statement of consolidated income.
As an incident of the settlement, the IRS provided a letter of
assurance that states that operations conducted in accordance with the terms of
an arrangement described therein would not be inconsistent with an independent
contractor relationship within the meaning of the Internal Revenue Code. Since
January 1, 1994, RPS has executed revised agreements with its pickup and
delivery owner-operators that coincide with the terms described in the letter
of assurance.
Various other legal proceedings arising from the normal conduct of
business are pending but, in the opinion of management, the ultimate disposition
of these matters will have no material effect on the financial condition of the
company.
The company has unsecured available lines of credit of $150,000,000 at
December 31, 1994. There were no borrowings under this line during 1994.
PAPER FORMAT DOCUMENT PAGE 34
<PAGE> 37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors
Roadway Services, Inc.
We have audited the accompanying consolidated balance sheets of Roadway
Services, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related statements of consolidated income, earnings reinvested in the business,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Roadway
Services, Inc. and subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Akron, Ohio
January 24, 1995
PAPER FORMAT DOCUMENT PAGE 35
<PAGE> 38
<TABLE>
Historical Data Amounts in thousands,
Roadway Services, Inc. and Subsidiaries except per share data
<CAPTION>
1994 1993 1992 1991
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . $4,572,004 $4,155,940 $3,577,601 $3,176,956
Operating Expenses
Salaries, wages and benefits . . . . . . . . . . . . 2,420,716 2,242,628 1,908,425 1,734,782
Purchased transportation . . . . . . . . . . . . . 889,476 623,358 500,001 419,590
Operating supplies and expenses . . . . . . . . . . . . 776,366 678,872 591,438 514,760
Operating taxes and licenses . . . . . . . . . . . . 120,249 115,942 96,266 88,459
Insurance and claims . . . . . . . . . . . . . . 107,372 95,136 74,380 61,844
Provision for depreciation . . . . . . . . . . . . 207,267 197,232 170,287 154,669
Net (gain) loss on sale of carrier
operating property . . . . . . . . . . . . . (1,179) (1,638) 23 (3,554)
---------- ---------- ---------- ----------
Total Operating Expenses . . . . . . . . . . . . . . . . 4,520,267 3,951,530 3,340,820 2,970,550
---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . . . . . . . 51,737 204,410 236,781 206,406
Other income -- net . . . . . . . . . . . . . . . . . . 701 9,995 13,685 7,200
---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of accounting changes . . . . . . . . . . . . . 52,438 214,405 250,466 213,606
Provision for income taxes . . . . . . . . . . . . . . 32,878 95,070 103,059 86,283
---------- ---------- ---------- ----------
Income before cumulative effect of
accounting changes . . . . . . . . . . . . . . . . . . 19,560 119,335 147,407 127,323
Cumulative effect of accounting changes(1) . . . . . . -- (18,131) -- --
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 19,560 $ 101,204 $ 147,407 $ 127,323
========== ========== ========== ==========
Earnings per share (2)
Before cumulative effect of accounting changes . . . . $ .50 $ 3.02 $ 3.73 $ 3.27
Cumulative effect of accounting changes . . . . . . . . -- (.46) -- --
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . . $ .50 $ 2.56 $ 3.73 $ 3.27
========== ========== ========== ==========
Cash dividends declared per share(3) . . . . . . . . . . $ 1.40 $ 1.37 1/2 $ 1.27 1/2 $ 1.17 1/2
Average number of shares of
common stock outstanding (3) . . . . . . . . . . . 39,392 39,521 39,521 38,906
Total Shareholders' Equity . . . . . . . . . . . . . . . $1,015,394 $1,047,151 $1,021,360 $ 890,256
Total Assets . . . . . . . . . . . . . . . . . . . . . . $1,949,435 $1,846,402 $1,681,085 $1,488,632
- -----------------------------------------------------------------------------------------------------------------------------
Tons of freight -- LTL . . . . . . . . . . . . . . . . 11,712 11,014 9,219 8,388
TL . . . . . . . . . . . . . . . . . 3,872 3,772 2,796 2,740
---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . . . . . . . . 15,584 14,786 12,015 11,128
Intercity miles . . . . . . . . . . . . . . . . . . . . 1,119,288 1,056,177 932,866 862,865
Ton miles . . . . . . . . . . . . . . . . . . . . . . . 13,174,711 13,342,600 11,788,035 10,944,225
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
Notes: (1) Changes in methods of accounting for income taxes and retiree
medical benefits in 1993.
(2) Earnings per share are computed on the average number of shares
of common stock outstanding during each year.
(3) Adjusted to reflect a 2 for 1 stock split effective May 30, 1984.
</TABLE>
PAPER FORMAT DOCUMENT PAGE 36
<PAGE> 39
<TABLE>
<CAPTION>
Amounts in thousands,
except per share data
1990 1989 1988 1987 1986 1985 1984
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$2,971,235 $2,660,910 $2,184,531 $1,908,747 $1,717,491 $1,579,825 $1,461,510
1,620,498 1,490,454 1,241,070 1,094,415 993,997 930,837 891,899
374,597 313,163 257,217 205,407 144,239 109,944 58,424
485,998 436,831 348,146 333,414 283,788 275,983 253,018
79,649 72,817 60,380 57,018 53,205 50,861 45,051
72,841 65,118 54,427 45,974 37,042 34,885 28,765
149,259 138,170 122,827 115,158 100,421 81,280 51,992
(191) (75) (1,238) (755) (987) (2,336) (379)
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
2,782,651 2,516,478 2,082,829 1,850,631 1,611,705 1,481,454 1,328,770
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
188,584 144,432 101,702 58,116 105,786 98,371 132,740
5,954 5,745 18,997 20,221 24,332 33,508 45,388
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
194,538 150,177 120,699 78,337 130,118 131,879 178,128
75,458 54,656 40,460 27,829 53,652 55,968 78,113
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
119,080 95,521 80,239 50,508 76,466 75,911 100,015
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 119,080 $ 95,521 $ 80,239 $ 50,508 $ 76,466 $ 75,911 $ 100,015
========== ========== ========== ========== ========== ========== ==========
$ 3.05 $ 2.44 $ 2.00 $ 1.26 $ 1.91 $ 1.90 $ 2.49
-- -- -- -- -- -- --
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 3.05 $ 2.44 $ 2.00 $ 1.26 $ 1.91 $ 1.90 $ 2.49
========== ========== ========== ========== ========== ========== ==========
$ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.10 $ 1.02 1/2 $ 1.00
39,023 39,154 40,120 40,217 40,114 39,931 40,105
$ 777,795 $ 718,292 $ 670,389 $ 661,661 $ 654,235 $ 613,836 $ 577,950
$1,341,046 $1,273,120 $1,182,235 $1,105,473 $1,070,659 $ 999,861 $ 912,965
- ---------------------------------------------------------------------------------------------------
7,967 7,447 6,210 5,799 4,932 4,444 4,143
2,532 2,688 2,412 2,180 2,212 2,572 2,528
- ---------- ---------- ---------- ---------- ---------- ---------- ----------
10,499 10,135 8,622 7,979 7,144 7,016 6,671
811,729 777,799 675,079 641,157 544,755 529,153 498,362
10,492,865 10,200,525 8,931,450 8,556,682 7,556,624 7,254,521 6,922,814
- ---------------------------------------------------------------------------------------------------
</TABLE>
PAPER FORMAT DOCUMENT PAGE 37
<PAGE> 40
<TABLE>
<CAPTION>
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
Operating Net Earnings Per Net Income Average Shares
Quarter Ended Revenue Income Income (a) Income Share (a) Per Share Outstanding
------------- ------- --------- ---------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 (dollars in thousands, except per share data)
March 26 $1,023,740 $ 29,188 $ 15,912 $ 15,912 $ 0.40 $ 0.40 39,372,000
June 18 (b) 930,157 (41,166) (21,726) (21,726) (0.55) (0.55) 39,395,000
September 10 1,091,507 24,045 11,649 11,649 0.30 0.30 39,402,000
December 31 (c) 1,526,600 39,670 13,725 13,725 0.35 0.35 39,399,000
1993
March 27 $ 856,052 $ 30,990 $ 20,261 $ 2,130 $ 0.51 $ 0.05 39,741,000
June 19 939,263 42,002 27,323 27,323 0.69 0.69 39,697,000
September 11 983,872 53,752 29,039 29,039 0.74 0.74 39,322,000
December 31 1,376,753 77,666 42,712 42,712 1.08 1.08 39,369,000
<FN>
(a) Before cumulative effect of accounting changes.
(b) Includes effect of the Teamsters strike as described in Management's Discussion and Analysis.
(c) Includes effect of IRS settlement as described in Note G to the consolidated financial statements.
</TABLE>
The company uses a 13 four-week period calendar with 12 weeks in each of
the first three quarters and 16 weeks in the fourth quarter.
COMMON STOCK AND DIVIDENDS
Roadway Services, Inc. common stock is traded on The Nasdaq Stock Market
(symbol: ROAD). Roadway Services is included in the Dow Jones Transportation
Average, a major barometer for the U. S. transportation industry. Roadway is the
only over-the-counter stock to be included in a Dow Jones average.
Cash dividends declared per share totaled $1.40 in 1994 and $1.37 1/2 in
1993. The number of holders of record of the company's common stock at December
31, 1994 was approximately 7,300. The high and low prices at which Roadway
Services common stock traded for each quarter in 1994 and 1993, as reported by
the National Association of Securities Dealers, Inc., are shown below.
<TABLE>
<CAPTION>
Price Range Dividends Declared
-------------------------------------------- Per Share
1994 1993 ------------------------
------------------- --------------------
Quarter Ended High Low High Low 1994 1993
------------- ------- ------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
March 31........................ $74 1/4 $59 1/2 $72 1/2 $59 3/4 $ .35 $ .32 1/2
June 30......................... 72 62 1/2 65 1/2 51 3/4 .35 .35
September 30.................... 64 1/2 53 3/4 63 1/4 55 3/4 .35 .35
December 31..................... 58 46 69 57 1/2 .35 .35
-------- ---------
$ 1.40 $ 1.37 1/2
======== ==========
</TABLE>
The company offers a dividend reinvestment plan through its stock transfer
agent, KeyCorp Shareholder Services, Inc. (formerly Society National Bank). The
plan provides an opportunity for registered shareholders of the company to
automatically purchase additional shares of Roadway Services common stock with
dividends. Further information regarding the plan is on page 39 of this report.
An information booklet which provides answers to questions regarding the
ownership and transfer of stock is also available to shareholders of the
company. Copies may be obtained by contacting the company at the address or
telephone number listed on page 39 of this report.
PAPER FORMAT DOCUMENT PAGE 38
<PAGE> 41
CORPORATE INFORMATION
ROADWAY SERVICES, INC. is a holding company engaged through its operating
companies in the transportation and logistics businesses. Its operating
companies are:
ROADWAY EXPRESS, INC., the company's largest operating company , primarily
handles long haul, less-than-truckload (LTL) general freight throughout North
America and to overseas destinations.
1077 Gorge Boulevard, P.O. Box 471
Akron, Ohio 44309
(216) 384-1717
ROADWAY PACKAGE SYSTEM, INC. AND SUBSIDIARIES serve shippers in the small
package market. RPS presently serves 47 states and Canada through 317
terminals.
P.O. Box 108
Pittsburgh, Pennsylvania 15230
(412) 269-1000
ROADWAY GLOBAL AIR, INC. provides air cargo service to customers worldwide
through 77 air logistics centers in North America, Europe, Asia and Australia,
including a hub facility in Terre Haute, Indiana.
9200 Keystone Crossing, Suite 500
Indianapolis, Indiana 46240
(317) 580-7070
ROADWAY REGIONAL GROUP, INC. is the parent of regional carriers VIKING FREIGHT
SYSTEM, INC., SPARTAN EXPRESS, INC., COLES EXPRESS, INC., and CENTRAL FREIGHT
LINES INC. Viking provides LTL service in 10 western states and to Alaska,
Hawaii and Mexico. Spartan serves 17 central and southern states. Coles
provides LTL service to 11 northeastern states and Central serves 10
southwestern states, Illinois and Mexico. The regional group operates 232
terminals.
(Viking): 411 East Plumeria Drive
San Jose, California 95134
(408) 922-7200
(Central): 5601 W. Waco Drive
Waco, Texas 76702
(817) 772-2120
(Spartan Central): 125 Dillmont Drive
Worthington, Ohio 43235
(614) 841-1220
(Spartan South): P.O. Box 1089
Greer, South Carolina 29652
(803) 879-4211
(Coles): 444 Perry Road
Bangor, Maine 04401
(207) 942-7311
ROBERTS TRANSPORTATION SERVICES, INC., through its subsidiaries, provides
expedited delivery for critical and time-sensitive shipments.
2088 South Arlington Street, P.O. Box 7162
Akron, Ohio 44306
(216) 773-3381
ROADWAY LOGISTICS SYSTEMS, INC. provides contract logistics services.
5455 Darrow Road
Hudson, Ohio 44236
(216) 342-3000
CORPORATE HEADQUARTERS
- ----------------------
1077 Gorge Boulevard
P.O. Box 88
Akron, Ohio 44309
Telephone: (216) 384-8184
ANNUAL MEETING
- --------------
The annual meeting of shareholders of Roadway Services, Inc. will be held on
Wednesday, May 10, 1995 at 9:00 a.m. Eastern Daylight Time at the Sheraton
Suites Hotel, 1989 Front St., Cuyahoga Falls, Ohio. Formal notice and proxy
statement, with proxy, will be mailed on or about April 10, 1995, to each
shareholder of record on March 24, 1995. Shareholders are requested to execute
and return proxies.
TRANSFER AGENT AND REGISTRAR
- ----------------------------
KeyCorp Shareholder Services, Inc.
(formerly Society National Bank)
P.O. Box 6477
Cleveland, Ohio 44101-1477
Telephone: (216) 813-5745 or (1-800) 542-7792
DIVIDEND REINVESTMENT PLAN
- --------------------------
Registered shareholders of Roadway Services, Inc. are eligible to participate
in a dividend reinvestment plan through KeyCorp Shareholder Services, Inc.
(formerly Society National Bank), the company's stock transfer agent. For
information regarding the plan, contact the company's transfer agent.
PAPER FORMAT DOCUMENT PAGE 39
<PAGE> 42
DIRECTORS AND OFFICERS
ROADWAY SERVICES, INC.
BOARD OF DIRECTORS
GEORGE B. BEITZEL, Retired Senior Vice President and Director,
International Business Machines Corp., Armonk, New York
R. A. CHENOWETH, Principal of Buckingham, Doolittle & Burroughs,
a Legal Professional Association, Akron, Ohio
JOSEPH M. CLAPP, Chairman and Chief Executive Officer of the company
NORMAN C. HARBERT, Chairman and CEO, The Hawk Group, Cleveland, Ohio
CHARLES R. LONGSWORTH, Chairman, The Colonial Williamsburg Foundation,
Williamsburg, Virginia
ROBERT E. MERCER, Retired Chairman and CEO, The Goodyear Tire &
Rubber Company, Akron, Ohio
G. JAMES ROUSH, Private Investor, Seattle, Washington
DANIEL J. SULLIVAN, President and Chief Operating Officer of the company
WILLIAM SWORD, Chairman of the Board, Wm. Sword & Co. Incorporated, Princeton,
New Jersey
SARAH ROUSH WERNER, Private Investor, Marysville, Washington
OFFICERS
DONALD C. BROWN, Vice President-Corporate Support Services
JOHN P. CHANDLER, Vice President-Administration and Treasurer
JOSEPH M. CLAPP, Chairman and Chief Executive Officer
KATHRYN W. DINDO, Assistant Controller
DAVID B. EDMONDS, Vice President-Corporate Marketing and Sales
JOHN M. GLENN, Vice President and General Counsel
ROY E. GRIGGS, Vice President and Controller
WILLIAM F. KLUG, Vice President-Real Estate and Environmental Services
RODGER G. MARTICKE, Vice President and Group Executive
JONATHAN T. PAVLOFF, Vice President-Corporate Planning
DANIEL J. SULLIVAN, President and Chief Operating Officer
D. A. WILSON, Senior Vice President-Finance and Planning, Secretary and Chief
Financial Officer
OPERATING COMPANY OFFICERS
ROADWAY EXPRESS, INC.
- ---------------------
JOHN D. BRONNECK, Vice President-Northeastern Division
FRANK W. CAHILL, Vice President-Central Division
ROBERT W. CARR, Assistant Vice President-International Business
HELENE CSVANY, Vice President-Information Systems
J. DAWSON CUNNINGHAM, Vice President-Finance and Administration, Treasurer and
Assistant Secretary
BRIAN M. CURRAN, Vice President-Southern Division
LAWRENCE L. DEMASTUS, Vice President-Maintenance
DOUGLAS G. DUNCAN, Vice President-Sales
LOUIS J. ESPOSITO, Vice President-Midwestern Division
JOHN. G. FERRONE, Vice President-Labor Relations
JOE D. LAWRENCE, Vice President-Quality
MICHAEL J. MURPHY, Vice President-Corporate Sales
ROBERT W. OBEE, Vice President-Operations Planning and Engineering
KEN OLSEN, Vice President-Marketing
ANTHONY R. POAT, Vice President-Pricing
J. A. SALERNO, Vice President-Administration
J. D. STALEY, Vice President-Operations
ROBERT L. STULL, Vice President-Western Division
MICHAEL W. WICKHAM, President
ROADWAY PACKAGE SYSTEM, INC.
- ----------------------------
GORDON N. BLOOM, Vice President-Information Technology
PAUL S. CALLAHAN, Vice President-Central Division
MARY K. COULTER, Vice President-Customer Service
ERIC W. DAMON, Vice President-Finance and Administration
EDWARD S. DiSALVO, Vice President-Sales
DAVID L. GERSCHULTZ, Vice President-Southern Division
IVAN T. HOFMANN, President
LEE E. HOLLY, Vice President-Human Resources
BRAM B. JOHNSON, Vice President-Marketing
RONALD E. JOSEPH, Vice President-Transportation, Safety and
Maintenance
JOSEPH P. LOUGHRAN, Vice President-Operations Planning and Engineering
TERRENCE F. SRSEN, President, Roadway Package System, Ltd.
J. ALLAN TEPPER, Vice President-Western Division
THOMAS R. WARREN, Vice President-Field Operations
ROBERT T. YOUNG, Vice President-Eastern Division
ROADWAY GLOBAL AIR, INC.
- ------------------------
DONALD G. BERGER, President
ROADWAY REGIONAL GROUP, INC.
- ----------------------------
RANDOLPH C. BANGHAM, President
VIKING FREIGHT SYSTEM, INC.
- ---------------------------
RONALD G. PELZEL, President
CENTRAL FREIGHT LINES INC.
- --------------------------
C. TOM CLOWE, JR., President
SPARTAN EXPRESS, INC.
- ---------------------
THOMAS G. CONNARD, President-Spartan Central
THOMAS L. DOBB, President-Spartan South
COLES EXPRESS, INC.
- -------------------
ROBERT T. DRAKE, President
ROBERTS EXPRESS, INC.
- ---------------------
R. BRUCE SIMPSON, President
ROADWAY LOGISTICS SYSTEMS, INC.
- -------------------------------
ROBERT D. LAKE, President
ROADWAY INFORMATION TECHNOLOGY, INC.
- ------------------------------------
GERALD A. LONG, President
PAPER FORMAT DOCUMENT PAGE 40
<PAGE> 43
PHOTO NO. 44
INSIDE BACK COVER
<PAGE> 44
Roadway Services, Inc., 1077 George Boulevard, P.O. Box 88, Akron, Ohio
44309-0088 (216) 384-8184
OUTSIDE BACK COVER
<PAGE> 45
APPENDIX TO EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
<TABLE>
<CAPTION>
Paper Format
Graphs Document Page
- ------ -------------
<S> <C>
1 Bar Graph No. 1 1
Revenue (in billions)
1990 $2.97
1991 $3.18
1992 $3.58
1993 $4.15
1994 $4.57
2 Bar Graph No. 2 1
Net Income (in millions)(a)
1990 $119.1
1991 $127.3
1992 $147.4
1993 $119.3
1994 $ 19.5
<FN>
(a) Excludes $18.1 million charge for the cumulative
effect of accounting changes in 1993.
</TABLE>
Paper Format
Photo No. Description Document Page
1 Roadway Express baseball cap 4
2 Roadway Express doubles truck with sleeper tractor 4
CAPTION WITHIN PHOTO:
INFORMATION AT THE SPEED OF LIGHT
In today's business environment speed is critical.
Roadway Express moves your shipment around the clock
and communicates your shipment's location at the speed
of light. Continuously tracked by satellite, our new
sleeper tractors keep your shipment on the road and on
time. You get reliable service and reliable information.
Just some of the ways we're changing to offer you exceptional
service ... with no exceptions.
CAPTION BELOW PHOTO: In October 1994, Roadway Express
inaugurated sleeper team service from five midwestern and
southwestern gateway cities to the West Coast. Equipped
with two-way satellite communications systems, the 260 new
sleeper tractors will meet customer demands for faster
transit times.
<PAGE> 46
APPENDIX TO EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(Continued)
<TABLE>
<S> <C> <C>
Paper Format
Photo No. Document Page
- --------- -------------
3 Individuals seated at a conference table 5
4 Material handling equipment 5
5 Roadway Express doubles truck 5
6 Four Roadway Express truck drivers 6
CAPTION ABOVE PHOTO: Four drivers who have
individually achieved over three million miles
without a preventable accident were awarded exclusive
use of company tractors. A total of 22 Roadway Express
drivers companywide were awarded vehicles for this
outstanding safety accomplishment.
7 Individual using computer on board truck 7
8 Individuals working at computers 7
9 Roadway Express truck in Europe 7
10 RPS baseball cap 8
11 RPS package testing equipment 8
CAPTION BELOW PHOTO: In 1994, RPS opened a package
testing lab located in the company's Harrisburg,
Pennsylvania hub. The new facility allows RPS to
work one-on-one with its customers to develop tailored
packaging solutions.
12 Roadway Access computer screen 9
13 RPS van being loaded with packages 9
14 Barcode labels 9
15 Individual sorting RPS packages 10
CAPTION ABOVE PHOTO: RPS continues to lead the way in
providing information solutions for small-package
shippers utilizing laser scanning, barcode labeling,
on-van computing, state-of-the-art material handling,
and shipment processing and information systems for
customers.
16 RPS packages being loaded 11
17 RPS vans 11
18 RPS Star System wand 11
19 RGA baseball cap 12
</TABLE>
<PAGE> 47
APPENDIX TO EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(Continued)
<TABLE>
<CAPTION>
Paper Format
Photo No. Document Page
- --------- -------------
<S> <C> <C>
20 Individual using hand held computer 12
CAPTION BELOW PHOTO: The Driver's Digital
Assistant (DDA), a hand held computer carried by
RGA's driver contractors, instantly transmits "real
time" information to RGA's centralized computer system
across a wireless data network. The DDA's two-way
communication capability enables the driver contractor
to send and receive pickup requests and routing changes.
21 Individuals in air control tower 13
22 RGA airplane being loaded 13
23 RGA airplane 13
24 Baseball caps from five regional carriers 14
25 Map of North America 14
CAPTION BELOW PHOTO: The five carriers in the
Roadway Regional Group focus on service within their
core geographic territories and also provide interregional
service through partnerships with each other.
26 Individuals seated at a conference table 15
27 Trucks of five regional carriers 15
28 Viking doubles truck 15
29 Individual using barcode scanner 16
30 Central truck being loaded 16
31 Individuals working on a computer 16
32 Individual loading computer 16
33 Dockworkers handling freight 17
34 Central truck 17
35 Roberts baseball cap 18
36 Roberts truck 18
CAPTION BELOW PHOTO: Roberts Express delivered over
150,000 shipments in 1994 for customers throughout
North America and Western Europe.
37 Individual at computer 19
</TABLE>
<PAGE> 48
APPENDIX TO EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(Continued)
<TABLE>
<CAPTION>
Paper Format
Photo No. Document Page
- --------- -------------
<S> <C> <C>
38 Freight being loaded on Roberts CharterAir 19
39 Roberts trucks 19
40 ROLS baseball cap 20
41 Individuals at computers 20
CAPTION BELOW PHOTO: One service area exhibiting
superior growth in 1994 is ROLS Rite Routing Systems(R).
This transportation management system was developed
by ROLS to assure proper mode and carrier compliance,
creating significant efficiencies for customers.
42 Individuals seated at a conference table 21
43 ROLS truck 21
44 Illustration of head with world map inside 21
45 Board of Directors Members Inside back
CAPTION BELOW PHOTO: Board of Directors cover
(standing, l to r): Charles R. Longsworth,
Norman C. Harbert, George B. Beitzel, R. A.
Chenoweth, Robert E. Mercer, William Sword.
(seated, l to r): Daniel J. Sullivan,
Joseph M. Clapp, Sarah Roush Werner, G. James Roush.
Mission Paper Format
Statement No. Document Page
- ------------- -------------
1 We will contribute to our customers' success by 4
providing the highest quality freight transportation
and related products and services. Our principal focus is on
meeting the needs of our domestic and international customers
by providing long haul motor carrier-based operations both
within, to and from North America. We will achieve an
unsurpassed level of customer satisfaction by providing
reliable, responsive and efficient transportation services.
2 Roadway Package System will be the best small package 8
delivery company serving ground and air customers in
domestic and international markets. We will accomplish
this mission through a total commitment to quality and
customer satisfaction by providing unsurpassed service,
industry leadership in technology and product innovation,
motivated employees and contractors, partnership with
suppliers, and conformance to budget. By achieving our
mission, we will maximize long-term growth and profitability.
</TABLE>
<PAGE> 49
APPENDIX TO EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
(Continued)
<TABLE>
<CAPTION>
Mission Paper Format
Statement No. Document Page
- ------------- -------------
<S> <C> <C>
3 Roadway Global Air will provide superior customer 12
satisfaction in the worldwide air express market.
We will accomplish this mission by adding value
for our customers, our people and our shareholders
through innovation, technology, teamwork and the
pursuit of unsurpassed service and quality measured
by zero defects. By achieving our mission of
superior customer satisfaction, we will continually
grow and profit.
4 The mission of the Roadway Regional Group is to be 14
acknowledged by our customers, employees and
shareholders as the leading motor carrier group
providing the greatest value in regional transportation
and related services.
5 The mission of Roberts Express is to provide the very 18
best time definite surface and air transportation
as perceived by the customer. This total commitment
to service will be met with professional people dedicated
to total customer satisfaction through the definition,
measurement and reward of exemplary performance and
innovation. We will specifically provide strong
financial results by providing reliable and superior
transportation unique to speed, control, handling and
information needs of the customer.
6 Roadway Logistics Systems (ROLS) will design, develop, 20
and apply logistics solutions that improve our customers'
competitive positions worldwide.
</TABLE>
<PAGE> 1
<TABLE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<CAPTION>
State or Jurisdiction
Subsidiary of Incorporation
---------- ---------------------
<S> <C>
Roadway Express, Inc. Delaware
Roadway Express International, Inc. Delaware
TNL-Roadway S.A. de C.V. Mexico
Roadway Express, B.V. Netherlands
Roadway Express (Canada), Inc. Alberta
Roadway Managed Return Services, Inc. Ohio
Transcontinental Lease S.A. de C.V. Mexico
Roadway Package System, Inc. Delaware
Roadway Package System, Ltd. Canada
Roadway Package System S.A. de C.V. Mexico
Roadway Telemarketing, Inc. Delaware
Roadway Global Air, Inc. Delaware
Roadway Global Air International, Inc. Delaware
Roadway Global Air, S.N.C. France
Roadway Global Air, Ltd. Hong Kong
Roadway Global Air, S.r.l. Italy
Roadway Global Air, S.L. Spain
Roadway Regional Group, Inc. California
Viking Freight System, Inc. California
Spartan Express, Inc. South Carolina
Coles Express, Inc. Delaware
Central Freight Lines Inc. Texas
Roadway Logistics Systems, Inc. Ohio
ROLS Dedicated Transportation, Inc. Delaware
MediQuik Express, Inc. Ohio
Pivot Systems, Inc. Delaware
ROLS Marketing Services, Inc. Delaware
Warehouse Services, Inc. Delaware
Roadway Logistics Systems (Canada), Ltd. Ontario
Roberts Transportation Services, Inc. Ohio
Roberts Express, Inc. Ohio
Roberts Express, B.V. Netherlands
Roberts Express SARL France
Roberts Express GmbH Germany
North Coast Express, Inc. Ohio
Roberts Air Freight, Inc. Ohio
AutoQuik, Inc. Delaware
Roadway Information Technology, Inc. Ohio
Carrier Supplies, Inc. Ohio
Roadway Tire Company Ohio
Services Development Corporation Delaware
Circle Investment Co. Delaware
</TABLE>
<PAGE> 2
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<CAPTION>
State or Jurisdiction
Subsidiary of Incorporation
---------- ---------------------
<S> <C>
Triangle Investment Co. Delaware
Transport Financial Corporation Delaware
Roadway Services (Canada), (1991) Ltd. Canada
The Roadway Company (Europe), Inc. Delaware
Transportation Research, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Roadway Services, Inc. of our report dated January 24, 1995, included in the
1994 Annual Report to Shareholders of Roadway Services, Inc.
We also consent to the incorporation by reference of our report dated January
24, 1995 with respect to the consolidated financial statements incorporated
herein by reference, and our report dated January 24, 1995 with respect to the
financial statement schedule included in this Annual Report (Form 10-K) of
Roadway Services, Inc., in the following Registration Statements and related
Prospectuses:
<TABLE>
<CAPTION>
REGISTRATION
NUMBER DESCRIPTION OF REGISTRATION STATEMENT FILING DATE
- ------------------------------------------------------------------------------------------------------------
<C> <C> <C>
33-18955 The Merrill Lynch, Pierce, Fenner & Smith Incorporated February 26, 1988
Special Prototype Profit Sharing Plan and Trust for
Independent Contractors - Form S-3
33-28546 Viking Freight, Inc. Viking Financial Security Plan - May 5, 1989
Form S-8
33-44502 Restricted Book Value Shares Plan for Roadway Services, December 12, 1991
Inc. and Certain Operating Companies - Form S-8
33-44757 Roadway Services, Inc. Nonemployee Directors' Stock December 31, 1991
Plan - Form S-8
33-52605 Roadway Services, Inc. Stock Savings and Retirement Income March 10, 1994
Plan and Trust - Form S-8
</TABLE>
ERNST & YOUNG LLP
March 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 29,075
<SECURITIES> 7,976
<RECEIVABLES> 492,560
<ALLOWANCES> 16,160
<INVENTORY> 0
<CURRENT-ASSETS> 642,778
<PP&E> 2,688,277
<DEPRECIATION> 1,478,560
<TOTAL-ASSETS> 1,949,435
<CURRENT-LIABILITIES> 697,085
<BONDS> 0
<COMMON> 39,898
0
0
<OTHER-SE> 975,496
<TOTAL-LIABILITY-AND-EQUITY> 1,949,435
<SALES> 0
<TOTAL-REVENUES> 4,572,004
<CGS> 0
<TOTAL-COSTS> 4,520,267
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 52,438
<INCOME-TAX> 32,878
<INCOME-CONTINUING> 19,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,560
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
<PAGE> 1
EXHIBIT 99
Report of Independent Auditors
On Financial Statement Schedule
To the Board of Directors
Roadway Services, Inc.
We have audited the consolidated balance sheets of Roadway Services, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related statements of
consolidated income, earnings reinvested in the business, and cash flows for
each of the three years in the period ended December 31, 1994. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this schedule based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
January 24, 1995
