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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 For the fiscal year ended December 31, 1996.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______ to ______.
Commission file number 0-600
ROADWAY EXPRESS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-0492670
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
1077 Gorge Boulevard Akron, OH 44310
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(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 Regulations S-K 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 [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 11, 1997 Common Stock, $.01 Par Value -- $
395,304,602.
The number of shares outstanding of the issuer's classes of common stock as of
February 11, 1997 Common Stock, $.01 Par Value -- 20,535,304 shares
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Annual Report to Shareholders for the year ended
December 31, 1996, are incorporated by reference into Parts I and II. Certain
portions of the definitive proxy statement relating to the registrant's Annual
Meeting of Shareholders held on March 26, 1997, are incorporated by reference
into Part III.
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PART I
ITEM 1. -- BUSINESS
(a) General development of the business. Roadway Express, Inc. (the "Company" or
"Roadway"), a Delaware corporation founded in 1930, provides less-than-truckload
("LTL") freight services on two day and longer major city-to-city routes
("lanes") in North America, and on international lanes to and from North
America. On January 2, 1996, Roadway was spun-off from Roadway Services, Inc.
(the "former parent") which has now been renamed Caliber System, Inc. The
Company's headquarters are at 1077 Gorge Boulevard, Akron, Ohio, 44310.
(b) Segment information. The operation of the company is conducted in primarily
one industry segment, the interstate transportation of LTL freight.
(c) Description of the business. Roadway provides LTL transportation of general
commodity freight by motor vehicle, in North America and elsewhere. General
commodity freight includes apparel, appliances, automotive parts, chemicals,
food, furniture, glass, machinery, metal and metal products, non-bulk petroleum
products, rubber, textiles, wood, and miscellaneous manufactured products.
Roadway offers LTL service within Canada and Mexico through its subsidiaries,
and also offers service to and from 62 additional countries worldwide. The
Company serves over one-half million customers in North America.
Roadway is affected directly by the state of the overall economy, but no single
segment of the economy (e.g., general retail merchandise, automotive, chemical)
accounts for more than 10% of the Company's revenues. Seasonal fluctuations
affect tonnage, revenues and operating results. Normally, the fall of each year
is the Company's busiest shipping period; the months of December and January of
each year are the slowest. Shipment levels, operating costs, and operating
results can also be adversely affected by inclement weather. During 1996, no
single customer accounted for more than 2% of the Company's total revenues, and
the ten largest customers accounted for approximately 9% of the Company's total
revenue.
The LTL business is extremely competitive. High levels of competition and
persistent industry overcapacity continue to result in aggressive discounting
and narrow margins. Roadway's primary competitors in the national LTL market are
Yellow Freight System, Consolidated Freightways Corp., and ABF Freight System.
The Company also competes for LTL freight with other national and international
LTL carriers as well as regional LTL motor carriers, truckload carriers, small
package carriers, private carriage, freight forwarders, railroads and airlines.
Based on reported revenue for 1996, Roadway is one of the largest LTL motor
carriers in the United States. Competition for freight is based primarily upon
price and service (transit time). To maintain and improve market share, the
Company offers and negotiates various discounts. The Company works directly with
customers on an account-by-account basis to find ways to improve efficiencies
and contain costs to improve both customer and carrier profitability.
Deregulation of most of the trucking industry, begun in 1980 and largely
completed by Congress in 1995, has given rise to intense competition. New
entrants, some of which have grown rapidly in regional markets, include some
non-union carriers that may have lower labor costs than the Company.
At year end 1996, the Company had over 25,500 employees. Approximately 75% of
the Company's employees are represented by various labor unions, primarily the
International Brotherhood of Teamsters (the "Teamsters"). In 1994, the Company
experienced a 24-day strike by the Teamsters following expiration of the
National Master Freight Agreement (the "Contract"). The current Contract with
the Teamsters expires on March 31, 1998. The Company believes that its current
relations with the Teamsters are satisfactory.
Roadway's operations in interstate commerce are currently regulated by the U.S.
Department of Transportation ("DOT"), which retains limited oversight authority
over motor carriers. Recently enacted Federal legislation has preempted
regulation by the states of price, routes, and service in intrastate freight
transportation. The Company, like other interstate motor carriers, is subject to
certain safety requirements governing interstate operations prescribed by the
DOT. The Company has earned a "satisfactory" rating (the highest of three
grading categories) from the DOT. In addition, vehicle weight and dimensions
remain subject to both Federal and state regulation. More restrictive
limitations on vehicle weight and size, or on trailer length or configuration,
could adversely affect the operating results of the Company.
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At December 31, 1996, the Company owned a total of 9,665 tractors and 30,082
trailers. The average age of the intercity tractors was 7.6 years, and that of
the intercity trailers was 9.0 years. We also operated 3,108 intercity trailers
under a long-term lease. There is sufficient capacity to meet normal
requirements.
Short-term leased equipment is used to meet peak demands.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, positions, and ages of the persons who
serve as Executive Officers of the Company.
<TABLE>
<CAPTION>
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NAME PRESENT POSITIONS AND RECENT BUSINESS EXPERIENCE
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<S> <C>
J. Dawson Cunningham Vice President-Finance and
Administration, and Treasurer
since August 1990. Age 50.
Louis J.Esposito Vice President-Sales since
September 1995; previously he
served as Vice President-Midwest
Division from December 1990
through September 1995. Age 54.
John M. Glenn Vice President-General Counsel
and Secretary since January 1996.
Previous to employment with the
Company he was Vice President and
General Counsel of Roadway
Services, Inc. since 1987. Age 65.
James D. Staley
Vice President-Operations since
1993; previously he served as
Vice President-Northeast Division
from May 1989 through 1992. Age
47.
Michael W. Wickham President and Chief Executive
Officer; previously he served as
President from July 1990 through
1995. Age 50.
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</TABLE>
No family relationships exist between any of the executive officers named above
or between any executive officer and any director of the Company.
ITEM 2. -- PROPERTIES
At December 31, 1996, the Company operated 424 terminal facilities, of which 285
were Company owned and 139 were leased, generally for terms of three years or
less. The number of loading spaces, a measure of freight handling capacity,
totaled 13,766, of which 11,861 were at Company owned facilities and 1,905 were
at leased facilities. Thirty of the owned facilities are major
consolidation/distribution centers which are in strategic locations throughout
the continental United States. These 30 facilities contain 5,340 loading spaces,
ranging in size from 71 to 426 loading spaces, and average 86,600 square feet,
ranging from 31,000 to 220,000 square feet. All significant leased and owned
facilities were being utilized at year end 1996, and are adequate to meet
current needs.
The Company owns its main headquarters offices of approximately 259,000 square
feet, situated on 39.7 acres of which 14.7 are owned, and 25 leased under a
long-term contract expiring in 2009, but renewable to 2084. Approximately
148,000 square feet of office space for certain headquarters department
functions are leased at other locations.
ITEM 3. -- LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the ordinary course of
its business. In the opinion of the management of the Company, the outcome of
these matters will not have a material adverse effect on the Company's financial
condition or results of operations.
2
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ITEM 4. -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information under the caption "Common stock" in the table headed "Selected
Quarterly Financial Data" on page 33 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, filed with this Form 10-K as
page 19 of Exhibit 13, is incorporated herein by reference.
ITEM 6 -- SELECTED FINANCIAL DATA
The information set forth under the heading "Historical Data" for the years
1996, 1995, 1994, 1993, and 1992, on pages 34 and 35 of the registrant's Annual
Report to Shareholders for the year ended December 31, 1996, filed with this
Form 10-K as page 20 of Exhibit 13, is incorporated herein by reference.
ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 18 through 22 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, filed with this Form 10-K as
pages 1 through 4 of Exhibit 13, is incorporated herein by reference. Subsequent
Event. The Company entered into a stock purchase agreement on February 7, 1997,
for the acquisition of all of the outstanding shares of Reimer Express Lines,
Ltd. The purchase price of $15 million is payable in cash at closing, with
additional cash payments of up to $10 million, payable subject to Reimer
achieving specific performance levels over a 5 year period. The transaction will
be financed from operating cash flow supplemented by the short-term credit lines
as needed. The purchase is subject to approval by certain governmental agencies
in Canada. Closing of the transaction is expected to occur during the second
quarter of 1997. The statements in this document that are not historical in
nature are forward-looking statements. The Company's actual future performance
and operating and financial results may differ from those described in the
forward-looking statements as a result of a variety of factors that include the
condition of the industry and the economy and the success of the Company's
operating plans, including the matters discussed in Item 1.
ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, notes to consolidated financial
statements, and report of independent auditors appearing on pages 23 through 32
of the registrant's Annual Report to Shareholders for the year ended December
31, 1996 are incorporated herein by reference.
The summary of quarterly results of operations appearing on page 33 of the
registrant's Annual Report to Shareholders for the year ended December 31, 1996
is incorporated herein by reference.
See list of financial statements under Item 14 (a) 1.
ITEM 9. -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
3
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PART III
ITEM 10. -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required concerning the directors is set forth under the caption
"Election of Directors" on page 2 of the definitive proxy statement (the
"Proxy") relating to the registrant's Annual Meeting of Shareholders held on
March 26, 1997, and is incorporated herein by reference.
The information required concerning the executive officers is set forth under
the caption "Executive Officers of the Registrant" in Item 1 of this document,
and is incorporated herein by reference.
ITEM 11 -- EXECUTIVE COMPENSATION.
The information required concerning director compensation is set forth under the
caption "Director Compensation" on page 3 of the Proxy, and is incorporated
herein by reference.
The information required concerning executive compensation is set forth under
the caption "Compensation of Executive Officers" on pages 6 through 8 of the
Proxy, and is incorporated herein by reference.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required concerning security ownership of certain beneficial
owners and management is set forth under the caption "Beneficial Ownership of
Company Common Stock" on pages 4 and 5 of the Proxy, and is incorporated herein
by reference.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. List of financial statements contained in Roadway's Annual Report to
Shareholders for the year ended December 31, 1996, and filed as Exhibit
13 to this Form 10-K:
<TABLE>
<CAPTION>
Annual
Report Exhibit 13
page(s) page(s)
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<S> <C> <C>
Consolidated balance sheets at December 31, 1996 and 1995 23 5
Statements of consolidated income
for the years ended December 31, 1996, 1995, and 1994 24 6
Statements of consolidated shareholders' equity
for the years ended December 31, 1996, 1995, and 1994 25 7
Statements of consolidated cash flows
for the years ended December 31, 1996, 1995, and 1994 26 8
Notes to consolidated financial statements 27-31 9-17
Report of independent auditors dated January 22, 1997 32 18
Selected quarterly financial data for 1996 and 1995 33 19
</TABLE>
4
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ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 2. The following financial statement schedule is included on page 8 of this
Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because of the absence of the conditions under
which they are required or because information called for is shown in the
financial statements and notes thereto in the 1996 Annual Report to
Shareholders.
(a) 3. Exhibit Index
Exhibit No.
- -----------
3.1 Second Restated Certificate of Incorporation of Roadway Express, Inc.
Adopted by Board of Directors' Resolution dated December 15, 1995 by
unanimous written consent of the directors, and adopted by written
consent of the sole shareholder on December 22, 1995. (filed as
Exhibit 3.1 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference).
3.2 Restated Amended By-laws of Roadway Express, Inc. Adopted by Board of
Directors' Resolution dated December 15, 1995 by unanimous written
consent of the directors and adopted by written consent of the sole
shareholder on December 22, 1995. (filed as Exhibit 3.2 to the
registrant's Annual Report on Form 10-K for the year ended December
31, 1995, and incorporated herein by reference).
10.1 Distribution Agreement between Roadway Services, Inc. and Roadway
Express, Inc. (filed as Exhibit 2.1 to the Registrant's General Form
for Registration of Securities on Form 10 dated November 28,
1995, and incorporated herein by reference).
10.2 Tax Matters Agreement between Roadway Services, Inc. and Roadway
Express, Inc. (filed as Exhibit 10.2 to the Registrant's General Form
for Registration of Securities on Form 10 dated November 28,
1995, and incorporated herein by reference).
10.3 Data Processing and Information Technology Agreement between Roadway
Services, Inc. and Roadway Express, Inc. (filed as Exhibit 10.3 to the
Registrant's General Form for Registration of Securities on Form
10/A-1 dated December 11, 1995, and incorporated herein by reference).
10.4 Services and Support Agreement between Roadway Services, Inc. and
Roadway Express, Inc. (filed as Exhibit 10.4 to the Registrant's
General Form for Registration of Securities on Form 10 dated
November 28, 1995, and incorporated herein by reference).
10.5 Intellectual Property Agreement between Roadway Services, Inc. and
Roadway Express, Inc. (filed as Exhibit 10.5 to the Registrant's
General Form for Registration of Securities on Form 10/A-1 dated
December 11, 1995, and incorporated herein by reference).
10.6 Agreement on Employee Matters between Roadway Services, Inc. and
Roadway Express, Inc. (filed as Exhibit 10.6 to the Registrant's
General Form for Registration of Securities on Form 10/A-1 dated
December 11, 1995, and incorporated herein by reference).
10.7 National Master Freight Agreement between Roadway Express, Inc. and
the International Brotherhood of Teamsters (filed as Exhibit 10.7 to
the Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.8 Alternative Dispute Resolution Agreement between Roadway Services,
Inc. and Roadway Express, Inc. (filed as Exhibit 10.8 to the
Registrant's General Form for Registration of Securities on Form 10
dated November 28, 1995, and incorporated herein by reference).
10.9 Director and Officer Indemnification Agreements (filed as Exhibit 10.9
to the Registrant's General Form for Registration of Securities on
Form 10/A-1 dated December 11, 1995, and incorporated herein by
reference).
5
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ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(a) 3. Exhibit Index (continued)
Exhibit No.
10.10 * Roadway Express, Inc. Management Incentive Stock Plan (filed as
Exhibit 10.10 to the Registrant's General Form for Registration of
Securities on Form 10 dated November 28, 1995, and incorporated
herein by reference).
10.11 * Roadway Express, Inc. Stock Credit Plan (filed as Exhibit 10.11
to the Registrant's General Form for Registration of Securities on
Form 10 dated November 28, 1995, and incorporated herein by
reference).
10.12 * Roadway Express, Inc. Excess Plan (filed as Exhibit 10.12 to the
Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.13 * Roadway Express, Inc. 401(a)(17) Benefit Plan (filed as Exhibit
10.13 to the Registrant's General Form for Registration of
Securities on Form 10 dated November 28, 1995, and incorporated
herein by reference).
10.14 * Roadway Express, Inc. Administrative Document for Excess Plan
and 401(a)(17) Benefit Plan (filed as Exhibit 10.14 to the
Registrant's General Form for Registration of Securities on Form
10 dated November 28, 1995, and incorporated herein by reference).
10.15 Roadway Express, Inc. 401(k) Stock Savings Plan (filed as
Exhibit 4.3 to the Registrant's Registration Statement on Form
S-8 dated December 19, 1995 and incorporated herein by reference).
10.16 * Summary Description of Officers' Incentive Compensation Plan.
(filed as Exhibit 10.16 to the registrant's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated
herein by reference).
10.17 $25,000,000 Revolving Credit Facility by and between Roadway
Express, Inc. and Bank One, Akron, NA. (filed as Exhibit 10.17 to
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference).
10.18 Operating lease agreement by and between Roadway Express, Inc.
And ABN AMRO North America, Inc. (filed as Exhibit 10.18 to the
registrant's Quarterly Report on Form 10-Q for the period ended
June 15, 1996, and incorporated herein by reference).
10.19 $25,000,000 Credit Agreement between Roadway Express, Inc. and
Morgan Guaranty Trust Company of New York (filed as Exhibit 10.19
to the registrant's Quarterly Report on Form 10-Q for the period
ended September 7, 1996, and incorporated herein by reference).
13 Annual Report to Shareholders for the year ended December 31,
1996. Only those portions expressly referenced herein are
incorporated into this Form 10-K. Other portions are not required
and, therefore, are not filed as part of this form 10-K.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
27 Financial Data Schedule
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* Designates a compensation plan for Directors or Executive Officers.
(b) Reports on Form 8-K filed in the Fourth Quarter of 1996 -- none.
6
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROADWAY EXPRESS, INC.
Date March 26, 1997 By /s/ Michael W. Wickham
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Michael W. Wickham, President and
Chief Executive Officer
Date March 26, 1997 By /s/ J. Dawson Cunningham
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J. Dawson Cunningham, Vice President-Finance
and Administration, and Treasurer
(Principal Financial and Accounting Officer)
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.
Date March 26, 1997 By /s/ Frank P. Doyle
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Frank P. Doyle, Director
Date March 26, 1997 By /s/ Phillip J. Meek
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Phillip J. Meek, Director
Date March 26, 1997 By /s/ Robert E. Mercer
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Robert E. Mercer, Director
Date March 26, 1997 By /s/ Carl W. Schafer
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Carl W. Schafer, Director
Date March 26, 1997 By /s/ William Sword
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William Sword, Director
Date March 26, 1997 By /s/ Sarah Roush Werner
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Sarah Roush Werner, Director
Date March 26, 1997 By /s/ Michael W. Wickham
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Michael W. Wickham, Director
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
Charged to
Balance at Charged to Other
Beginning of Cost and Accounts - Deductions Balance at End
Description Period Expenses Describe Describe (1) of Period
<S> <C> <C> <C> <C> <C>
1996
Allowance for
uncollectible accounts $ 3,284 $ 9,780 - $ 10,262 $ 2,802
Valuation allowance on
deferred tax assets 7,500 1,800 - - 9,300
-------- --------- --------- --------
Total $ 10,784 $ 11,580 - $ 10,262 $ 12,102
======== ======== ======== ========
1995
Allowance for
uncollectible accounts $ 4,400 $ 11,315 - $ 12,431 $ 3,284
Valuation allowance on
deferred tax assets 6,200 1,300 - - 7,500
-------- --------- --------- --------
Total $ 10,600 $ 12,615 - $ 12,431 $ 10,784
======= ======== ======== ========
1994
Allowance for
uncollectible accounts $ 5,230 $ 5,845 - $ 6,675 $ 4,400
Valuation allowance on
deferred tax assets 3,000 3,200 - - 6,200
-------- --------- --------- --------
Total $ 8,230 $ 9,045 - $ 6,675 $ 10,600
======= ======== ======== =======
</TABLE>
(1) Uncollectible amounts written off, net of recoveries.
8
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Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 COMPARED TO 1995
- ---------------------
Revenue for 1996 was $2.4 billion as compared to $2.3 billion in 1995. This
increase of $84 million or 3.7% was due to an improvement in tonnage coupled
with a marginal improvement in freight rates during 1996. Total freight tonnage
increased 1.9% in 1996, with LTL (less-than-truckload) tonnage up 3.0% and
truckload tonnage down 2.8%. Ton miles (the sum of each shipment's weight
multiplied by the distance it is moved) increased 2.3% in 1996, reflecting the
increased tonnage as well as an increase in the distance an average shipment was
moved. There were several reasons for the slight improvement in freight rates
during 1996. Network refinement and mergers among our competitors are removing
excess capacity from the market, which has helped to ease the extreme
competitive pressure on freight rates and discounts that we experienced in 1995.
The Company took a stronger stance on discount limits for marginally profitable
business during 1996. In addition, we instituted a fuel surcharge during the 4th
quarter of 1996 which offset the impact of rising fuel prices during the year.
Net revenue per ton increased from $305.32 in 1995 to $310.52 in 1996, a 1.7%
improvement. LTL revenue per ton increased 1.2% in 1996 compared to 1995.
Despite the higher business volume, increased fuel prices, and the 3.8% increase
in union labor wage and benefit rates, operating expenses were up only $37
million or 1.6% compared to 1995. On a per ton basis, expenses were reduced 0.3%
compared to 1995. The union increase on April 1, 1996 is specified under the
terms of the National Master Freight Agreement with the Teamsters Union (the
"Contract"), of which the Company is a signatory. The Contract became effective
April 1994, expires March 31, 1998, and contains annual wage and benefit rate
increases.
In 1996, certain productivity gains through reengineering efforts partially
offset the wage and benefit increase. These included increased use of rail lines
to transport freight in linehaul operations (shown as purchased transportation
on the Income Statement) and the continued reduction of the terminal network.
During 1996 we closed an additional 60 terminals. We now operate 424 terminals,
down from 586 at the beginning of 1995. The sale of some of these unused
facilities resulted in an $8.3 million gain in 1996, which has been excluded
from the operating expense comparisons in this narrative. While the Company
plans to sell additional facilities in 1997, we do not anticipate this level of
gain on future sales.
Current year expense reductions have also occurred in the areas of insurance and
claims, depreciation, and administrative overhead. The reduction in insurance
and claims expense is attributable to improved freight handling techniques and
the network refinement, which has reduced freight handling and the resultant
cargo claims. Claims expense per ton has declined by 11.2% year over year. The
continued strong safety performance of our work force combined with an
aggressive administrative approach to claims management has also contributed to
a reduction in workers' compensation and liability insurance expenses.
Depreciation expense has declined as more revenue equipment becomes fully
depreciated, and as we reduce the number of terminal facilities. The limited
capital expenditures in recent years have also helped to reduce depreciation
expense.
1
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In 1995 the Company implemented a series of actions designed to reduce costs
associated with workers' compensation. New safety programs were initiated to
control losses and claims, which resulted in a $12 million reduction of current
year claims expense in 1996. Late in 1995 an intensive project was initiated to
review and settle existing claims. These efforts led to significant reductions
in the prior years' liability for workers' compensation, and resulted in a net
reduction of workers' compensation expenses by $10 million in 1996.
A 15.6% increase in the base price of diesel fuel during 1996 added $8.8 million
to operating expenses during the year. Fuel contracts have been utilized to
assure availability of fuel and moderate the impact of potential fuel price
swings. In 1996, approximately 46% of fuel purchases were subject to such
contracts, and 75% of these were at fixed prices. The fixed price contracts
expired after September and were not renewed in expectation of declining fuel
prices. The Company adopted a variable rate fuel surcharge in the 4th quarter of
1996 to recover additional costs caused by rising fuel prices.
The operating income of $43.9 million or 1.9% of revenue in 1996 compares to an
operating loss of $10.8 million or 0.5% of revenue in 1995. The 1996 results
reflect stabilizing freight rates, cost controls, and emphasis on utilizing our
network improvements. The 1995 results reflect intense discounting of freight
rates, overcapacity in the LTL market, and the corresponding adverse effect on
operating margins.
The tax expense in 1996 differs from the Federal statutory rate due to the
impact of state taxes, non-deductible operating expenses, and higher taxes on
foreign operations. While still significant, the impact of these components was
reduced as the Company's profits improved in 1996. The difference between taxes
provided of $20.6 million and taxes paid of $9.2 million is primarily the result
of deferred taxes arising from temporary differences as described in Note 5 to
the Consolidated Financial Statements contained herein.
1995 COMPARED TO 1994
- ---------------------
Revenue for 1995 was $ 2.3 billion as compared to $2.2 billion in 1994. This
increase of $118 million or 5.4% was in comparison to the depressed business
levels during 1994 due to a 24-day strike by the Teamster employees in April
1994. Total freight tonnage increased 6.5% in 1995. Ton miles increased 9.7%,
reflecting the tonnage increase as well as the 3.0% increased distance an
average shipment was moved in 1995. However, after adjusting for the impact of
the work stoppage in 1994, tonnage in 1995 was approximately 0.7% above 1994.
Extreme competitive pressure on freight rates resulted in discounting which
caused revenue per ton in 1995 to be 1.0% below 1994 levels, despite a general
rate increase in January 1995 of approximately 4.0%.
Operating expenses in 1995 increased $99.6 million or 4.5% over 1994. This
increase resulted primarily from higher business volume. The increase also
reflects the effect of a 3.1% increase in union labor wage and benefit rates
effective April 1, 1995. Salaries and non-union wage rates were frozen during
the last half of 1995. In 1995 certain
2
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productivity gains through reengineering efforts partially offset the 1995 wage
and benefit increase. These included increased use of rail and the reduction of
the terminal network. Lower than anticipated tonnage levels during the first
three quarters of 1995 limited the savings available from these reengineering
efforts. In 1995 the Company implemented a series of actions designed to reduce
costs associated with workers' compensation. These actions contributed to a
$17.5 million reduction in such costs during the year. The increase in insurance
and claims expense is primarily due to an increase in costs associated with
cargo loss and damage. Operating expenses per ton decreased 1.9% during 1995
versus 1994, and operating costs per ton mile decreased by 4.7%.
The operating loss of $10.8 million or 0.5% of revenue in 1995 compared to an
operating loss of $28.9 million or 1.3% of revenue in 1994. The 1995 results
reflect intense discounting of freight rates, overcapacity in the LTL market and
the corresponding adverse effect on operating margins. The 1994 results reflect
the 24-day work stoppage.
The tax benefit attributable to the operating losses in both years differs from
the Federal statutory rate due to the impact of state taxes, non-deductible
operating expenses, and taxes on profitable foreign operations. These components
have a much greater impact in periods where operating results are near break
even.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of $36 million at December 31, 1996.
This is a 55% improvement over the $23 million at the end of 1995. The Company
has a $50 million line of credit available, however there were no borrowings
against this line at the end of the year. During the last five years, a higher
percentage of freight has been delivered under standard contracts, which have
more lenient credit terms. This has caused a two day increase in the average
payment time by customers and an adverse effect on cash flows.
Capital expenditures are financed primarily through internally generated funds.
Future expenditures are expected to be financed in a similar manner, except for
a planned replacement in 1997 and 1998 of approximately 20% of the Company's
linehaul trailer fleet through an operating lease arrangement. During 1996 we
replaced nearly 10% of our linehaul trailers under this lease. Capital
expenditures are expected to be $30 million in 1997, excluding trailers to be
leased. Future capital expenditures for facilities are expected to be limited as
the Company reduces its terminal network to better utilize existing capacity,
improve efficiency and reduce fixed costs. Revenue equipment requirements will
be maintained at current levels as the Company increases the use of rail
services to transport freight in linehaul operations. Management believes that
cash flows from operations and financing sources will be sufficient to support
its working capital needs, projected capital expenditures, dividends to
shareholders, and funds for other corporate or business needs.
Freight rate levels recovered slightly during 1996 from the depressed 1995
levels as noted above, but are still not sufficient to provide adequate returns
for Roadway and much of the LTL industry. Because of this, a 5.7% general rate
increase was implemented on
3
<PAGE> 4
January 1, 1997. Although no assurances can be given, management believes that
economic conditions will allow us to retain a reasonable portion of this
increase as consolidation and capacity reduction programs continue to be
implemented by the Company and several of its major competitors.
The Company plans on reducing its terminal network by an additional 30
facilities by mid 1997, which it expects will result in a reduction of fixed
costs while improving utilization of remaining terminal capacity. No significant
expenses are expected in connection with this facility reduction. This change is
also expected to reduce freight handling labor costs and linehaul costs, and
will help to offset the 3.8% increase in union wages and benefits on April 1,
1997 under the terms of the Contract with the Teamsters.
The impact of inflation on operating expenses has been moderate in recent years.
OTHER MATTERS
- -------------
The Company receives notices from the EPA from time to time identifying it as a
potentially responsible party ("PRP") under the comprehensive Environmental
Response Compensation and Liability Act for various Superfund sites. Management
does not believe that any involvement of the Company at any of these sites will
have material impact on its results of operations or financial condition.
4
<PAGE> 5
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------- -----------
--------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,243 $ 23,341
Accounts receivable, net 260,789 227,121
Prepaid expenses and supplies 16,847 12,832
Deferred income taxes -- 6,698
----------- -----------
Total current assets 313,879 269,992
Carrier operating property, at cost 1,392,048 1,433,712
Less allowances for depreciation 1,013,954 1,008,952
----------- -----------
Net carrier operating property 378,094 424,760
Deferred income taxes 17,651 18,855
----------- -----------
Total assets $ 709,624 $ 713,607
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 135,248 $ 125,263
Salaries and wages 110,124 110,968
Freight and casualty claims payable 52,545 60,225
----------- -----------
Total current liabilities 297,917 296,456
Long-term liabilities:
Casualty claims payable 66,674 95,379
Future equipment repairs 24,281 29,191
Retirement benefit liabilities 96,156 86,939
----------- -----------
Total long-term liabilities 187,111 211,509
Shareholders' equity:
Preferred stock
Authorized - 20,000,000 shares
Issued - none -- --
Common stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Additional paid-in capital 43,100 43,100
Earnings reinvested in the business 185,758 166,952
Cumulative translation adjustments (4,283) (4,616)
Treasury shares (11,949 shares in 1996) (185) --
----------- -----------
Total shareholders' equity 224,596 205,642
----------- -----------
Total liabilities and shareholders' equity $ 709,624 $ 713,607
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE> 6
STATEMENTS OF CONSOLIDATED INCOME
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
---------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Revenue $ 2,372,718 $ 2,288,844 $ 2,171,117
Operating expenses:
Salaries, wages and benefits 1,544,926 1,545,000 1,512,235
Operating supplies and expenses 409,900 395,170 388,268
Purchased transportation 193,640 158,494 105,486
Operating taxes and licenses 75,041 74,720 74,031
Insurance and claims 50,856 54,826 46,913
Provision for depreciation 62,681 71,669 75,750
Net gain on sale of carrier operating property (8,256) (267) (2,628)
--------------------------------------------
Total operating expenses 2,328,788 2,299,612 2,200,055
--------------------------------------------
Operating income (loss) 43,930 (10,768) (28,938)
Other (expense) income:
Interest expense (1,764) (3,098) (3,218)
Other, net 304 (9) 1,443
--------------------------------------------
(1,460) (3,107) (1,775)
--------------------------------------------
Income (loss) before income taxes 42,470 (13,875) (30,713)
Provision (benefit) for income taxes 20,582 (1,206) (9,268)
--------------------------------------------
Net income (loss) $ 21,888 $ (12,669) $ (21,445)
============================================
Net income (loss) per share $ 1.07 $ (0.62) $ (1.04)
============================================
Average number of common shares outstanding 20,533,219 20,556,714 20,556,714
</TABLE>
See accompanying notes.
6
<PAGE> 7
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR END DECEMBER 31
1996 1995 1994
--------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Common stock $ 206 $ 206 $ 206
Additional paid-in capital 43,100 43,100 43,100
Earnings reinvested in the business
Balance at beginning of year 166,952 212,644 257,115
Net income (loss) 21,888 (12,669) (21,445)
Dividends - $.15 per share in 1996 (3,082) (7,500) (23,026)
Transfer of accrued pension costs, net of
taxes -- (25,523) --
-----------------------------------
Balance at end of year 185,758 166,952 212,644
Cumulative translation adjustments
Balance at beginning of year (4,616) (3,009) (1,553)
Translation adjustment 333 (1,607) (1,456)
-----------------------------------
Balance at end of year (4,283) (4,616) (3,009)
Treasury shares (185) -- --
-----------------------------------
Total shareholders' equity $ 224,596 $ 205,642 $ 252,941
===================================
</TABLE>
See accompanying notes.
7
<PAGE> 8
STATEMENTS OF CONSOLIDATED CASH FLOWS
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 21,888 $(12,669) $(21,445)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 62,729 71,682 76,893
Gain on sale of carrier operating property (8,256) (267) (2,628)
Changes in assets and liabilities:
Accounts receivable (33,668) 2,368 (28,114)
Other current assets 2,635 334 (2,945)
Accounts payable and accrued items 1,826 (29,286) 23,547
Long-term liabilities (23,194) 6,856 17,060
--------------------------------
Net cash provided by operating activities 23,960 39,018 62,368
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (26,521) (26,385) (60,556)
Sales of carrier operating property 18,762 4,388 7,805
--------------------------------
Net cash used in investing activities (7,759) (21,997) (52,751)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (3,078) (7,500) (12,000)
Purchases of treasury shares (185) -- --
Net borrowings -- (10,000) 10,000
--------------------------------
Net cash used in financing activities (3,263) (17,500) (2,000)
Effect of exchange rate changes on cash (36) (208) (675)
--------------------------------
Net increase (decrease) in cash and cash
equivalents 12,902 (687) 6,942
Cash and cash equivalents at beginning of year 23,341 24,028 17,086
--------------------------------
Cash and cash equivalents at end of year $ 36,243 $ 23,341 $ 24,028
================================
</TABLE>
See accompanying notes.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Roadway Express, Inc. and Subsidiaries
December 31, 1996
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Roadway Express, Inc. (the "Company") provides long-haul, less-than-truck load
("LTL") freight services in North America and offers services to an additional
62 countries worldwide in a single business segment. Approximately 75% of the
Company's employees are represented by various labor unions, primarily the
International Brotherhood of Teamsters ("IBT"). The current agreement with the
IBT expires on March 31, 1998.
The Company was a wholly-owned subsidiary of Roadway Services, Inc. (the "former
parent") through 1995. The Company was spun-off effective January 2, 1996 in a
distribution of the Company's common stock to existing shareholders of the
former parent at a rate of one share of Company common stock for every two
shares of common stock outstanding of the former parent (the "spin-off"). The
former parent currently holds four percent of the common stock of the Company.
2. ACCOUNTING POLICIES
Net Income (Loss) Per Share - Earnings per share are computed by dividing net
income by the average number of common shares outstanding during the year. All
share and per share information for 1995 and 1994 have been retroactively
restated to reflect the spin-off in a manner similar to a stock split.
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.
Cash Equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Depreciation - Depreciation of carrier operating property is computed by the
straight-line method based on the useful lives of the assets. The useful lives
of structures are generally 15 to 33 years and equipment is generally 3 to 10
years.
Financial Instruments - The carrying value of cash and cash equivalents,
accounts receivable, accounts payable and short-term borrowings approximate
their fair value due to the short-term nature of these instruments.
Casualty Claims Payable - These accruals represent claims for property damage
and public liability and workers' compensation, including estimated amounts for
incurred but not reported claims. Expenses resulting from workers' compensation
claims are included in salaries, wages and benefits in the accompanying
statement of consolidated income.
9
<PAGE> 10
2. ACCOUNTING POLICIES (CONTINUED)
Future Equipment Repairs - This accrual represents the estimated costs of
anticipated major future repairs on inter-city tractors.
Revenue Recognition - The Company recognizes revenue as earned on the date of
freight delivery to consignee. Related expenses are recognized as incurred.
Stock Based Compensation - The Company accounts for stock based compensation in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees."
Foreign Currency Translation - Income statement items are translated at average
currency exchange rates. Transaction gains and losses are included in
determining net income. All balance sheet accounts of foreign operations are
translated at the current exchange rate as of the end of the period. The
resulting translation adjustment is recorded as a separate component of
shareholders' equity.
Use of Estimates in the Financial Statements - The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the period, and the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from these estimates.
Late in 1995 an intensive project was initiated to review and settle existing
workers' compensation claims. The effect on net income in 1996 was an increase
of approximately $5,200,000 or $0.25 per share.
3. CARRIER OPERATING PROPERTY
Carrier operating properties at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------------------------------
(dollars in thousands)
<S> <C> <C>
Land $ 78,916 $ 80,407
Structures 362,271 361,782
Revenue equipment 778,891 819,486
Other operating property 171,970 172,037
------------- -------------
Carrier operating property, at cost 1,392,048 1,433,712
Less allowance for depreciation 1,013,954 1,008,952
------------- -------------
============= =============
Net carrier operating property $ 378,094 $ 424,760
============= =============
</TABLE>
10
<PAGE> 11
4. ACCOUNTS PAYABLE
Items classified as accounts payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------------------------------
(dollars in thousands)
<S> <C> <C>
Trade and other payables $ 62,843 $ 51,420
Drafts outstanding 18,417 23,795
Income taxes payable 6,571 4,616
Deferred tax liabilities 2,070 -
Taxes, other than income 24,226 22,855
Multiemployer health, welfare, and pension plans 21,121 22,577
-------------------------------
$ 135,248 $ 125,263
===============================
</TABLE>
5. INCOME TAXES
The Company files a consolidated tax return reflecting its operations and those
of its domestic subsidiaries. Prior to the spin-off, the domestic operations of
the Company were included in the consolidated federal income tax returns of the
former parent. The provision for income taxes for 1995 and 1994 reflects an
allocation from the former parent of federal income taxes computed on a separate
return basis.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Current taxes:
Federal $ 4,615 $ 4,758 $(4,974)
State and local 1,382 243 (1,745)
Foreign 4,613 4,494 4,705
-------------------------------------
10,610 9,495 (2,014)
Deferred taxes:
Federal 8,869 (9,649) (6,312)
State and local 1,103 (1,103) (721)
Foreign - 51 (221)
-------------------------------------
9,972 (10,701) (7,254)
-------------------------------------
Provision (benefit)
for income taxes $ 20,582 $ (1,206) $(9,268)
=====================================
</TABLE>
Income tax payments amounted to $9,197,000 in 1996, $11,704,000 in 1995 and
$1,268,000 in 1994. The Company has foreign tax credit carry forwards of
approximately $9,300,000, which will expire from 1999 through 2002.
11
<PAGE> 12
5. INCOME TAXES (CONTINUED)
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Domestic $ 36,212 $ (23,315) $(40,968)
Foreign 6,258 9,440 10,255
------------------------------------------
$ 42,470 $ (13,875) $(30,713)
==========================================
</TABLE>
Significant components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
(dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Freight and casualty claims $ 41,962 $ 60,953
Retirement benefit liabilities 37,501 33,441
Foreign tax credit carry forward 9,300 7,500
Other 17,014 16,841
Valuation allowance (9,300) (7,500)
-----------------------------
Total deferred tax assets 96,477 111,235
Deferred tax liabilities:
Depreciation 55,278 60,854
Multiemployer pension plans 25,618 24,828
-----------------------------
Total deferred tax liabilities 80,896 85,682
-----------------------------
Net deferred assets $ 15,581 $ 25,553
=============================
</TABLE>
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. As realization of the foreign tax credit carry
forwards is considered uncertain, a valuation allowance has been recorded.
Management has determined that it is more likely than not that the remaining
deferred tax assets will be realized.
The effective tax rate (benefit) differs from the federal statutory rate as set
forth in the following reconciliation:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% (35.0%) (35.0%)
State income taxes, net of federal
tax benefit 3.8 (4.0) (5.2)
Non-deductible operating costs 4.9 16.4 7.6
Impact of foreign operations 5.0 14.1 2.3
Other, net (0.2) (0.2) 0.1
-----------------------------------
Effective tax rate 48.5% (8.7%) (30.2%)
===================================
</TABLE>
12
<PAGE> 13
6. EMPLOYEE BENEFIT PLANS
MULTIEMPLOYER PLANS
The Company charged to operations $124,358,000 in 1996, $111,864,000 in 1995 and
$94,245,000 in 1994 for contributions to multiemployer pension plans for
employees subject to labor contracts. The Company also charged to operations
$138,558,000 in 1996, $130,166,000 in 1995 and $112,947,000 in 1994 for
contributions to multiemployer plans that provide health and welfare benefits to
employees and retirees who are or were subject to labor contracts. These amounts
were determined in accordance with provisions of industry labor contracts. Under
provisions of the Multiemployer Pension Plan Act of 1980, total or partial
withdrawal from a plan would result in an obligation to fund a portion of the
plan's unfunded vested liability. Management has no intention of changing
operations so as to subject the Company to any material obligation.
RETIREMENT PLANS
Effective January 1, 1996, the Company withdrew from the Roadway Services, Inc.
Pension Plan ("RSI Pension Plan") and established the Roadway Express, Inc.
Pension Plan ("Company Pension Plan") for its then active employees not subject
to labor contracts. Former employees of the Company, including retirees, will
remain participants in the RSI Pension Plan. The accrued benefits attributable
to the active Company employees were transferred to the Company Pension Plan,
and assets attributable to those accrued benefits in the amount of approximately
$163 million were transferred from the trustee of the RSI Pension Plan to the
trustee of the Company Pension Plan. Future Company retirees will receive
pension benefits under the Company Pension Plan based upon their service with
the Company prior to and after the spin-off. Pension 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
sufficient to meet the minimum funding requirements set forth by the Employee
Retirement Income Security Act of 1974, plus any additional amounts as the
Company may determine to be appropriate.
Net periodic pension cost for 1996 includes the following components (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Service cost of benefits earned during the year $ 9,742
Interest cost on projected benefit obligation 13,140
Actual return on plan assets (20,390)
Net amortization and deferral 6,180
-------
Net periodic pension cost $ 8,672
=======
</TABLE>
Pension expense amounted to $9,300,000 and $12,000,000, respectively for 1995
and 1994 and was allocated from the RSI Pension Plan to the Company based on
amounts that would approximate net pension cost on a stand-alone basis.
13
<PAGE> 14
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status and related accrued pension
costs recognized in the consolidated balance sheets at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------------------------
(dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of $132,596 in 1996
and $130,537 in 1995 $ 150,610 $ 150,406
===========================
Projected benefit obligation for service
rendered to date $ 188,473 $ 192,974
Plan assets at fair value, primarily listed stocks,
bonds and U. S. government securities 182,713 164,104
---------------------------
Projected benefit obligation in excess of
plan assets 5,760 28,870
Unrecognized net gain 75,935 46,171
Unrecognized prior service cost (47,094) (50,507)
Unrecognized net asset at transition 16,744 18,139
---------------------------
Accrued pension cost $ 51,345 $ 42,673
===========================
</TABLE>
In arriving at the pension obligation and net periodic pension costs the
consulting actuary used certain assumptions. The assumed weighted-average
discount rate was 7.5% in 1996 and 7% in 1995; the rate of increase in future
compensation levels was 3.25% in 1996 and 4% in 1995; and the expected long-term
rate of return on assets was 8% in 1996 and 7.75% in 1995.
The Company charged to operations $7,138,000 in 1996, $9,299,000 in 1995 and
$10,472,000 in 1994 to various employee defined contribution plans. These plans
generally cover employees not subject to labor contracts. Annual contributions
are related to the level of voluntary employee participation.
POST RETIREMENT HEALTHCARE BENEFITS
The Company provides health care benefits to certain retirees who were not
subject to labor contracts. The health care plans contain contributions and
cost-sharing features such as deductibles and coinsurance.
14
<PAGE> 15
6. EMPLOYEE BENEFIT PLANS (CONTINUED)
POST RETIREMENT HEALTHCARE BENEFITS (CONTINUED)
Net periodic post retirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 1,168 $ 2,100 $2,496
Interest cost on accumulated post retirement
benefit obligation 1,778 2,508 2,574
Net amortization and deferral (980) (147) -
-------------------------------------
Net post retirement benefit cost $ 1,966 $ 4,461 $5,070
=====================================
</TABLE>
The following table sets forth the amounts recognized in the consolidated
balance sheet:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
(dollars in thousands)
<S> <C> <C>
Accumulated post retirement benefit obligation:
Retirees $ 5,459 $ 5,420
Fully eligible active plan participants 2,572 3,545
Other active plan participants 16,730 26,757
---------------------------------
24,761 35,722
Unrecognized net gain 20,050 8,544
---------------------------------
Accrued post retirement benefit cost $ 44,811 $ 44,266
=================================
</TABLE>
Post retirement benefit payments amounted to $1,421,000 in 1996, $975,000 in
1995 and $1,086,000 in 1994.
At December 31, 1996, the assumed health care cost trend rate is 9.6% for 1997
and is assumed to decrease gradually to 5.0% by 2007 and remain at that level
thereafter. 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
post retirement benefit obligation as of December 31, 1996 by $3.4 million, and
the aggregate of the service and interest cost components of net periodic post
retirement benefit cost for 1996 by $0.5 million.
The weighted-average discount rate assumed in determining the actuarial present
value of the accumulated post retirement benefit obligation was 7.5% in 1996 and
7% in 1995.
15
<PAGE> 16
7. STOCK PLANS
MANAGEMENT INCENTIVE STOCK PLAN
The Roadway Express, Inc. Management Incentive Stock Plan (the "Stock Plan")
authorizes the granting of up to an aggregate of 1,200,000 shares of common
stock at the discretion of the Compensation Committee to officers and certain
employees of the Company. An award of incentive stock involves the immediate
transfer to a participant of a specific number of shares of the Company's common
stock in consideration of the performance of future services and attainment of
specific performance levels. The participant is immediately entitled to voting,
dividend and certain other ownership rights in the shares. During 1995, the
Compensation Committee approved grants of 316,000 shares which were awarded in
1996. Compensation expense relating to the Plan for 1996 of $623,000 was
recognized based on attainment of specific performance levels.
OTHER STOCK PLANS
Under the Roadway Express, Inc. Employees' Stock Purchase Plan, all full-time
eligible employees may purchase shares of the Company's common stock up to 10%
of their respective compensation through payroll deductions. The purchase price
under the plan is 85% of the fair market value of the Company's common stock.
The Roadway Express Union Stock Plan provides stock awards to employees subject
to labor contracts who meet the eligibility and performance requirements of
providing a safe, reliably-staffed and injury-free work environment. During
1996, 123,000 shares were issued or granted under these plans, with expense
recognized of $456,000.
The effect of applying the fair value method of accounting for the Company's
stock award plans in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," results in net income and earnings per share that are not
materially different from amounts reported.
8. LEASES
The Company leases certain terminals and revenue equipment under noncancellable
operating leases requiring minimum future rentals aggregating $54,200,000
payable as follows: 1997--$8,700,000; 1998--$8,100,000; 1999--$6,700,000;
2000--$6,100,000; 2001--$9,500,000 and thereafter $15,100,000. Rental expense
for operating leases was $5,400,000, $5,900,000, $5,500,000 for 1996, 1995 and
1994, respectively.
9. CREDIT FACILITIES
At December 31, 1996, the Company had $50,000,000 available through unsecured
credit facilities with certain banks. Borrowings under the agreements bear
interest at LIBOR plus .25%, and include covenants that require the Company to
maintain certain financial ratios, including a minimum level of consolidated net
worth. Interest paid relating to temporary borrowings under these facilities
amounted to $139,000 in 1996.
16
<PAGE> 17
10. CONTINGENCIES
Various 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 received notices from the Environmental Protection Agency (EPA)
that it has been identified as a potentially responsible party (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act (Superfund)
at certain hazardous waste sites. Such designations are made regardless of the
Company's limited involvement at each site. The claims for remediation have been
asserted against numerous other entities which are believed to be financially
solvent and are expected to fulfill their proportionate share. Based on its
investigations, the Company believes that its obligation with regard to these
sites is at most de minimis and no significant liability exists, although there
can be no assurances in this regard.
The Company will adopt the American Institute of Certified Public Accountants
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities" in the
first quarter of 1997 and does not believe the effect of adoption will be
material.
11. ALLOCATIONS AND RELATED PARTY TRANSACTIONS
The Company and the former parent have entered into certain agreements to govern
their relationship subsequent to the spin-off. These agreements provide for
allocation of taxes and certain other liabilities and obligations arising from
periods prior to the spin-off.
Prior to the spin-off, the Company received various corporate support services
from the former parent including cash management and short-term financing, legal
and risk management. Charges for all such services were generally based on
actual costs incurred. Management believes amounts charged by the former parent
were reasonable and approximate amounts that would have been incurred had the
Company operated on a stand-alone basis. Charges from the former parent,
principally corporate support services, amounted to $11,252,000 in 1995 and
$13,395,000 in 1994. The Company has contracted with the former parent to
receive information systems services. The Company incurred charges of
approximately $28,424,000 in 1996, $29,335,000 in 1995 and $28,000,000 in 1994
for the information systems services provided by the former parent.
The Company had a short-term borrowing arrangement with the former parent prior
to the spin-off which allowed for borrowings up to $50,000,000 based on the
prime lending rate of a commercial lending institution less 1%. Interest expense
amounted to $1,641,000 in 1995 and $22,000 in 1994. Interest payments to the
former parent were $8,119,000 in 1995 and $420,000 in 1994. Interest paid
includes amounts in connection with tax examinations.
17
<PAGE> 18
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Roadway Express, Inc.:
We have audited the accompanying consolidated balance sheets of Roadway Express,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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 Express,
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Akron, Ohio
January 22, 1997
18
<PAGE> 19
SELECTED QUARTERLY FINANCIAL DATA
Roadway Express, Inc. and subsidiaries
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
1996 1995 1996 1995 1996 1995 1996 1995
--------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 516,963 $ 522,289 $ 532,749 $ 521,122 $ 540,942 $ 526,580 $ 782,064 $ 718,853
Operating
income $ 4,942 $ 438 $ 7,323 $ (12,720) $ 9,995 $ (2,765) $ 21,670 $ 4,279
(loss)
Net income $ 2,623 $ (559) $ 4,053 $ (8,589) $ 4,580 $ (4,048) $ 10,632 $ 527
(loss)
Net income
(loss)per $ 0.13 $ (0.03) $ 0.20 $ (0.42) $ 0.22 $ (0.20) $ 0.52 $ 0.03
share
Common stock:
High $ 18 - $ 17 3/4 - $ 16 3/8 - $ 19 1/2 -
Low $ 10 1/4 - $ 13 3/8 - $ 12 1/2 - $ 14 1/8 -
Dividends
per share - - $ 0.05 - $ 0.05 - $ 0.05 -
Average
shares
outstanding 20,557 20,557 20,484 20,557 20,541 20,557 20,546 20,557
</TABLE>
The Company uses 13 four-week accounting periods with 12 weeks in each of the
first three quarters and 16 weeks in the fourth quarter.
Trading in Roadway Common Stock commenced on January 2, 1996 after the spin-off
from our former parent.
There are approximately 11,700 holders of record of Common Stock. The Company's
stock trades on the NASDAQ Stock Market under the symbol ROAD. The NASDAQ Stock
Market is a highly regulated electronic securities market comprised of competing
Market Makers whose trading is supported by a communications network linking
them to quotation dissemination, trade reporting, and order execution systems.
19
<PAGE> 20
HISTORICAL DATA
Roadway Express, Inc. and Subsidiaries
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenue $2,372,718 $2,288,844 $2,171,117 $2,323,696 $2,185,703
Operating expenses
Salaries, wages and benefits 1,544,926 1,545,000 1,512,235 1,559,462 1,434,714
Operating supplies and expenses 409,900 395,170 388,268 384,079 373,549
Purchased transportation 193,640 158,494 105,486 82,693 67,367
Operating taxes and licenses 75,041 74,720 74,031 78,769 72,936
Insurance and claims 50,856 54,826 46,913 50,306 42,713
Provision for depreciation 62,681 71,669 75,750 96,126 95,688
Net (gain) loss on sale of carrier
operating property (8,256) (267) (2,628) (552) 286
-------------------------------------------------------------------
Total operating expenses 2,328,788 2,299,612 2,200,055 2,250,883 2,087,253
Operating income (loss) 43,930 (10,768) (28,938) 72,813 98,450
Other income (expense) - net (1,460) (3,107) (1,775) (104) 1,799
-------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of accounting changes 42,470 (13,875) (30,713) 72,709 100,249
Provision (benefit) for income taxes 20,582 (1,206) (9,268) 31,890 39,337
-------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting changes 21,888 (12,669) (21,445) 40,819 60,912
Cumulative effect of accounting changes(1) - - - (14,691) -
===================================================================
Net income (loss) $21,888 ($12,669) ($21,445) $26,128 $60,912
===================================================================
Income (loss) per share:(2)
Before cumulative effect of accounting
changes $1.07 ($0.62) ($1.04) $1.98 $2.96
Cumulative effect of accounting changes - - - (0.71) -
===================================================================
Net income (loss) per share $1.07 ($0.62) ($1.04) $1.27 $2.96
===================================================================
Cash dividends declared per share (3) $0.15 n/a n/a n/a n/a
Average number of shares of common stock
outstanding 20,533 20,557 20,557 20,557 20,557
Total shareholders' equity $224,596 $205,642 $252,941 $298,868 $300,399
Total assets $709,624 $713,607 $745,840 $740,402 $705,474
Tons of Freight - less-than-truckload 6,238 6,053 5,598 6,221 5,873
- truckload 1,403 1,444 1,439 1,639 1,587
===================================================================
Total 7,641 7,497 7,037 7,860 7,460
===================================================================
Intercity miles 650,602 642,224 588,499 648,831 601,659
Ton miles 9,873,927 9,647,661 8,792,871 9,714,031 9,170,521
</TABLE>
(1) Changes in methods of accounting for income taxes and retiree medical
benefits in 1993.
(2) Earnings per share are computed on the number of shares outstanding
following the spin-off for years 1992 through 1995.
(3) Dividends declared for years 1992 through 1995 were paid to former parent
and are not applicable.
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES
1. Roadway Express International, Inc., a Delaware corporation
2. TNL-Roadway S.A. de C.V., a Mexican corporation
3. Roadway Express, B.V., a Netherlands corporation
4. Roadway Express, (Canada), Inc., an Alberta corporation
5. Roadway Express Special Services, Inc., an Ohio Corporation
6. Transcontinental Lease S.A. de C.V., a Mexican corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Roadway Express, Inc.
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Roadway Express, Inc. of our report dated January 22, 1997, included in the
1996 Annual Report to Shareholders of Roadway Express, Inc.
Our audit also included the financial statement schedule of Roadway Express,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-80685) pertaining to the Roadway Express, Inc. 401(k) Stock
Savings Plan and in the Registration Statement (Form S-8 No. 333-2563)
pertaining to the Roadway Express, Inc. 1996 Employee Stock Purchase Plan of
our report dated January 22, 1997, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included
in this Annual Report (Form 10-K) of Roadway Express, Inc.
ERNST & YOUNG LLP
Akron, Ohio
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1996 (AUDITED)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,243
<SECURITIES> 0
<RECEIVABLES> 260,789
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 313,879
<PP&E> 1,392,048
<DEPRECIATION> 1,013,954
<TOTAL-ASSETS> 709,624
<CURRENT-LIABILITIES> 297,917
<BONDS> 0
<COMMON> 206
0
0
<OTHER-SE> 224,390
<TOTAL-LIABILITY-AND-EQUITY> 709,624
<SALES> 0
<TOTAL-REVENUES> 2,372,718
<CGS> 0
<TOTAL-COSTS> 2,328,788
<OTHER-EXPENSES> 1,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,470
<INCOME-TAX> 20,582
<INCOME-CONTINUING> 21,888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,888
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
