<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Period ended March 27, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from ______ to ______.
Commission file number 0-600
ROADWAY EXPRESS, INC.
------------------------------------------------------
(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
- -------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No .
--- ---
The number of shares of common stock ($.01 par value) outstanding as of March
27, 1999 was 19,389,008.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 27, 1999 December 31, 1998
-----------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 67,384 $ 60,232
Accounts receivable, net 274,325 280,170
Other current assets 21,385 18,978
-----------------------------------------------------------------
Total current assets 363,094 359,380
Carrier operating property, at cost 1,339,577 1,341,496
Less allowance for depreciation 982,276 984,380
-----------------------------------------------------------------
Net carrier operating property 357,301 357,116
Goodwill, net 8,439 8,382
Deferred income taxes 27,745 23,955
=================================================================
Total assets $ 756,579 $ 748,833
=================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 166,003 $ 177,641
Salaries and wages 115,692 103,723
Other current liabilities 47,599 47,249
-----------------------------------------------------------------
Total current liabilities 329,294 328,613
Long-term liabilities
Casualty claims payable 50,906 51,812
Future equipment repairs 13,941 14,708
Accrued pension and retiree medical 107,571 104,091
-----------------------------------------------------------------
Total long-term liabilities 172,418 170,611
Shareholders' equity
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 254,661 249,403
-----------------------------------------------------------------
Total shareholders' equity 254,867 249,609
-----------------------------------------------------------------
Total liabilities and shareholders' equity $ 756,579 $ 748,833
=================================================================
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
1
<PAGE> 3
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended
(First Quarter)
March 27, 1999 March 28, 1998
----------------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue $ 605,278 $ 621,663
Operating expenses:
Salaries, wages and benefits 395,330 400,483
Operating supplies and expenses 97,917 110,202
Purchased transportation 58,334 57,037
Operating taxes and licenses 18,138 19,353
Insurance and claims expense 13,102 14,978
Provision for depreciation 9,339 9,895
Net (gain) on disposal of operating property (354) (1,109)
----------------------------------------------------
Total operating expenses 591,806 610,839
----------------------------------------------------
Operating income 13,472 10,824
Other (expense), net 455 702
----------------------------------------------------
Income before income taxes 13,927 11,526
Provision for income taxes 5,988 4,917
----------------------------------------------------
Net income $ 7,939 6,609
====================================================
Earnings per share - basic $ 0.42 $ 0.33
Earnings per share - diluted $ 0.42 $ 0.32
Average shares outstanding - basic 18,827 20,108
Average shares outstanding - diluted 19,012 20,337
Dividends declared per share $ 0.05 $ 0.05
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 4
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended
(First Quarter)
March 27, 1999 March 28, 1998
----------------------------------------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,939 $ 6,609
Depreciation and amortization 9,283 9,917
Other operating adjustments (84) 2,304
----------------------------------------------------
Net cash provided by operating activities 17,138 18,830
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (12,005) (10,126)
Sales of carrier operating property 2,835 3,194
----------------------------------------------------
Net cash used by investing activities (9,170) (6,932)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of treasury shares 151 4,465
Dividends paid (967) (1,015)
----------------------------------------------------
Net cash (used) provided by financing activities (816) 3,450
Net increase in cash and cash equivalents 7,152 15,348
Cash and cash equivalents at beginning of period 60,232 58,505
----------------------------------------------------
Cash and cash equivalents at end of period $ 67,384 $ 73,853
====================================================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
Roadway Express, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twelve weeks ending March 27, 1999 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the registrant's annual
report on Form 10-K for the year ended December 31, 1998.
Note B--Accounting Period
The registrant operates on 13 four-week accounting periods with 12 weeks in each
of the first three quarters and 16 weeks in the fourth quarter.
Note C--Provision for Income Taxes
Taxes provided exceed the U.S. statutory rate primarily due to non-deductible
operating costs, and foreign and state taxes.
<TABLE>
<CAPTION>
Twelve Weeks Ended
(First Quarter)
March 27, 1999 March 28, 1998
----------------------- -----------------------
(in thousands)
<S> <C> <C>
U.S. Federal $ 4,915 $ 4,633
U.S. State 766 511
Foreign 307 (227)
-----------------------------------------------
Total $ 5,988 $ 4,917
===============================================
</TABLE>
4
<PAGE> 6
Note D--Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Twelve Weeks Ended
(First Quarter)
March 27, 1999 March 28, 1998
---------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net income $ 7,939 $ 6,609
=============================================
Weighted-average shares for
basic earnings per share 18,827 20,108
Management incentive stock plans 185 229
---------------------------------------------
Weighted-average shares for
diluted earnings per share 19,012 20,337
=============================================
Earnings per share - basic $ 0.42 $ 0.33
Earnings per share - diluted $ 0.42 $ 0.32
</TABLE>
Note E--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments as shown below:
<TABLE>
<CAPTION>
Twelve Weeks Ended
(First Quarter)
March 27, 1999 March 28, 1998
---------------------------------------------
(in thousands)
<S> <C> <C>
Net income $ 7,939 $ 6,609
Foreign currency translation
adjustments 597 (44)
----------------------------------------------
Comprehensive income $ 8,536 $ 6,565
==============================================
</TABLE>
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company had net income of $7,939,000 or $0.42 per share (diluted), for the
first quarter ended March 27, 1999, compared to income of $6,609,000, or $0.32
per share (diluted) in the same quarter last year, an increase of 20.1%.
Revenues were $605,278,000 in the current quarter, a 2.6% decline from first
quarter 1998. Quarter 1, 1999 had one less business day than quarter 1, 1998.
Tonnage was down 4.2% in the current quarter compared to the prior year quarter.
Less-than-truckload (LTL) tons were down 3.4% and truckload tons were down 7.6%.
Net revenue per ton increased 1.7% compared to the same quarter last year. This
increase is lower than the increase in the underlying freight rates, as the
average shipment size increased by 1.4%, and the average length of haul
decreased slightly, resulting in lower revenue per ton. These changes in the
shipment characteristics reflect the strategic direction of the Company relative
to freight mix and regional service offerings.
Operating expenses per ton were up 1.2% compared to the first quarter of 1998.
Salaries, wages, and benefits increased 3.1% per ton, reflecting the terms of
the Teamster contract, increased costs associated with Company sponsored health
and pension benefits, and variable compensation related to Company performance.
The increased use of railroads led to a 6.8% increase in purchased
transportation expense per ton. The portion of linehaul miles utilizing rail was
26.8% in the first quarter of 1999 versus 24.6% during the first quarter of
1998. Operating supplies and expenses were down 7.2% per ton due to declining
fuel prices and decreases in non-direct terminal and administrative supplies and
services. Insurance and claims expense decreased 8.7% per ton, which reflects
reductions in cargo loss and damage costs.
Depreciation expense continues to decline as more revenue equipment becomes
fully depreciated and the Company increases its use of leased equipment. Also,
the Company's system count has been reduced to 393 terminals, compared to 405
terminals at the end of the first quarter 1998.
The tax rate for the first quarter of 1999 and 1998 differs from the Federal
statutory rate due to the impact of state taxes, taxes on profitable foreign
operations, and non-deductible operating expenses.
At the end of the quarter, cash and marketable securities amounted to $67.4
million, a $7.2 million increase from year-end 1998. Cash flow from operations
has been sufficient to meet working capital needs.
The Company is taking actions to improve operating margins, such as cost
controls, sales and marketing initiatives, working with specific customers to
improve the yield on freight, and changing the freight mix as noted above.
The Company remains on plan to complete the system modifications and
replacements required in order to process transactions in the year 2000. The
Company utilizes a third party to provide information systems operating support.
The Company's recent change to this provider was, in part, based on its ability
to provide seamless service through the year 2000. Approximately 80% of the
Company's internal systems are year 2000 compliant as of March 27, 1999, with
the remaining 20% to be completed by September 1999. Assurances of year 2000
compliance have been requested from the Company's critical vendors in areas such
as fuel, purchased transportation, utilities, and financial services. In most
cases, alternative suppliers have been identified in the event of a failure. The
greatest risk to the Company, although remote, is the total collapse of the
internal systems, which would force the return to a paper-based system. This
would involve an unsustainable increase in administrative burden and expenses.
The Company believes this risk is remote due to planned testing and problem
resolution of all mission critical systems prior to December 1999. Total costs
during 1997, 1998, and 1999 to bring the internal systems into compliance are
estimated at $7.3 million in capital expenditures and $6.8 million in expense.
Through the first quarter of 1999, the actual expenditures have been $1.6
million in capital and $5.3 million in expense. The year 2000 project will
consume approximately 10% of the Company's information technology budget during
1999.
The portions of narrative set forth in this discussion that are not historical
in nature are forward-looking statements. The Company's actual future
performance and operating and financial results may differ from those described
in the forward-
6
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looking statements as a result of a variety of factors that, besides those
mentioned, include the condition of the industry and the economy, labor
relations, and the success of the Company's operating plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold any market risk sensitive instruments for trading
purposes. The Company's primary market risks include fluctuations in interest
rates, currency exchange rates, and fuel prices.
The Company's earnings are affected by changes in interest rates related to its
trailer leases. During 1998, the Company entered into interest rate swap
agreements with major commercial banks to fix the interest rate of its trailer
leases from previous variable interest rates. The value of the leases upon which
the payments are based was not changed. The agreements, which expire from 2002
to 2004, fix the Company's interest costs at rates varying from 6.07% to 7.12%
on leases valued at $44.3 million. An interest rate variation of 1% would have
no material impact on the Company.
Roadway may incur economic losses due to adverse changes in foreign currency
exchange rates, primarily with fluctuations in the Canadian dollar and Mexican
peso. An instantaneous 10% adverse change in foreign currency exchange rates
would have less than $2 million impact on future cash flows of the Company.
An increase in fuel prices would be mitigated by fuel purchase contracts in
place throughout 1999, which protect the Company from a significant portion of
the exposure. In addition, a variable rate fuel surcharge, which was utilized in
1996 and 1997, would become effective again if fuel prices exceed $1.10 per
gallon.
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on March 24, 1999. Two
matters were voted upon at this meeting: (i) the election of seven members to
the Board of Directors, and (ii) ratification of the appointment of Ernst &
Young LLP as the independent auditors. There were 17,583,330 shares voted of the
19,360,084 shares outstanding. The following table shows the results of the
vote.
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST WITHHELD
<S> <C> <C>
Election of Directors
Frank P. Doyle 17,225,768 357,562
John F. Fiedler 17,132,120 451,210
Dale F. Frey 17,064,959 518,371
Phillip J. Meek 17,239,085 344,245
Carl W. Schafer 17,237,452 345,878
Sarah Roush Werner 17,245,499 337,831
Michael W. Wickham 17,103,132 480,198
Appointment of Ernst & Young LLP as
independent auditors 17,308,059 190,611 84,660
</TABLE>
7
<PAGE> 9
ITEM 5. OTHER INFORMATION
On February 3, 1999, the Board of Directors declared a cash dividend of $0.05
per share on the Company's common stock paid on March 1, 1999, to shareholders
of record on February 15, 1999.
On April 14, 1999, the Board of Directors declared a cash dividend of $0.05 per
share on the Company's common stock payable on June 1, 1999, to shareholders of
record on May 14, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
- -----------
27 Financial Data Schedule.
List of the Current Reports on Form 8-K which were filed during the current
quarter--none.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ROADWAY EXPRESS, INC.
Date: May 4, 1999 By: /s/ J. Dawson Cunningham
----------- ---------------------------
J. Dawson Cunningham, Executive Vice President,
Chief Financial Officer, and Treasurer
Date: May 4, 1999 By: /s/ John G. Coleman
----------- ----------------------
John G. Coleman, Controller
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROADWAY
EXPRESS, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER
ENDED MARCH 27, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-27-1999
<CASH> 67,384
<SECURITIES> 0
<RECEIVABLES> 274,325
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 363,094
<PP&E> 1,339,577
<DEPRECIATION> 982,276
<TOTAL-ASSETS> 756,579
<CURRENT-LIABILITIES> 329,294
<BONDS> 0
206
0
<COMMON> 0
<OTHER-SE> 254,661
<TOTAL-LIABILITY-AND-EQUITY> 756,579
<SALES> 0
<TOTAL-REVENUES> 605,278
<CGS> 0
<TOTAL-COSTS> 591,806
<OTHER-EXPENSES> (455)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,927
<INCOME-TAX> 5,988
<INCOME-CONTINUING> 7,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,939
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
