<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 September 11, 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 October
9, 1999 was 19,377,264.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 11, 1999 December 31, 1998
-------------------------------------
(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents $ 92,594 $ 60,232
Accounts receivable, net 293,869 280,170
Other current assets 15,900 18,978
---------- ----------
Total current assets 402,363 359,380
Carrier operating property, at cost 1,337,130 1,341,496
Less allowance for depreciation 971,680 984,380
---------- ----------
Net carrier operating property 365,450 357,116
Goodwill, net 8,635 8,382
Deferred income taxes 33,017 23,955
---------- ----------
Total assets $ 809,465 $ 748,833
========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 196,904 $ 177,641
Salaries and wages 116,805 103,723
Other current liabilities 48,151 47,249
---------- ----------
Total current liabilities 361,860 328,613
Long-term liabilities
Casualty claims payable 50,986 51,812
Future equipment repairs 11,424 14,708
Accrued pension and retiree medical 114,531 104,091
---------- ----------
Total long-term liabilities 176,941 170,611
Shareholders' equity
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 270,458 249,403
---------- ----------
Total shareholders' equity 270,664 249,609
---------- ----------
Total liabilities and shareholders' equity $ 809,465 $ 748,833
========== ==========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
1
<PAGE> 3
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended
(Third Quarter)
September 11, 1999 September 12, 1998
-------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue $ 652,218 $ 617,135
Operating expenses:
Salaries, wages and benefits 421,904 401,927
Operating supplies and expenses 103,981 106,370
Purchased transportation 69,072 61,275
Operating taxes and licenses 17,180 17,812
Insurance and claims expense 13,169 12,132
Provision for depreciation 10,694 9,426
Net (gain) on disposal of operating property (1) (122)
--------- ---------
Total operating expenses 635,999 608,820
--------- ---------
Operating income 16,219 8,315
Other income (expense), net 396 (459)
--------- ---------
Income before income taxes 16,615 7,856
Provision for income taxes 6,970 3,528
--------- ---------
Net income $ 9,645 $ 4,328
========= =========
Earnings per share - basic $ 0.51 $ 0.23
Earnings per share - diluted $ 0.50 $ 0.22
Average shares outstanding - basic 18,844 19,267
Average shares outstanding - diluted 19,151 19,473
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 INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 11, 1999 September 12, 1998
------------------------------------------
(in thousands, except per share data)
<S> <C> <C>
Revenue $ 1,878,618 $ 1,848,150
Operating expenses:
Salaries, wages and benefits 1,217,758 1,200,158
Operating supplies and expenses 307,140 320,455
Purchased transportation 189,195 176,401
Operating taxes and licenses 52,801 55,263
Insurance and claims expense 39,114 40,515
Provision for depreciation 30,261 28,833
Net (gain) on disposal of operating property (123) (1,692)
----------- -----------
Total operating expenses 1,836,146 1,819,933
----------- -----------
Operating income 42,472 28,217
Other income, net 1,445 421
----------- -----------
Income before income taxes 43,917 28,638
Provision for income taxes 18,709 12,394
----------- -----------
Net income 25,208 $ 16,244
=========== ===========
Net income per share - basic $ 1.34 $ 0.82
Net income per share - diluted $ 1.32 $ 0.81
Average shares outstanding - basic 18,834 19,832
Average shares outstanding - diluted 19,112 20,057
Dividends declared per share $ 0.15 $ 0.15
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 5
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 11, 1999 September 12, 1998
--------------------------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,208 $ 16,244
Depreciation and amortization 30,009 29,588
Other operating adjustments 18,606 (15,788)
-------- --------
Net cash provided by operating activities 73,823 30,044
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (43,697) (29,455)
Sales of carrier operating property 5,225 9,279
-------- --------
Net cash used by investing activities (38,472) (20,176)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (2,905) (3,019)
Purchase of treasury shares (84) (15,818)
-------- --------
Net cash used by financing activities (2,989) (18,837)
Net increase (decrease) in cash and cash equivalents 32,362 (8,969)
Cash and cash equivalents at beginning of period 60,232 58,505
-------- --------
Cash and cash equivalents at end of period $ 92,594 $ 49,536
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
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 September 11, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the registrant's annual
report on Form 10-K for the year ended December 31, 1998.
Note B--Accounting Period
The registrant operates on 13 four-week accounting periods with 12 weeks in each
of the first three quarters and 16 weeks in the fourth quarter.
Note C--Earnings per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
Sept 11, 1999 Sept 12, 1998 Sept 11, 1999 Sept 12, 1998
------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 9,645 $ 4,328 $25,208 $16,244
======= ======= ======= =======
Weighted-average shares for
basic earnings per share 18,844 19,267 18,834 19,832
Management incentive stock plans 307 206 278 225
------- ------- ------- -------
Weighted-average shares for
diluted earnings per share 19,151 19,473 19,112 20,057
======= ======= ======= =======
Earnings per share - basic $ 0.51 $ 0.23 $ 1.34 $ 0.82
Earnings per share - diluted $ 0.50 $ 0.22 $ 1.32 $ 0.81
</TABLE>
5
<PAGE> 7
Note D--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments as shown below:
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-six Weeks Ended
(Third Quarter) (Three Quarters)
Sept 11, 1999 Sept 12, 1998 Sept 11, 1999 Sept 12, 1998
--------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 9,645 $ 4,328 $ 25,208 $ 16,244
Foreign currency translation
adjustments (659) (71) 467 (638)
-------- -------- -------- --------
Comprehensive income $ 8,986 $ 4,257 $ 25,675 $ 15,606
======== ======== ======== ========
</TABLE>
Note E--Contingent Matter
The Company's former parent is currently under examination by the Internal
Revenue Service for tax years 1994 and 1995, years prior to the spin-off of the
Company. The IRS has proposed substantial adjustments for these tax years for
multiemployer pension plan deductions. The IRS is challenging the timing, not
the validity of these deductions. The Company is unable to predict the ultimate
outcome of this matter, however, its former parent intends to vigorously contest
these proposed adjustments.
Under a tax sharing agreement entered into by the Company and its former parent
at the time of the spin-off, the Company is obligated to reimburse the former
parent for any additional taxes and interest which relate to the Company's
business prior to the spin-off. The amount and timing of such payments, if any,
is dependent on the ultimate resolution of the former parent's disputes with the
IRS and the determination of the nature and extent of the obligations under the
tax sharing agreement. The Company has established certain reserves with respect
to these proposed adjustments. There can be no assurance, however, that the
amount or timing of any liability of the Company to the former parent will not
have a material adverse effect on the Company's results of operations and
financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company had net income of $9.6 million or $0.50 per share (diluted), for the
third quarter ended September 11, 1999, compared to net income of $4.3 million,
or $0.22 per share (diluted) in the same quarter last year, an increase of
122.9%. Revenues were $652.2 million in the current quarter, a 5.7% increase
from third quarter 1998.
Tonnage was up 4.2% in the current quarter compared to the prior year quarter.
Less-than-truckload (LTL) tons were up 4.4% and truckload tons were up 3.4%. Net
revenue per ton increased 1.4% 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 2.2%, effectively reducing revenue per ton.
This change in the shipment characteristics reflects the strategic direction of
the Company relative to freight mix and service offerings.
Operating expenses per ton were up 0.3% compared to the third quarter of 1998.
Salaries, wages, and benefits increased 0.7% per ton, reflecting increased costs
associated with Company sponsored health and pension benefits, workers'
compensation, and variable compensation related to Company performance. Despite
the increases under the terms of the Teamsters contract, terminal wage and
benefit expenses declined 0.7% per ton, due to improved efficiencies driven by
the changing freight mix. The increased use of railroads led to an 8.2% increase
in purchased transportation expense per ton. The portion of linehaul miles
utilizing rail was 29.8% in the third quarter of 1999 versus 27.1% in the third
quarter of 1998. Operating supplies and expenses decreased 6.2% per ton.
Decreased costs associated with outsourced information systems services and some
maintenance services were partially offset by the increased cost of long term
6
<PAGE> 8
tractor and trailer leases and higher fuel costs. Insurance and claims expense
increased 4.2% per ton, which reflects increased liability expense offset by
reductions in cargo loss and damage claims. Increased depreciation charges
related to recent purchases of computer equipment were partially offset as
revenue equipment becomes fully depreciated and the Company replaces some owned
equipment with leased equipment. The Company also experienced a 7.4% decrease in
operating tax and license expense per ton.
The effective tax rate for the third quarters of 1999 and 1998 differs from the
Federal statutory rate due to the impact of state taxes, taxes on foreign
operations, and non-deductible operating expenses.
At the end of the quarter, cash and marketable securities amounted to $92.6
million, a $32.4 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. Yield improvement is
expected in the fourth quarter, resulting from a general rate increase effective
September 12, 1999. The Company's core business offering, national LTL service,
represented 66% of revenue in the quarter. Regional service offerings were 16%
of revenue, truckload was 7%, and specialized products (international North
America, Time Critical, Precision Delivery, ocean services, exhibit services,
and protective services) represented 11% of revenue. Regional LTL revenue
increased 11%, and the Company's specialized product offerings grew 18%,
principally due to a 37% increase in revenue from the domestic portion of these
specialized products.
Roadway has successfully completed the remediation and full-system integration
test of all identified, existing, mission-critical systems, except as noted
below, to insure the Company's ability to process transactions in the year 2000.
A new, compliant accounts receivable system was implemented as planned in
September 1999. Implementation of new, compliant desktop equipment has been
completed. Any systems vital to moving freight, paying employees, or doing
business with customers have been deemed mission-critical.
Roadway has chosen to defer the planned 1999 implementation of a new vehicle
maintenance management system. Instead, the Company is remediating and testing
the existing system (the primary contingency plan). The implementation and
testing of the maintenance system is expected to be completed by mid December
1999. Additional contingency plans for this system are in place to ensure that
no disruptions to freight movement or other mission-critical functions occur.
There have been no material impacts due to delays in other Information Systems
projects.
The Company sent letters to key vendors and suppliers requesting information
regarding their compliance plans. Targeted vendors included utilities, computer
suppliers, fuel suppliers, railroads, interlines, ocean carriers, and financial
institutions. Most have indicated compliance or satisfactory plans for
compliance. For those who have not, alternate vendors and suppliers are being
identified. Many customers have requested Roadway's compliance plans, and all
inquiries have been fulfilled.
Roadway's internal EDI system is Year 2000 compliant. The Company will continue
testing with customers who choose to convert their systems through the end of
1999, as customer needs dictate. If a customer chooses to remain on a previous
version, which uses the YYMMDD format, Roadway will not force an upgrade. Our
internal systems that receive and send EDI data are able to handle either
format.
The Company's most likely worst case scenario is a localized utility outage,
which would affect a portion of the operations, including the ability to
effectively plan equipment and human resource needs, the result being an
increased potential for service delays. The Company's contingency plan's
assessment and preparation phase includes action items that anticipate and
mitigate the impact of these risks. Roadway's approach to contingency planning
is to prepare employees to quickly and effectively address any failure that may
occur, rather than attempting to pre-identify every specific failure that may
occur. The corporate office and all field locations will have individual
contingency plans to ensure a seamless transition into the new millennium.
7
<PAGE> 9
These contingency plans are comprised of four phases and are proactive in
nature. The four phases are:
1. Pre-millennium rollover assessment and preparation (April 1999 -
December 31, 1999) consists of vendor and equipment assessments
and alternative plans, task list development, and deployment of
pre-event action items.
2. Post-millennium rollover site check and assessment (January 1,
2000) consists of staff at each location checking the location and
assessing the impact of any failures.
3. Post-millennium rollover assessment reporting and communications
(January 1, 2000) consists of each location reporting on its
status. These individual reports will be compiled into an overall
corporate status report and will be disseminated to the executive
officers for external notifications.
4. Post-millennium rollover failure remediation (January 1, 2000)
consists of on-site remediation teams prepared to immediately
address any problems encountered.
Roadway's Year 2000 compliance cost is projected to use approximately 10.7% of
the total Information Technology budget in 1999. The Year 2000 project is
financed from operating cash flow and all phases have been budgeted. Total costs
during 1997, 1998, and 1999 to bring the internal systems into compliance are
estimated at $6.9 million in capital expenditures and $7.4 million in expense.
The Company has made substantially all of these expenditures through the third
quarter of 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-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 $41.4 million. An interest rate variation of 1% would have
no material impact on the Company.
Roadway may incur economic losses due to adverse changes in foreign currency
exchange rates, primarily with fluctuations in the Canadian dollar and Mexican
peso. An instantaneous 10% adverse change in foreign currency exchange rates
would have no material impact on future cash flows of the Company.
An increase in fuel prices would be mitigated by fuel purchase contracts in
place throughout 1999, which protect the Company from a significant portion of
the exposure. In addition, a variable rate fuel surcharge, assessed by Roadway
when the national average price of diesel fuel exceeds $1.10 per gallon, was
reinstated on July 6, 1999.
8
<PAGE> 10
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 6, 1999, the Board of Directors declared a cash dividend of $0.05 per
share on the Company's common stock payable on December 1, 1999, to shareholders
of record on November 12, 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: October 22, 1999 By: /s/ J. Dawson Cunningham
---------------- -----------------------------------------------
J. Dawson Cunningham, Executive Vice President,
Chief Financial Officer, and Treasurer
Date: October 22, 1999 By: /s/ John G. Coleman
---------------- -----------------------------------------------
John G. Coleman, Controller
9
<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 SEPTEMBER 11, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-11-1999
<CASH> 92,594
<SECURITIES> 0
<RECEIVABLES> 293,869
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 402,363
<PP&E> 1,337,130
<DEPRECIATION> 971,680
<TOTAL-ASSETS> 809,465
<CURRENT-LIABILITIES> 361,860
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 270,458
<TOTAL-LIABILITY-AND-EQUITY> 809,465
<SALES> 0
<TOTAL-REVENUES> 1,878,618
<CGS> 0
<TOTAL-COSTS> 1,836,146
<OTHER-EXPENSES> (1,445)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,917
<INCOME-TAX> 18,709
<INCOME-CONTINUING> 25,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,208
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.32
</TABLE>
