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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Period ended September 9, 2000.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from ______ to ______.
Commission file number 0-600
ROADWAY EXPRESS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-0492670
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(State or other jurisdiction of incorporation (I.R.S. Employer
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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
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The number of shares of common stock ($.01 par value) outstanding as of
October 7, 2000 was 19,329,933.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 9, 2000 December 31, 1999
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(in thousands, except share data)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 50,963 $ 80,797
Accounts receivable, net 312,778 299,599
Prepaid expenses and supplies 15,370 17,940
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Total current assets 379,111 398,336
Carrier operating property, at cost 1,412,795 1,356,533
Less allowance for depreciation 991,656 976,205
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Net carrier operating property 421,139 380,328
Goodwill, net 13,937 15,360
Deferred income taxes 41,733 37,384
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Total assets $ 855,920 $ 831,408
=======================================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 194,093 $ 190,499
Salaries and wages 124,516 120,695
Freight and casualty claims payable 54,091 52,165
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Total current liabilities 372,700 363,359
Long-term liabilities:
Casualty claims payable 46,092 49,077
Future equipment repairs 6,134 9,805
Accrued pension and retiree medical 115,651 118,212
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Total long-term liabilities 167,877 177,094
Shareholders' equity:
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 315,137 290,749
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Total shareholders' equity 315,343 290,955
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Total liabilities and shareholders' equity $ 855,920 $ 831,408
=======================================================================
</TABLE>
Note: The balance sheet at December 31, 1999 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
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Twelve Weeks Ended
(Third Quarter)
September 9, 2000 September 11, 1999
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(in thousands, except per share data)
<S> <C> <C>
Revenue $ 698,867 $ 652,218
Operating expenses:
Salaries, wages and benefits 437,729 421,904
Operating supplies and expenses 123,380 103,981
Purchased transportation 74,383 69,072
Operating taxes and licenses 17,645 17,180
Insurance and claims expense 13,070 13,169
Provision for depreciation 13,315 10,694
Net loss (gain) on disposal of operating property 743 (1)
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Total operating expenses 680,265 635,999
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Operating income 18,602 16,219
Other income, net 290 396
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Income before income taxes 18,892 16,615
Provision for income taxes 8,047 6,970
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Net income $ 10,845 $ 9,645
====================================================
Earnings per share - basic $ 0.58 $ 0.51
Earnings per share - diluted $ 0.57 $ 0.50
Average shares outstanding - basic 18,649 18,815
Average shares outstanding - diluted 19,011 19,122
Dividends declared per share $ 0.05 $ 0.05
</TABLE>
See notes to condensed consolidated financial statements.
2
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 9, 2000 September 11, 1999
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(in thousands, except per share data)
<S> <C> <C>
Revenue $ 2,083,545 $ 1,878,618
Operating expenses:
Salaries, wages and benefits 1,306,220 1,217,758
Operating supplies and expenses 376,811 307,140
Purchased transportation 213,731 189,195
Operating taxes and licenses 54,861 52,801
Insurance and claims expense 40,994 39,114
Provision for depreciation 36,973 30,261
Net loss (gain) on disposal of operating property 1,257 (123)
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Total operating expenses 2,030,847 1,836,146
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Operating income 52,698 42,472
Other income, net 1,495 1,445
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Income before income taxes 54,193 43,917
Provision for income taxes 23,086 18,709
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Net income $ 31,107 25,208
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Net income per share - basic $ 1.67 $ 1.34
Net income per share - diluted $ 1.64 $ 1.32
Average shares outstanding - basic 18,664 18,806
Average shares outstanding - diluted 19,005 19,085
Dividends declared per share $ 0.15 $ 0.15
</TABLE>
See notes to condensed consolidated financial statements.
3
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ROADWAY EXPRESS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Thirty-six Weeks Ended
(Three Quarters)
September 9, 2000 September 11, 1999
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(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 31,107 $ 25,208
Depreciation and amortization 37,440 30,009
Other operating adjustments (16,035) 18,606
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Net cash provided by operating activities 52,512 73,823
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (81,936) (43,697)
Sales of carrier operating property 2,895 5,225
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Net cash used by investing activities (79,041) (38,472)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (2,894) (2,905)
Treasury stock activity, net (411) (84)
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Net cash used by financing activities (3,305) (2,989)
Net (decrease) increase in cash and cash equivalents (29,834) 32,362
Cash and cash equivalents at beginning of period 80,797 60,232
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Cash and cash equivalents at end of period $ 50,963 $ 92,594
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</TABLE>
See notes to condensed consolidated financial statements.
4
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Roadway Express, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note A--Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twelve weeks ending September 9, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999.
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 9, 2000 Sept 11, 1999 Sept 9, 2000 Sept 11, 1999
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(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income $ 10,845 $ 9,645 $ 31,107 $ 25,208
==============================================================================
Weighted-average shares for
Basic earnings per share 18,649 18,815 18,664 18,806
Management incentive stock plans 362 307 341 279
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Weighted-average shares for
Diluted earnings per share 19,011 19,122 19,005 19,085
==============================================================================
Earnings per share - basic $ 0.58 $ 0.51 $ 1.67 $ 1.34
Earnings per share - diluted $ 0.57 $ 0.50 $ 1.64 $ 1.32
</TABLE>
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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 9, 2000 Sept 11, 1999 Sept 9, 2000 Sept 11, 1999
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(in thousands)
<S> <C> <C> <C> <C>
Net income $ 10,845 $ 9,645 $ 31,107 $ 25,208
Foreign currency translation
adjustments 559 (659) (150) 467
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Comprehensive income $ 11,404 $ 8,986 $ 30,957 $ 25,675
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</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 $10.8 million or $0.57 per share (diluted), for
the third quarter ended September 9, 2000, compared to income of $9.6 million,
or $0.50 per share (diluted) in the same quarter last year, an increase of
12.4%. Revenues were $699 million in the current quarter, a 7.2% increase from
third quarter 1999.
The Company delivered 1.9 million tons of freight in the current quarter, down
1.7% compared to the prior year quarter. Less-than-truckload (LTL) tons were
down 0.2% and truckload tons were down 7.8%. Tonnage in the third quarter of
1999 benefited from LTL industry consolidation due to discontinued operations of
two mid-sized competitors and some freight diversion to the trucking industry
resulting from consolidation in the rail transportation industry. Net revenue
per ton was $359.35, up 9.0% compared to the same quarter last year. The
improvement in revenue per ton was driven by the continuing impact of a general
rate increase in the fourth quarter of 1999, adjustments in contract rates,
freight mix changes, and a variable rate fuel surcharge that averaged 3.0% of
revenue in the current quarter compared to 0.4% of revenue in the prior-year
quarter. Total operating expenses were up $44.3 million, or 8.8% per ton,
compared to the third quarter of 1999.
Salaries, wages, and benefits were up $15.8 million, or 5.5% per ton compared to
the third quarter of 1999. Direct wages and benefits for drivers and dock
workers accounted for $11.5 million of this increase, primarily due to the April
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1, 2000 wage and benefit increases of 3.2% under our labor contract. The
remaining $4.3 million increase resulted from management, administrative, and
other indirect salaries, wages, and benefits.
Operating supplies and expenses were up $19.4 million, or 20.7% per ton over the
prior year quarter. Escalating prices for fuel directly consumed in Company
operations caused $7.5 million of this increase. Other operating and purchased
transportation cost components have also been affected to varying degrees by the
fuel price increases. Higher equipment rental and other direct terminal
operating expenses together accounted for $10.8 million of the cost increase.
The rental costs reflect the Company's replacement of older linehaul tractors
with leased units and rental of equipment for use in city operations.
Purchased transportation expenses were up $5.3 million, or 9.5% per ton, driven
by increased use of owner-operators by our subsidiaries and purchased pickup and
delivery (P&D) services for our seamless P&D offering.
Depreciation expense increased $2.6 million over the third quarter of 1999. This
increase reflects recent capital expenditures, primarily for revenue equipment
and information technology.
The tax rate for the third quarter of 2000 and 1999 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 $51
million, a $30 million decrease from year-end 1999, largely due to increased
capital expenditures in 2000. Net acquisitions of equipment through the third
quarter of 2000 amounted to $79 million, primarily for revenue equipment and
data processing equipment. Cash flow from operations has been and is expected to
be sufficient to meet working capital needs. The Company has no long-term debt.
On September 1, 2000, the Company implemented a general freight rate increase of
approximately 5.6% that had a very minor impact on third quarter results.
Revenue is only recognized as earned when freight is delivered. The full benefit
of this increase will become evident in the fourth quarter. The Company is also
taking actions to improve operating margins such as working with specific
customers to improve the yield on freight.
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,
fuel prices, 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. The Company has in place 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 $34.5 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. A 10% adverse change in foreign currency exchange rates would have no
material impact on future cash flows of the Company.
Fuel price increases are mitigated by a variable rate fuel surcharge when the
national average diesel fuel price exceeds $1.10 per gallon. This surcharge has
been in place at varying rates since the third quarter of 1999, and was
discussed above.
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<PAGE> 9
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On October 4, 2000, the Board of Directors declared a cash dividend of $0.05 per
share on the Company's common stock payable on December 1, 2000, to shareholders
of record on November 10, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No.
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27 Financial Data Schedule.
No Current Reports on Form 8-K were filed during the current quarter.
SIGNATURES
Pursuant to the requirements 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 23, 2000 By: /s/ J. Dawson Cunningham
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J. Dawson Cunningham,
Executive Vice President,
Chief Financial Officer, and Treasurer
Date: October 23, 2000 By: /s/ John G. Coleman
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John G. Coleman, Controller
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