SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 3, 1998, 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 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
9700 Higgins Road, Rosemont, Illinois 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (847) 696-0200
Not applicable
(Former name or former address, if changed since the last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of November 12, 1998, 26,263,373 shares of common stock were outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USFreightways Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
<TABLE>
<CAPTION>
October 3, January 3,
1998 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 7,572 $ 6,471
Accounts receivable, net 217,627 187,554
Other 53,544 43,091
----------------- -------------------
Total current assets 278,743 237,116
----------------- -------------------
Net property and equipment 528,929 448,315
Net intangible assets 108,875 104,407
Other assets 9,743 9,697
----------------- -------------------
Total assets $ 926,290 $ 799,535
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current debt $ 5,219 $ 650
Accounts payable 67,963 62,895
Other current liabilities 164,748 118,169
----------------- ------------------
Total current liabilities 237,930 181,714
----------------- ------------------
Long-term liabilities:
Long-term debt 20,726 15,000
Notes payable 100,000 100,000
Other long-term liabilities 126,833 110,621
----------------- ------------------
Total long-term liabilities 247,559 225,621
----------------- ------------------
Common stockholders' equity 440,801 392,200
----------------- ------------------
Total liabilities and stockholders' equity $ 926,290 $ 799,535
----------------- ------------------
</TABLE>
<PAGE>
USFreightways Corporation
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------------- ---------------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $ 469,349 $ 393,462 $ 1,358,714 $ 1,130,042
Operating expenses:
Salaries, wages and benefits 278,764 246,288 809,957 713,358
Other operating expenses 81,779 75,523 242,627 223,974
Purchased transportation 44,864 14,548 128,913 40,392
Insurance and claims 8,522 7,357 24,349 22,307
Depreciation and amortization 20,569 17,841 59,846 52,120
----------------- ---------------- -------------- --------------
Total operating expenses 434,498 361,557 1,265,692 1,052,151
----------------- ---------------- -------------- --------------
Income from operations 34,851 31,905 93,022 77,891
----------------- ---------------- -------------- --------------
Non-operating income (expense):
Interest expense (2,109) (1,956) (6,243) (6,554)
Interest income 191 380 634 770
Other, net 125 (85) (102) (40)
---------------- --------------- ------------- ---------------
Total non-operating expense (1,793) (1,661) (5,711) (5,824)
---------------- --------------- ------------- ---------------
Net income before income taxes 33,058 30,244 87,311 72,067
Income tax expense 13,554 12,702 36,034 30,234
----------------- --------------- ------------- --------------
Net income $ 19,504 $ 17,542 $ 51,277 $ 41,833
----------------- --------------- ------------- --------------
Average shares outstanding - basic 26,244,706 25,972,653 26,187,788 25,357,417
Average shares outstanding - diluted 26,413,506 26,298,153 26,467,601 25,625,642
Basic earnings per common share: $ 0.74 $ 0.68 $ 1.96 $ 1.65
Diluted earnings per common share: $ 0.74 $ 0.67 $ 1.94 $ 1.63
----------------- --------------------------------- --------------
</TABLE>
<PAGE>
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
--------------------------------------
October 3, September 27,
1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 51,277 $ 41,833
Adjustments to net income:
Depreciation and amortization 59,846 52,120
Other items affecting cash 24,994 19,210
from operating activities
----------------- ---------------
Net cash provided by operating activities 136,117 113,163
----------------- ---------------
Cash flows from investing activities:
Capital expenditures, net of
proceeds on sales (114,291) (78,758)
Acquisitions ( 7,625)
Net fixed assets from acquisitions (20,736)
----------------- ----------------
Net cash used in investing activities (142,652) (78,758)
----------------- ----------------
Cash flows from financing activities:
Dividends paid (7,321) (6,926)
Proceeds from sale of common stock - 69,431
Proceeds from sale of treasury stock 4,662 5,927
Proceeds from long-term debt 5,726
Payments on long-term debt - (78,000)
Net change in short-term debt 4,569 (223)
----------------- ----------------
Net cash provided by (used in) financing activities 7,636 (9,791)
----------------- ----------------
Net increase in cash 1,101 24,614
----------------- ----------------
Cash at beginning of period 6,471 4,090
----------------- -----------------
Cash at end of period $ 7,572 $ 28,704
----------------- -----------------
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
1. General
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements are unaudited but, in the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The Company's
results of operations are affected by the seasonal aspects of the regional LTL
trucking business. Therefore, operating results for the three months and nine
months ended October 3, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. For further information,
refer to consolidated financial statements and footnotes thereto included in the
registrant's annual report on Form 10-K for the year ended January 3, 1998.
2. Earnings per share
Earnings per share basic and diluted earnings per share are calculated under
guidelines of FASB statement No. 128. Basic earnings per share are calculated on
income available to common stockholders divided by the weighted-average number
of common shares outstanding during the period. Diluted earnings per share are
calculated using earnings available to each share of common stock outstanding
during the period and to each share that would have been outstanding assuming
the issuance of common shares for all dilutive potential common shares
outstanding during the reporting period. Unexercised stock options, calculated
under the treasury stock method, is the only reconciling item between the
Company's basic and diluted weighted earnings per share. The number of options
included in the denominator, used to calculate diluted earnings per share are
168,800, 325,500, 279,813 and 268,225 for the third quarters of 1998 and 1997
and for the years to date of 1998 and 1997 respectively.
3. New accounting standards
The Financial Accounting Stands Board (FASB) has issued FASB Statement No. 132
("Employers' Disclosures about Pensions and Other Postretirement Benefits")
which the Company will adopt in the fourth quarter of 1998. FASB has also issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The Company is currently evaluating the impact of these
pronouncements; however it does not anticipate that the adoption of these
statements will have a material impact on results of operations or financial
condition.
4. Subsequent events
On September 23, 1998 the Company announced that it signed an agreement to
acquire all of the issued and outstanding shares of Golden Eagle Group for
approximately $34 million. This merger was completed on November 12, 1998.
Golden Eagle provides logistics services and international air and ocean freight
forwarding for shipments between the United States and Europe, the Middle East
and Far East and from the United States to Central and South America and the
Caribbean. The company also provides logistics services including packing,
crating and warehousing as well as being a licensed customs broker. Revenue for
Golden Eagle for the year ended December 31, 1997 amounted to $84 million, of
which approximately 90% were international. This acquisition is consistent with
the Company's expressed intention to pursue revenue growth through market share
and acquisition.
On October 19, 1998, the Company announced that it had acquired Moore & Son Co.,
a Columbus, Ohio based assembly and distribution business serving all points
within the state. Annual revenue for Moore & Son is expected to be approximately
$8 million. The Ohio cross-dock facility will become part of USF Distribution
that has existing service centers located in major metropolitan centers of
Illinois, Georgia, New Jersey, Colorado and California.
On October 1, 1998, the Company approved a change in its fiscal year from a
52-53 week ending on the Saturday closest to December 31, to a calendar year
basis ending on December 31 of each year. This change will have no material
effect on the Company's 1998 full year results.
On October 30, 1998, the Company announced that James G. Connelly, President and
Chief Operating Officer of the Company resigned in order to explore other
business opportunities. Mr. Connelly had been with the Company since January
1998.
<PAGE>
<TABLE>
<CAPTION>
Segment Reporting Three Months Ended Nine Months Ended
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
LTL Group:
USF Holland $ 202,259 $ 180,758 $ 595,906 $ 520,708
USF Reddaway 57,147 53,072 161,851 146,455
USF Red Star 55,264 50,001 159,528 144,984
USF Dugan 47,032 44,041 138,029 127,206
USF Bestway 35,216 34,533 103,468 98,465
- --------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 396,918 362,405 1,158,782 1,037,818
Truckload - Glen Moore 3,468 - 3,468 -
Logistics subsidiaries 33,122 26,455 92,696 77,764
Freight forwarding 35,841 3,216 103,768 8,936
Corporate and other - 1,386 - 5,524
- --------------------------------------------------------------------------------------------------------------------------
Total Revenue $ 469,349 $ 393,462 $ 1,358,714 $ 1,130,042
Income From Operations
LTL Group:
USF Holland $ 21,972 $ 18,357 $ 59,301 $ 48,495
USF Reddaway 6,042 5,444 14,047 10,287
USF Red Star 1,199 549 2,498 762
USF Dugan 1,906 2,102 5,434 5,752
USF Bestway 3,898 4,951 12,165 13,153
- ---------------------------------------------------------------------------------------------------------------------------
Sub total LTL Group 35,017 31,403 93,445 78,449
Truckload - Glen Moore 358 - 358 -
Logistics subsidiaries 2,045 1,899 5,850 4,461
Freight forwarding 1,207 45 2,691 65
Corporate and other (2,712) (782) (6,243) (3,113)
Amortization of intangibles (1,064) (660) (3,079) (1,971)
- ----------------------------------------------------------------------------------------------------------------------------
Total Income from Operations $ 34,851 $ 31,905 $ 93,022 $ 77,891
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations; Liquidity and Capital Resources
USFreightways Corporation ("the Company") reported the highest
quarterly net income in the Company's history for the 13 weeks ended
October 3, 1998 of $19,504,000, an 11.2% increase over the $17,542,000
which was reported for the thirteen weeks ended September 27, 1997. Net
income per diluted share of 74 cents for the 1998 quarter, on an average of
26,413,506 shares is the highest ever quarterly earnings per share and
represents a 10.4% increase over the 67 cents per diluted share on
26,298,153 average shares outstanding for the third quarter of 1997. Record
revenue for the 1998 quarter of $469,349,000 increased 19.3% when compared
to the $393,462,000 for the same quarter of 1997.
Revenue for the nine months ended October 3, 1998 amounted to
$1,358,714,000, an increase of 20.2% over the same period of the previous
year. Net income for the nine months ended October 3, 1998 amounted to
$51,277,000, an increase of 22.6%, when compared to $41,833,000 for the
1997 nine -month period. Earnings for the nine months ended October 3, 1998
were $1.94 per diluted share, a 19% increase compared to $1.63 per diluted
share for the 1997 nine-month period.
The Company achieved record results in both the third quarter and nine
months of the current year, which is directly attributable to a modest
improvement in the US economy, a stable pricing environment, its ability to
increase market share in its various business enterprises, and continuing
emphasis on cost reduction in all operating units of the Company.
In the regional trucking group, LTL revenue increased 11.9% and
truckload revenue increased 11.6%, after adjusting the 1997 quarter for the
estimated impact of the unusual increase in shipments and revenue which
resulted from the sixteen day UPS strike. Similarly LTL shipments in the
1998 quarter increased by 8.4% and the average revenue per LTL shipment
increased 3.2% compared to last year. The operating ratio for the regional
trucking group improved to 91.2% in the current quarter compared to 91.3%
in the 1997 quarter as lower fuel and purchased transportation expenses
were partially offset by increases in salaries, wages and benefits at
Bestway where extreme summer heat in its operating territory caused labor
inefficiencies.
Revenue in the current year's quarter in the logistics group amounted
to $33,122,000, an increase of 25.2%. Operating income increased 7.7%.
However, the operating ratio increased to 93.8% in the current year's
quarter, compared to 92.8% for the same period of 1997, primarily as a
result of additional investment in technology and startup costs on new
business acquired. Purchased transportation as a percentage of revenue
increased to 21.4% in the current year's quarter compared to 18.6% as a
percentage of revenue in last year's quarter due primarily to new contracts
that required a higher level of third party transportation. This was
partially offset by decreased wages, benefits and workers' compensation
expenses.
USF Seko Worldwide, the Company's domestic and international freight
forwarding subsidiary which was acquired on September 30, 1997, produced
revenue of $35,841,000 and an operating income of $1,207,000.
USF Glen Moore, the Company's truckload carrier which was acquired
August 31, 1998, contributed revenue of $3,468,000 at an operating ratio
of 89.7%.
<PAGE>
The outlook for the last quarter of this year is positive and the
Company expects to continue to see an improvement in profitability over
the same period of the previous year, assuming there is no material
change in the stable pricing environment or the level of US economic
activity.
Capital expenditures for the current year's quarter amounted to
approximately $40 million, of which $21 million was for revenue
equipment and $19 million was for terminal facilities and miscellaneous
equipment. This compares to capital expenditures of $42 million for the
third quarter of 1997. Year-to-date capital expenditures through
September were approximately $120 million, compared to 1997 capital
expenditures for the nine-month period of $90 million.
A dividend of 9 1/3 cents per share was paid on October 9, 1998
to shareholders of record on September 25, 1998.
Year 2000
In today's business environment, companies have developed a
strong technological interdependence with each other. As the Year 2000
draws near, many businesses are increasingly concerned about how their
business applications, as well as those utilized by their business
partners, will handle the century date change. A summarized definition
of the Year 2000 issue is the inability of certain computer systems,
software and embedded-technologies to recognize or process dates beyond
December 31, 1999. This problem may cause significant disruptions in
manufacturing, administrative and distribution processes, as well as
other computer supported activities.
As a transportation service and logistics company, the Company is
reliant on its computer applications to conduct everyday business. The
Company also relies upon the computer capabilities of its major
business partners (i.e. critical customers, vendors, financial
institutions, governmental agencies, etc). In 1996, the Company
implemented a comprehensive project to reduce the possibility that any
of the Year 2000 date issues could significantly impact its operations.
Year 2000 issues were analyzed by identifying and assessing all
systems, with business critical systems given a higher priority. The
Company defines a system as business critical if a failure would cause
a significant service disruption or could cause a material adverse
effect on the Company's operations or financial results. The Company
expects to reach its target of addressing and remediating 100% of its
core freight management and other critical business systems by December
31, 1998. Further testing and verification on all other systems will
continue throughout 1999. The Company has expended approximately $1
million as of September 30, 1998 to ensure Y2K compliance. The total
cost to ensure Y2K compliance is estimated to be less than $3 million.
The Company is contacting business partners whose Year 2000
non-compliance could adversely affect the Company's operations,
employees, or customers. The Company believes the most likely worst
case scenario would be the failure of a material business partner to be
Year 2000 compliant. Therefore, the Company will continue to work with
and monitor the progress of its partners and formulate a contingency
plan when the Company does not believe the business partner will be
compliant.
This release contains forward-looking statements, which are subject
to certain risks, and uncertainties that could cause actual results to
differ materially. These risks and uncertainties are detailed from time
to time in reports filed by the Company with the Securities and
Exchange Commission including forms 8K, 10Q and 10K.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is a party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation
and Liability Act, (CERCLA). The Company has been made a party
to these proceedings as an alleged generator of waste disposed
of at hazardous waste disposal sites. In each case, the
Government alleges that the parties are jointly and severally
liable for the cleanup costs. Although joint and several
liability is alleged, these proceedings are frequently
resolved on the basis of the quantity of waste disposed of at
the site by the generator. The Company's potential liability
varies greatly from site to site. For some sites the potential
liability is de minimis and for others the costs of cleanup
have not yet been determined. While it is not feasible to
predict or determine the outcome of these proceedings or
similar proceedings brought by state agencies or private
litigants, in the opinion of management, the ultimate recovery
or liability, if any, resulting from such litigation,
individually or in the aggregate, will not materially
adversely affect the Company's financial condition or results
of operations and, to the Company's best knowledge, such
liability, if any, will represent less than 1% of its
revenues.
On April 19, 1996, Steven Mark Whitworth ("Plaintiff") a
former employee of USF Bestway Inc., a subsidiary of the
Company ("USF Bestway", brought suit against USF Bestway and
one of its employees, alleging claims of fraud and promissory
estoppel arising from Plaintiff's previous employment as a
driver with USF Bestway, Steven Mark Whitworth v. TNT Bestway
Transportation, Inc. f/k/a .TNT Bestway Inc. and William Orr,
Case No. 96-3935-A, 14th Judicial District Court, Dallas
County, Texas. On or about October 2, 1996, Plaintiff amended
his petition and added claims of wrongful discharge and
conspiracy to wrongfully discharge.
On October 7, 1996, Plaintiff moved for summary judgment,
claiming that he was entitled to a judgment of $3,500,000 in
actual damages and $1,750,000 in attorney fees based on (i)
the USF Bestway's alleged untimely responses to Plaintiff's
requests for admissions and (ii) the USF Bestway's alleged
failure to comply with the requirements of Texas law
concerning the signature of pleadings by counsel in connection
with the responses to Plaintiff's requests for admissions.
Following a hearing on November 1, 1996, the trial court
granted Plaintiff's motion for summary judgment and entered
judgment in favor of Plaintiff and against the USF Bestway,
for $3,500,000 in actual damages $1,750,000 in attorneys' fees
together with court costs and interest.
On November 27, 1996, USF Bestway moved for reconsideration of
the judgment and for a new trial. At a January 7, 1997 hearing
on this motion, the trial court denied the motion for
reconsideration and for new trial, but ruled that the
responses to the Plaintiff's requests for admissions were
timely. USF Bestway has posted a superedeas bond to prevent
enforcement of the judgment pending appeal and perfected its
appeal to the Dallas Court of Appeals.
Management of the Company believes that it has good grounds
for obtaining a reversal of the judgment on appeal because it
believes, among other reasons, that the judgment entered on
the basis of the procedural technicality of counsel's failure
to comply with the requirements of Texas law concerning the
signature of pleadings by counsel, will not be sustained by a
reviewing court and further believes, the judgment will be
vacated and the matter remanded for a trial on the merits and
that, in any event, will not have a material adverse effect on
USF Bestway's financial condition. In the event the judgment
is sustained on appeal, management of USF Bestway intends to
pursue potential causes of action against all appropriate
parties.
Also, the Company is involved in other litigation arising in
the ordinary course of business, primarily involving claims
for bodily injuries and property damage. In the opinion of
management, the ultimate recovery or liability, if any,
resulting from such litigation, individually or in the
aggregate, will not materially adversely affect the Company's
financial condition or results of operations.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. Exhibit 27-Financial Data Schedule.
(b) Current Reports on Form 8-K were filed:
1. No current reports on Form 8-K were filed during
the quarter
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. Dated the 12th day of
November, 1998.
USFREIGHTWAYS CORPORATION
By: /s/ Christopher L. Ellis
Christopher L. Ellis
Senior Vice President, Finance and
Chief Financial Officer
By: /s/ Robert S. Owen
Robert S. Owen
Controller and Principal
Accounting Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27 FINANCIAL DATA SCHEDULE (FDS)
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-04-1998
<PERIOD-END> OCT-03-1998
<CASH> 7,572
<SECURITIES> 0
<RECEIVABLES> 217,627
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 278,743
<PP&E> 528,929
<DEPRECIATION> 0
<TOTAL-ASSETS> 926,290
<CURRENT-LIABILITIES> 237,930
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 440,801
<TOTAL-LIABILITY-AND-EQUITY> 926,290
<SALES> 0
<TOTAL-REVENUES> 1,358,714
<CGS> 0
<TOTAL-COSTS> 1,265,692
<OTHER-EXPENSES> (532)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,243
<INCOME-PRETAX> 87,311
<INCOME-TAX> 36,034
<INCOME-CONTINUING> 51,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,277
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.94
</TABLE>
