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 APRIL 3, 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 0-19791
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 May 12, 1999, 26,399,727 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>
April 3, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 6,148 $ 5,548
Accounts receivable, net 240,624 218,942
Other 60,434 55,359
----------------- -------------------
Total current assets 307,206 279,849
----------------- -------------------
Net property and equipment 554,875 544,282
Net intangible assets 161,615 140,201
Other assets 10,788 10,341
----------------- -------------------
Total assets $ 1,034,484 $ 974,673
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current debt $ 5,163 $ 10,660
Accounts payable 67,903 78,757
Other current liabilities 172,986 139,460
----------------- ------------------
Total current liabilities 246,052 228,877
----------------- ------------------
Long-term liabilities:
Long-term debt 74,316 51,096
Notes payable 100,000 100,000
Other long-term liabilities 138,517 135,566
----------------- ------------------
Total long-term liabilities 312,833 286,662
----------------- ------------------
Common stockholders' equity 475,599 459,134
----------------- ------------------
Total liabilities and stockholders' equity $ 1,034,484 $ 974,673
----------------- ------------------
</TABLE>
<PAGE>
USFreightways Corporation
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------
April 3, April 4,
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Operating revenue
LTL Trucking $ 410,797 $ 379,296
TL Trucking 10,286 -
Logistics 41,022 28,739
Freight Forwarding 51,124 34,304
----------------- ----------------
Total operating revenue $ 513,229 $ 442,339
Operating expenses:
LTL Trucking 380,653 352,871
TL Trucking 9,601 -
Logistics 38,291 26,980
Freight Forwarding 49,674 33,680
Corporate and other 2,779 3,085
----------------- ----------------
Total operating expenses 480,998 416,616
----------------- ----------------
Income from operations 32,231 25,723
----------------- ----------------
Non-operating income (expense):
Interest expense (2,812) (2,108)
Interest income 232 233
Other, net 24 (178)
---------------- ---------------
Total non-operating expense (2,556) (2,053)
---------------- ---------------
Net income before income taxes 29,675 23,670
Income tax expense 12,167 9,941
----------------- ---------------
Net income $ 17,508 $ 13,729
----------------- ---------------
Average shares outstanding - basic 26,313,897 26,116,663
Average shares outstanding - diluted 26,988,930 26,554,118
Basic earnings per common share: $ 0.67 $ 0.53
Diluted earnings per common share: $ 0.65 $ 0.52
----------------- ------------------
</TABLE>
<PAGE>
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------
April 3, April 4,
1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 17,508 $ 13,729
Adjustments to net income:
Depreciation and amortization 22,462 19,534
Other items affecting cash 4,517 14,267
from operating activities
----------------- ---------------
Net cash provided by operating activities 44,487 47,530
----------------- ---------------
Cash flows from investing activities:
Capital expenditures (30,293) (36,324)
Proceeds on sales 1,020 739
Acquisitions (31,300) (1,500)
----------------- ----------------
Net cash used in investing activities (60,573) (37,085)
----------------- ----------------
Cash flows from financing activities:
Dividends paid (2,452) (2,433)
Proceeds from sale of treasury stock 1,415 1,262
Proceeds from long-term debt 25,000
Payments on long-term debt (1,780) (10,000)
Net change in short-term debt (5,497) (650)
----------------- ----------------
Net cash provided by (used in) financing activities 16,686 (11,821)
----------------- ----------------
Net increase/(decrease) in cash 600 (1,376)
----------------- ----------------
Cash at beginning of period 5,548 6,471
----------------- -----------------
Cash at end of period $ 6,148 $ 5,095
----------------- -----------------
</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 ended April
3, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999. 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 December 31, 1998.
2. Earnings per share
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 675,033 and 437,455 for the first
quarters of 1999 and 1998 respectively.
3. Acquisitions
On March 2nd, USF Logistics, the Company's logistics business unit,
acquired (for cash) all of the ownership interests of Processors Unlimited
Company, Ltd. (PUC) a provider of reverse logistics services to the grocery and
drug industries. PUC has annualized revenue of approximately $46 million and
employs over 1,000 individuals at 46 locations throughout Canada and the United
States.
4. Subsequent events
On April 10, 1999, USF Red Star, a subsidiary of the Company, completed an asset
purchase transaction with CBL Trucking, a New England and mid-Atlantic LTL
carrier. Certain members of CBL's management team, the majority of its sales
force and almost all of CBL's drivers have since joined the Red Star labor
force. As a result of this transaction, the former CBL customers will receive
enhanced direct service territory and nationwide coverage through the Company's
other regional LTL carriers. Red Star began servicing CBL's former customers
on April 18, 1999.
On April 29, 1999, the Company issued $100 million of Guaranteed Notes due May 1
2009 with a coupon rate of 6.50% and at a spread of 140 basis points above the
10-year Treasury notes.
Net proceeds from the sale will be used to reduce the unsecured lines of credit
that the Company has with various banks. Until the net proceeds are applied for
specific purposes, the Company may invest them in marketable securities.
On May 6, 1999, the four business units that operate under the Company's freight
forwarding group announced that they will begin operating under the name - USF
Worldwide.
<PAGE>
<TABLE>
<CAPTION>
5. Segment Reporting Three Months Ended
April 3, April 4,
1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue
LTL Group:
USF Holland $ 219,950 $ 197,495
USF Reddaway 55,135 51,441
USF Red Star 53,774 50,673
USF Dugan 47,097 45,546
USF Bestway 34,841 34,141
- -------------------------------------------------------------------------------
Sub total LTL Group 410,797 379,296
Truckload - Glen Moore 10,286 -
Logistics subsidiaries 41,022 28,739
Freight forwarding 51,124 34,304
Corporate and other - -
- -------------------------------------------------------------------------------
Total Revenue $ 513,229 $ 442,339
Income From Operations
LTL Group:
USF Holland $ 21,258 $ 17,399
USF Reddaway 3,504 3,128
USF Red Star 305 184
USF Dugan 1,187 1,392
USF Bestway 3,890 4,322
- -------------------------------------------------------------------------------
Sub total LTL Group 30,144 26,425
Truckload - Glen Moore 685 -
Logistics subsidiaries 2,731 1,759
Freight forwarding 1,450 624
Corporate and other (1,417) (2,140)
Amortization of intangibles (1,362) (945)
- -------------------------------------------------------------------------------
Total Income from Operations $ 32,231 $ 25,723
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations
USFreightways Corporation ("the Company") reported net income for the
thirteen weeks ended April 3, 1999 of $17,508,000, a 28% increase over the
$13,729,000 which was reported for the thirteen weeks which ended April 4, 1998.
This is the eleventh consecutive quarter that earnings have increased over the
same quarter of the previous year. The current year's quarter included both the
New Year's and Good Friday holidays, neither of which occurred in the 1998
quarter.
Net income per share for the current year's quarter was equivalent to 65
cents diluted earnings per share, a 25% increase compared to the 52 cents
diluted earnings per share for the same quarter of 1998.
Revenue for the 1999 quarter increased by 16% to $513,229,000 from
$442,339,000 for the first quarter of 1998. Golden Eagle, Glen Moore and
Processors Unlimited Company, Ltd. ("PUC") which were acquired since the first
quarter of 1998, contributed revenue of $30,426,000 in the current year's
quarter.
Revenue and net income for the 1999 quarter improved compared to the same
period of the previous year, although revenue and operating earnings this year
were adversely impacted by more severe winter weather conditions than what was
experienced during the relatively mild winter of 1998.
Less-than-truckload (LTL) revenue for the current quarter at the regional
trucking subsidiaries, on equivalent working days, increased 9.3% over the 1998
first quarter, LTL shipments increased 7.1% and LTL tonnage increased 8.1%. LTL
revenue per shipment increased from $106.58 to $108.74 and the weight per
shipment increased from 1,141 pounds to 1,151 pounds.
Operating earnings for the regional trucking group increased 14% to
$30,144,000 in 1999 compared to $26,425,000 for the same period of 1998. The
consolidated operating ratio improved to 92.7 from 93.0 last year led by USF
Holland with an operating ratio of 90.3 this year compared to 91.2 in the
previous year. Improvements in costs occurred in Operating Expenses and Supplies
(despite rising fuel costs in the current quarter), Workers' Compensation and
Operating Taxes and Licenses, but were partially offset by increases in Labor
expenses.
Glen Moore Trucking, the Company's truckload carrier that was acquired on
August 31, 1998, contributed revenue of $10.3 million and operated at 93.3
for the quarter.
Revenue in the Logistics group increased by 42.7% to $41.0 million in the
current quarter from $28.7 million in the prior year. PUC contributed revenue,
since its acquisition on March 2nd, of $4.1 million and operated at an 88.4
operating ratio for the March period. Other existing logistics' contracts
increased revenue by $3.9 million over the prior year's quarter. The logistics
segment's distribution business unit increased revenue by $3.8 million of which
its Moore & Son acquisition (Oct. 15, 1998) contributed $1.6 million, while
other distribution centers increased revenue by $2.1 million. Earnings in the
Logistics group increased 55.2% over the prior year's quarter to $2.7 million
from $1.8 million due to earnings from PUC, Moore & Son and higher profits from
existing customers' business.
Revenue in the Freight Forwarding group increased 49.0% to $51.1 million
from $34.3 million in the prior year's quarter due in large part to $16.0
million in revenue contributed from the group's recent Golden Eagle acquisition
(Nov. 12, 1998). The group's profits improved by 132% to $1.4 million from $0.6
million the prior year's quarter.
On March 2nd, USF Logistics, the Company's logistics business unit,
acquired (for cash) all of the ownership interests of PUC a provider of reverse
logistics services to the grocery and drug industries. PUC has annualized
revenue of approximately $46 million and employs over 1,000 individuals at 46
locations throughout Canada and the United States.
On March 31st, USF Seko Worldwide, one of the Company's freight forwarding
business units, acquired (for cash) the business of Airgo Freight, Inc. its
former agent in the Seattle Washington area. This acquisition had no effect on
revenue or profits for the quarter as the purchase occurred at the end of the
quarter.
On April 10th, USF Red Star, the Company's Northeastern LTL regional
subsidiary, completed an asset purchase transaction (for cash) with CBL
Trucking, a New England and Mid-Atlantic LTL Carrier.
<PAGE>
Liquidity and Capital Resources
Cash flows from operating activities contributed $44.5 million during the
current quarter compared to $47.5 million in last year's quarter.
Net capital expenditures for the 1999 quarter amounted to approximately $61
million including $19.5 million for revenue equipment, $6.5 million for terminal
facilities, and the balance for other capital items plus the acquisition of
Processors Unlimited. Last year for the same quarter, net capital expenditures
amounted to $37.1 million, mainly for revenue equipment, terminal facilities and
a small acquisition.
Bank borrowings increased by $17.7 million during the quarter. The proceeds
were used to partially fund the PUC acquisition.
On April 29, 1999, the Company issued $100 million of Guaranteed Notes due
May 1, 2009 with a coupon rate of 6.50% and at a spread of 140 basis points
above the 10-year Treasury notes.
Net proceeds from the sale will be used to reduce the unsecured lines of
credit that the Company has with various banks. Until the net proceeds are
applied for specific purposes, the Company may invest them in marketable
securities.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
April 9, 1999 to shareholders of record on March 26, 1999.
Year 2000
The Company has been and continues to address the universal situation
commonly referred to as the "Year 2000 Problem". The "Year 2000 Problem" is
related to the inability of certain computer systems, software and embedded
technologies to properly recognize and process date-related information
surrounding the Year 2000.
In 1996, the Company initiated a comprehensive review of its computerized
Information Technology (IT) and non-information technology systems to identify
systems that could be affected by the Year 2000 problems and has implemented a
plan to resolve the identified issues. The Year 2000 issues were analyzed by
identifying and assessing all systems, software and embedded technologies and
business partners with internal 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. As of March 31, 1999, the
Company has modified or replaced 95% of its business critical systems and 94% of
all systems. In the opinion of management, the remainder of the business
critical systems will have little or no effect on the Company's ability to
service the majority of its customers. The business critical systems have been
unit tested by IT staff members and many have been evaluated using a detailed
Year 2000 test plan. Further testing and verification on the systems will
continue throughout 1999. The Company has established an internal Year 2000
audit team to audit the process and results of the Year 2000 efforts of the
Company's subsidiaries. The Company has expended approximately $1 million as of
March 31, 1999 to ensure Year 2000 compliance. The total cost to ensure Year
2000 compliance is estimated to be less than $2 million. The cost estimate is
based on the Company's structure and those subsidiaries it owns at the present
time. The acquisition of any additional operating entity may significantly
impact the total cost as it has been estimated.
The Company expects to have contingency plans developed for business
critical systems by July 31, 1999. The contingency plans have been tested or
will be tested for plan completeness and accuracy. Should there be any
disruptions of business critical systems or critical business partners, the
Company expects to be able to continue its operations through telephonic and
facsimile communications. Therefore, some contingency plans may require
additional labor that may impact the Company's operating costs.
The Company has been contacting business partners whose Year 2000 non-
compliance could adversely affect the Company's operations, employees, or
customers. As a provider of transportation and logistics services, the Company's
operations are dependent on telecommunication, financial and utility services
provided by several entities. The Company is unaware of any of these entities or
of any significant supplier to not be Year 2000 compliant. 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.
The Company's assessment of its Year 2000 issues involves some assumptions.
These assumptions revolved primarily around the Year 2000 representation from
third parties with which the Company has business relationships, and where the
Company has not been able to independently verify these representations.
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. The appeal was heard on
March 10, 1999. No decision has been rendered as of yet.
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 14th day of
May, 1999.
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-03-1999
<CASH> 6,148
<SECURITIES> 0
<RECEIVABLES> 240,624
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 307,206
<PP&E> 554,875
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,034,484
<CURRENT-LIABILITIES> 246,052
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 475,599
<TOTAL-LIABILITY-AND-EQUITY> 1,034,484
<SALES> 0
<TOTAL-REVENUES> 513,229
<CGS> 0
<TOTAL-COSTS> 480,998
<OTHER-EXPENSES> (256)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,812
<INCOME-PRETAX> 29,675
<INCOME-TAX> 12,167
<INCOME-CONTINUING> 17,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,508
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.65
</TABLE>
