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 JULY 1, 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 0-19791
USFREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3790696
(State of Incorporation) (IRS Employer Identification No.)
8550 W. Bryn Mawr Ave., Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
including area code: (773) 824-1000
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 July 31, 2000, 26,280,575 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>
July 1, December 31,
2000 1999
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<S> <C> <C>
Assets
Current assets:
Cash $ 7,012 $ 6,862
Accounts receivable, net 313,048 293,989
Other 67,364 62,077
----------------- -------------------
Total current assets 387,424 362,928
----------------- -------------------
Net property and equipment 725,587 660,510
Net intangible assets 175,760 174,538
Other assets 20,571 14,191
----------------- -------------------
Total assets $ 1,309,342 $ 1,212,167
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current bank debt $ 14,354 $ 20,561
Notes payable - 100,000
Accounts payable 97,644 89,193
Other current liabilities 189,605 160,590
----------------- ------------------
Total current liabilities 301,603 370,344
----------------- ------------------
Long-term liabilities:
Long-term bank debt 6,280 33,137
Notes payable 250,000 100,000
Other long-term liabilities 156,130 149,827
----------------- ------------------
Total long-term liabilities 412,410 282,964
----------------- ------------------
Minority interest 238 -
Common stockholders' equity 595,091 558,859
----------------- ------------------
Total liabilities and stockholders' equity $ 1,309,342 $ 1,212,167
----------------- ------------------
</TABLE>
<PAGE>
USFreightways Corporation
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------------------------- ----------------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
----------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Operating revenue
LTL Trucking $ 473,340 $ 436,721 $ 934,144 $ 847,518
TL Trucking 20,173 10,579 39,661 20,865
Logistics 65,190 48,695 132,315 89,717
Freight Forwarding 63,176 52,861 123,980 103,985
----------------- ---------------- ------------ ------------
Total operating revenue $ 621,879 $ 548,856 $1,230,100 $ 1,062,085
Operating expenses:
LTL Trucking 425,966 392,784 848,587 773,437
TL Trucking 18,578 9,708 37,121 19,309
Logistics 61,135 44,185 124,018 82,476
Freight Forwarding 62,987 51,324 123,075 100,998
Corporate and other 2,620 3,068 5,947 5,847
----------------- ---------------- ------------ ------------
Total operating expenses 571,286 501,069 1,138,748 982,067
----------------- ---------------- ------------ ------------
Income from operations 50,593 47,787 91,352 80,018
----------------- ---------------- ------------ ------------
Non-operating income (expense):
Interest expense (5,342) (3,483) (9,913) (6,295)
Interest income 316 361 508 593
Other, net 9 (365) 502 (341)
---------------- --------------- ------------- -----------
Total non-operating expense (5,017) (3,487) (8,903) (6,043)
---------------- --------------- ------------- -----------
Net income before income taxes 45,576 44,300 82,449 73,975
Income tax expense (18,523) (18,029) (33,346) (30,196)
Minority interest 445 - 711 -
----------------- --------------- ------------ -----------
Net income $ 27,498 $ 26,271 $ 49,814 $ 43,779
----------------- --------------- ------------ -----------
Average shares outstanding - basic 26,590,173 26,404,635 26,549,585 26,358,773
Average shares outstanding - diluted 27,297,662 27,428,613 27,372,280 27,231,669
Basic earnings per common share: $ 1.03 $ 0.99 $ 1.88 $ 1.66
Diluted earnings per common share: $ 1.01 $ 0.96 $ 1.82 $ 1.61
----------------- ------------------ ------------ -----------
</TABLE>
<PAGE>
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
----------------------------
July 1, July 3,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net Income $ 49,814 $ 43,779
Adjustments to net income:
Depreciation and amortization 54,279 45,822
Other items affecting cash 2,656 10,795
from operating activities
-------------- -------------
Net cash provided by operating activities 106,749 100,396
-------------- -------------
Cash flows from investing activities:
Capital expenditures (107,460) (82,990)
Proceeds on sales 5,810 2,407
Acquisitions (7,300) (38,600)
-------------- -------------
Net cash used in investing activities (108,950) (119,183)
-------------- -------------
Cash flows from financing activities:
Dividends paid (4,948) (4,910)
Proceeds from sale of Notes 149,025 98,452
Payments on Notes (100,000) -
Proceeds from sale/(repurchase) of treasury stock (8,662) 3,521
Proceeds from long-term debt 60,000 30,000
Payments on long-term debt (86,857) (75,274)
Net change in short-term debt (6,207) (10,941)
-------------- -------------
Net cash provided by (used in) financing activities 2,351 40,848
-------------- -------------
Net increase/(decrease) in cash 150 22,061
-------------- -------------
Cash at beginning of period 6,862 5,548
-------------- -------------
Cash at end of period $ 7,012 $ 27,609
-------------- -------------
</TABLE>
<PAGE>
Notes to Condensed Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
1. General
The consolidated financial statements include the accounts of USFreightways
and its wholly owned subsidiaries (the Company). 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 trucking and air freight industries.
Therefore, operating results for the three and six months ended July 1, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1999.
2. Earnings per share
Basic earnings per share are calculated on net income divided by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share are calculated by dividing net income by this
weighted-average number of common shares outstanding plus the shares that would
have been outstanding assuming the issuance of common shares for all dilutive
potential common shares. Unexercised stock options, calculated under the
treasury stock method, is the only reconciling item between the Company's basic
and diluted earnings per share. The number of options included in the
denominator, used to calculate diluted earnings per share are 707,489 and
1,023,978 for the second quarters of 2000 and 1999 respectively and 822,695 and
872,896 for year to date 2000 and 1999 respectively.
3. Acquisitions
On January 10, 2000, USF Glen Moore, the Company's truckload (TL) carrier,
acquired (for approximately $7 million in cash) all of the shares of Tri-Star
Transportation, Inc, a Tennessee based TL carrier. Tri-Star operates 170
tractor/trailer units and while not included in the Company's Fiscal 1999
revenue, generated $28 million in revenue for 1999.
4. Debt
The Company's debt includes $100 million of guaranteed notes due May 1,
2009 and $150 million of guaranteed notes due April 15, 2010.
On January 31, 2000, the Company filed a Form S-3 registration statement
that allowed for the sale of up to $400 million in additional guaranteed notes.
The guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all of the Company's direct
and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is
a holding company and during the period presented substantially all of the
assets were the stock of the Subsidiary Guarantors, and substantially all of the
operations were conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
were substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. Management of the Company believes that
separate financial statements of, and other disclosures with respect to, the
Subsidiary Guarantors are not meaningful or material to investors.
On April 19, 2000, the Company sold $150 million in 8 1/2% guaranteed notes
due April 15, 2010 as part of the $400 million Form S-3 registration statement
filed on January 31, 2000. The net proceeds from the sale of the guaranteed
notes, after deducting underwriting fees and other expenses were approximately
$149 million were used to repay $100 million in 6 5/8% notes that matured May 1,
2000, to reduce other unsecured lines of credit and to purchase an interest rate
hedge.
<PAGE>
5. Other
On June 7, 2000, the Company announced the authorized repurchase of up to
500 thousand shares of its common stock. This buyback program was completed on
June 30, 2000.
6. Subsequent events
On July 24, 2000, the Company announced the authorized buyback of up to 1
million additional shares of its common stock in either public market or private
transactions. This repurchase program is not yet completed.
<PAGE>
<TABLE>
<CAPTION>
6. Segment Reporting Three Months Ended Six Months Ended
Unaudited (dollars in thousands) July 1, July 3, July 1, July 3,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue
LTL Group:
USF Holland $ 248,938 $ 226,830 $ 495,555 $ 446,780
USF Reddaway 69,144 61,136 131,676 116,271
USF Red Star 67,658 61,861 132,842 115,635
USF Dugan 49,946 49,606 100,535 96,703
USF Bestway 37,654 37,288 73,536 72,129
------------------------------------------------------------------------------- ------------------------------
Sub total LTL Group 473,340 436,721 934,144 847,518
Truckload - Glen Moore 20,173 10,579 39,661 20,865
Logistics subsidiaries 65,190 48,695 132,315 89,717
Freight forwarding 63,176 52,861 123,980 103,985
Corporate and other - - - -
------------------------------------------------------------------------------- ------------------------------
Total Revenue $ 621,879 $ 548,856 $ 1,230,100 $ 1,062,085
Income From Operations
LTL Group:
USF Holland $ 27,530 $ 27,350 $ 53,331 $ 48,608
USF Reddaway 9,226 7,275 13,876 10,779
USF Red Star 2,658 1,905 4,013 2,210
USF Dugan 3,553 2,814 6,265 4,001
USF Bestway 4,407 4,593 8,072 8,483
------------------------------------------------------------------------------- ------------------------------
Sub total LTL Group 47,374 43,937 85,557 74,081
Truckload - Glen Moore 1,595 871 2,540 1,556
Logistics subsidiaries 4,055 4,510 8,297 7,241
Freight forwarding 189 1,537 905 2,987
Corporate and other (938) (1,404) (2,596) (2,821)
Amortization of intangibles (1,682) (1,664) (3,351) (3,026)
------------------------------------------------------------------------------- ------------------------------
Total Income from Operations $ 50,593 $ 47,787 $ 91,352 $ 80,018
------------------------------------------------------------------------------- ------------------------------
</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 July 1, 2000 of $27,498,000, a 5% increase over the
$26,271,000 which was reported for the thirteen weeks which ended July 3, 1999.
There were 64 working days in the current and previous year's quarter.
Net income per share for the current year's quarter was equivalent to $1.01
diluted earnings per share. Net income per share for the 1999 quarter amounted
to 96 cents diluted earnings per share. Net income for the current year's
quarter was negatively impacted by the results at USF Worldwide and USF
Processors.
Revenue for the 2000 quarter increased by 13.3% to $621,879,000 from
$548,856,000 for the second quarter of 1999. Revenue increases in new return
logistics business, new distribution service centers and additional truckload
revenue from an acquisition in early January 2000 accounted for approximately
$17 million of the revenue increase.
Less-than-truckload (LTL) revenue for the current quarter at the regional
trucking subsidiaries increased 8.1%, excluding the fuel surcharges, over the
1999 second quarter; LTL shipments increased 5.9% and LTL tonnage increased
5.4%. LTL revenue per shipment increased from $109.08 to $111.32 and the weight
per shipment decreased from 1,150 pounds to 1,145 pounds. Revenue for the
regional trucking subsidiaries in the last week of the quarter was the highest
in the history of the Company. Year to date revenue increased by 10.2% to
$934,144,000 from $847,518,000 last year.
Operating earnings in the current year's quarter increased 8% to
$47,374,000 compared to $43,937,000 for the same period of 1999. The
consolidated operating ratio for the LTL group deteriorated slighlty to 90.0
from 89.9 last year. USF Red Star and USF Dugan continued to improve their
operating ratios and USF Reddaway reported a significant improvement in its
operating ratio to 86.7 compared to 88.1 last year. Improvements in costs
occurred in Workers' Compensation, Purchased Transportation, Insurance and
claims, but were offset by increases in Labor and Maintenance. Year to date
operating earnings increased by 15.5% to $85,557,000 from $74,081,000 last year.
Fuel costs, net of surcharge recoveries, in the first six months are comparable
to the same period of 1999.
USF Glen Moore, the Company's truckload (TL) carrier reported operting
earnings of $1,595,000 at an operating ratio of 92.1 compared to $871,000 and an
operating ratio of 91.8 in 1999. Improvements in Purchased Transportation, and
Operating costs were offset by increases in Labor, Insurance and Claims and
Workers' Compensation costs. Glen Moore's recent acquisition contributed the
majority of the $9.6 million revenue increase compared to last year's quarter.
Revenue in the Logistics group increased by 33.9% to $65,190,000 in the
current quarter from $48,695,000 in the prior year. USF Processors contributed
revenue in the 2000 quarter amounting to approximately $17.0 million compared to
approximately $11.7 million in last year's quarter. USF Distribution Services
increased revenue by approximately $6.2 million of which expansion into its
centers in Dallas, Kansas City, Montgomery, Fontana and Oklahoma City (that were
not open in the 1999 second quarter) contributed approximately $4.8 million
while other existing distribution centers increased revenue by $1.4 million.
Earnings in the Logistics group decreased by 10% compared to the prior
year's quarter to $4.1 million from $4.5 million as USF Processors, despite a
46% increase in revenue, incurred an operating loss of $478,000 compared to an
operating income of $2,159,000 in the 1999 quarter. The addition of several new
accounts and the resultant opening of new facilities to process this business
resulted in additional costs well in excess of additional revenue. Unprofitable
business is being reviewed and cost reductions became effective in the early
part of the third quarter. Operating earnings in the Logistics group, excluding
Processors, increased by 92.8% to $4.5 million from $2.4 million last year. Year
to date earnings in the Logistics group increased by 14.6% to $8,297,000 from
$7,241,000 last year.
<PAGE>
Revenue in the Freight Forwarding group increased 19.5% to $63,176,000 from
$52,861,000 in the prior year's quarter. Year to date revenue increased by 19.2%
to $123,980,000 from $103,985,000 last year. The group's operating earnings
decreased to $189,000 from $1,537,000 in the 1999 quarter.Results in the Freight
Forwarding group include USF Asia, the trading name given to a joint venture
formed in October 1999 of which USF Worldwide(a wholly owned subisidiary in the
Freight Forwarding group)is a partner. USF Asia recorded second quarter revenue
of approximately $1.9 million and an operating loss before tax of $890,000 (due
to network expansion costs) before reduction for minority interest.
Additionally, in the second quarter, USF Worldwide incurred significant costs
for the integration and transformation of its major gateway branches from
separate domestic and international locations into single branch locations. Year
to date profits for the Freight Forwarding group decreased to $905,000 from
$2,987,000 last year.
Liquidity and Capital Resources
Cash flows from operating activities contributed $106.7 million during the
six months compared to $100.4 million during the same period last year.
Net capital expenditures for the 2000 six months amounted to approximately
$108.9 million including $80.8 million for revenue equipment, $13.9 million for
terminal facilities, and the balance for other capital items plus the acquistion
of Tri-Star Transportation. Last year for the same period, net capital
expenditures amounted to approximately $119 million, including $53.4 million for
revenue equipment, $18.8 million for terminal facilities, $38.6 million for the
acquisitions of USF Processors, CBL and three freight forwarding companies and
the balance for other capital items.
Bank borrowings decreased by $33.1 million during the first half of 2000.
The Company's debt includes $100 million of guaranteed notes due May 1,
2009 and $150 million of guaranteed notes due April 15, 2010.
On January 31, 2000, the Company filed a Form S-3 registration statement
that allowed for the sale of up to $400 million in additional guaranteed notes.
The guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all of the Company's direct
and indirect domestic subsidiaries (the "Subsidiary Guarantors"). The Company is
a holding company and during the period presented substantially all of the
assets were the stock of the Subsidiary Guarantors, and substantially all of the
operations were conducted by the Subsidiary Guarantors. Accordingly, the
aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors
were substantially equivalent to the assets, liabilities, earnings and equity of
the Company on a consolidated basis. Management of the Company believes that
separate financial statements of, and other disclosures with respect to, the
Subsidiary Guarantors are not meaningful or material to investors.
On April 19, 2000, the Company sold $150 million in 8 1/2% guaranteed notes
due April 15, 2010 as part of the $400 million Form S-3 registration statement
filed on January 31, 2000. The net proceeds from the sale of the guaranteed
notes, after deducting underwriting fees and other expenses was approximately
$149 million, was used to repay $100 million in 6 5/8% notes that matured May 1,
2000, to reduce other unsecured lines of credit and to purchase an interest rate
hedge.
On June 7, 2000, the Company announced the authorized repurchase of up to
500 thousand shares of its common stock. This buyback program was completed on
June 30, 2000.
On July 24, 2000, the Company announced the authorized buyback of up to
1 million additional shares of its common stock in either public market or
private transactions. This repurchase program is not yet completed.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
July 7, 2000 to shareholders of record on June 23, 2000.
Market Risk
The Company is exposed to the impact of interest rate changes. The
Company's exposure to changes in interest rates is limited to borrowings under a
line of credit agreement which has variable interest rates tied to the LIBOR
rate. The average annual interest rates on borrowings under this credit
agreement were approximately 6.1% in the first six months of 2000. In addition,
the Company had $100 million of unsecured notes with a 6 5/8% fixed annual
interest rate (these notes were paid in full on May 1, 2000), $100 million of
guaranteed notes with a 6 1/2% fixed annual interest rate and $150 million of
guaranteed notes with an 8 1/2% interest rate at July 1, 2000. The Company
estimates that the carrying value of the notes approximated their market value
at July 1, 2000. The Company has no hedging instruments outstanding. From time
to time, the Company invests excess cash in overnight money market accounts.
<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.
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 4. Submission of Matters to a Vote of Security Holders.
(a) On April 28, 2000, the annual meeting of stockholders
of USFreightways Corporation was held pursuant to
notice.
(b) Robert V. Delaney and Samuel K. Skinner were elected
directors at the meeting. The following directors'
term of office continued after the meeting:
John Campbell Carruth John W. Puth
Morley Koffman Neil A. Springer
Anthony J. Paoni William N. Weaver, Jr.
(c) Election of Directors
Robert V. Delaney FOR: 23,471,793
WITHHOLD: 139,884
ABSTENTIONS: 0
BROKER NON VOTES: 0
Samuel K. Skinner FOR: 23,305,432
WITHHOLD: 306,245
ABSTENTIONS: 0
BROKER NON VOTES: 0
(d) N/A
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. Exhibit 10.1-Employment Agreement with Samuel K.
Skinner, dated June 5, 2000.
2. Exhibit 27-Financial Data Schedule.
(b) Current Reports on Form 8-K were filed:
1. A Current Report on Form 8-K was filed on April
26, 2000 regarding the issuance of $150,000,000
of 8-1/2% Guaranteed Notes due April 15, 2010.
2. A Current Report on Form 8-K was filed on June
9, 2000 announcing that (a) Samuel K. Skinner
has been elected President and Chief
Executive Officer and (b) its Board of Directors
authorized a stock repurchase program of up to
500,000 shares of its common stock.
<PAGE>
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 9th day of
August, 2000.
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
