10-Q 1 l87954ae10-q.txt ROADWAY EXPRESS, INC. 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Period ended March 24, 2001. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______ to ______. Commission file number 0-600 ROADWAY EXPRESS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 34-0492670 -------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No) incorporation or organization) 1077 Gorge Boulevard, Akron, OH 44310 ------------------------------------ -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (330) 384-1717 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ------- ----- The number of shares of common stock ($.01 par value) outstanding as of March 24, 2001 was 19,368,224. 2 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

~~September~~March 924, ~~2000~~2001 December 31, ~~1999~~2000 ----------------------------------------------------------------------- (in thousands, except share data) Assets Current assets: Cash and cash equivalents $ 5054,~~963~~033 $ 8064,~~797~~939 Accounts receivable, net ~~312~~294,~~778~~429 299,~~599~~179 Prepaid expenses and supplies 1521,~~370~~403 1716,~~940~~760 ----------------------------------------------------------------------- Total current assets ~~379~~369,~~111~~865 ~~398~~380,~~336~~878 Carrier operating property, at cost 1,~~412~~437,~~795~~841 1,~~356~~430,~~533~~074 Less allowance for depreciation ~~991~~1,~~656~~006,866 ~~976~~1,~~205~~001,389 ----------------------------------------------------------------------- Net carrier operating property ~~421~~430,~~139~~975 ~~380~~428,~~328~~685 Goodwill, net 1315,~~937~~603 1516,~~360~~086 Deferred income taxes 4147,~~733~~929 3744,~~384~~756 ----------------------------------------------------------------------- Total assets $ ~~855~~864,~~920~~372 $ ~~831~~870,~~408~~405 ======================================================================= Liabilities and shareholders' equity Current liabilities: Accounts payable $ ~~194~~171,~~093~~519 $ ~~190~~178,~~499~~890 Salaries and wages ~~124~~123,~~516~~926 ~~120~~125,~~695~~927 Freight and casualty claims payable 5452,~~091~~440 5251,~~165~~876 ----------------------------------------------------------------------- Total current liabilities ~~372~~347,~~700~~885 ~~363~~356,~~359~~693 Long-term liabilities: Casualty claims ~~payable~~and ~~46,092~~other 4962,~~077~~410 ~~Future equipment repairs 6~~57,~~134~~257 ~~9,805~~ Accrued pension and retiree medical ~~115~~116,~~651~~938 ~~118~~116,~~212~~584 ----------------------------------------------------------------------- Total long-term liabilities ~~167~~179,~~877~~348 ~~177~~173,~~094~~841 Shareholders' equity: Common Stock - $.01 par value Authorized - 100,000,000 shares Issued - 20,556,714 shares 206 206 Other shareholders' equity ~~315~~336,~~137~~933 ~~290~~339,~~749~~665 ----------------------------------------------------------------------- Total shareholders' equity ~~315~~337,~~343~~139 ~~290~~339,~~955~~871 ----------------------------------------------------------------------- Total liabilities and shareholders' equity $ ~~855~~864,~~920~~372 $ ~~831~~870,~~408~~405 =======================================================================

Note: The balance sheet at December 31, 2000 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 3 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)

Twelve Weeks Ended (~~Third~~First Quarter) ~~September~~March 924, ~~2000~~2001 ~~September~~March 1125, ~~1999~~2000 ---------------------------------------------------- (in thousands, except per share data) Revenue $ ~~698~~650,~~867~~485 $ ~~652~~677,~~218~~319 Operating expenses: Salaries, wages and benefits ~~437~~412,~~729~~126 ~~421~~422,~~904~~115 Operating supplies and expenses ~~123~~113,~~380~~709 ~~103~~126,~~981~~624 Purchased transportation 7464,~~383~~381 6967,~~072~~498 Operating taxes and licenses 17,~~645~~539 1719,~~180~~047 Insurance and claims expense 13,~~070~~180 1312,~~169~~769 Provision for depreciation 1315,~~315~~261 1011,~~694~~351 Net loss ~~(gain)~~ on disposal of operating property ~~743~~186 ~~(1)~~569 ---------------------------------------------------- Total operating expenses ~~680~~636,~~265~~382 ~~635~~659,~~999~~973 ---------------------------------------------------- Operating income 1814,~~602~~103 1617,~~219~~346 Other (expense) income, net ~~290~~(5,429) ~~396~~756 ---------------------------------------------------- Income before income taxes 188,~~892~~674 1618,~~615~~102 Provision for income taxes 83,~~047~~684 67,~~970~~712 ---------------------------------------------------- Net income $ 104,~~845~~990 $ 910,~~645~~390 ==================================================== Earnings per share - basic $ 0.5827 $ 0.5156 Earnings per share - diluted $ 0.5726 $ 0.5055 Average shares outstanding - basic 18,~~649~~451 18,~~815~~693 Average shares outstanding - diluted 1918,~~011~~912 1918,~~122~~973 Dividends declared per share $ 0.05 $ 0.05

See notes to condensed consolidated financial statements. 2 4 ROADWAY EXPRESS, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

~~Thirty-six~~Twelve Weeks Ended (~~Three~~First ~~Quarters~~Quarter) ~~September~~March 924, ~~2000~~2001 ~~September~~March 1125, ~~1999~~2000 ---------------------------------------------------- (in thousands,) ~~except~~CASH ~~per~~FLOWS ~~share~~FROM ~~data)~~OPERATING ~~Revenue~~ACTIVITIES $Net ~~2,083,545~~income $ 14,~~878,618~~990 ~~Operating~~$ ~~expenses: Salaries~~10,390 ~~wages~~Depreciation and ~~benefits~~amortization 115,~~306,220~~744 111,~~217,758~~335 ~~Operating~~Other ~~supplies~~operating ~~and~~adjustments ~~expenses 376~~(12,~~811~~309) ~~307~~(9,~~140~~507) ~~Purchased~~---------------------------------------------------- ~~transportation~~Net ~~213,731~~cash ~~189,195~~provided ~~Operating~~by ~~taxes~~operating ~~and~~activities ~~licenses 54~~8,~~861~~425 5212,~~801~~218 ~~Insurance~~CASH ~~and~~FLOWS ~~claims~~FROM ~~expense~~INVESTING ~~40,994~~ACTIVITIES ~~39,114~~Purchases ~~Provision~~of ~~for~~carrier ~~depreciation~~operating ~~36,973~~property 30(18,~~261~~039) ~~Net loss~~ (~~gain~~22,047) onSales ~~disposal~~ of carrier operating property ~~1,257~~302 ~~(123)~~253 ---------------------------------------------------- ~~Total~~Net ~~operating~~cash ~~expenses~~used 2by investing activities (17,~~030~~737) (21,~~847~~794) 1CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (968) (968) Treasury stock activity,~~836,146~~ net (613) (508) ---------------------------------------------------- ~~Operating~~Net ~~income~~cash ~~52,698~~used ~~42,472~~by ~~Other~~financing ~~income,~~activities ~~net~~ (1,~~495~~581) (1,~~445~~476) Effect of exchange rate on cash (13) (39) ---------------------------------------------------- ~~Income~~Net ~~before~~decrease ~~income~~in ~~taxes~~cash 54and cash equivalents (10,~~193~~906) 43(11,~~917~~091) ~~Provision~~Cash ~~for~~and ~~income~~cash ~~taxes~~equivalents 23at beginning of period 64,~~086~~939 1880,~~709~~797 ---------------------------------------------------- ~~Net~~Cash ~~income~~and cash equivalents at end of period $ 3154,~~107~~033 25$ 69,~~208~~706 ==================================================== 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

See notes to condensed consolidated financial statements. 3 5 Roadway Express, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) Note 1--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 March 24, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. 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, 2000. Note 2--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 3--Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: Twelve Weeks Ended (First Quarter) March 24, 2001 March 25, 2000 --------------------------------------- (in thousands, except per share data) Net income $ 4,990 $ 10,390 ======================================= Weighted-average shares for Basic earnings per share 18,451 18,693 Management incentive stock plans 461 280 --------------------------------------- Weighted-average shares for Diluted earnings per share 18,912 18,973 ======================================= Earnings per share - basic $ 0.27 $ 0.56 Earnings per share - diluted $ 0.26 $ 0.55 4 6 Note 4--Comprehensive Income Comprehensive income differs from net income due to foreign currency translation adjustments as shown below: Twelve Weeks Ended (First Quarter) March 24, 2001 March 25, 2000 ------------------------------------- (in thousands) Net income $ 4,990 $ 10,390 Foreign currency translation adjustments (965) (85) ------------------------------------- Comprehensive income $ 4,025 $ 10,305 ===================================== Note 5--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. Note 6--Impact of Recently Issued Accounting Standard The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, effective January 1, 2001. The effect of the adoption of SFAS No. 133 was not material to the Company's earnings, financial position, or cash flows. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company had net income of $5.0 million or $0.26 per share (diluted), for the first quarter ended March 24, 2001, compared to income of $10.4 million, or $0.55 per share (diluted) in the same quarter last year, a decrease of 52%. A one-time, non-operating charge reduced net income by $3.5 million, or $0.18 per share (diluted). This one-time charge against net income resulted from an adverse jury verdict, which the Company plans to appeal. Revenues were $650 million in the current quarter, a 4% decrease from first quarter 2000. The Company delivered 1.7 million tons of freight in the current quarter, down 10.4% compared to the prior year quarter. Less-than-truckload (LTL) tons were down 9.7% and truckload tons were down 13.3%. Tonnage declines were attributable to the slowing national economy and severe weather late in the first quarter. Net revenue per ton was $372.53, up 7.2% compared to the same quarter last year. The industry's pricing environment continues to remain firm, which mitigates some of the impact of the reduced tonnage. The improvement in revenue per ton was due to the general 5 7 rate increase in the fourth quarter of 2000, adjustments in contract rates, freight mix changes, and a variable rate fuel surcharge that averaged 3.3% of revenue in the current quarter compared to 2.4% of revenue in the prior-year quarter. Total operating expenses were down $23.6 million, but increased 7.6% on a per-ton basis with the decline in tonnage. The operating ratio deteriorated to 97.8% of revenue, up from 97.4% in the same quarter last year. Salaries, wages, and benefits as a percentage of revenue increased to 63.4% of revenue, up from 62.3% in the first quarter of 2000. The increase is attributable to health care and pension benefits, primarily resulting from increases under the Company's contract with the Teamsters. Other salary and wage expenses were flat as a percentage of revenue. Operating supplies and expenses were down $12.9 million, reflecting reduced business levels, with reductions occurring in the areas of maintenance, terminal operations, and general and administrative expenditures. The only significant exception was a $2.5 million increase in long-term leases of linehaul tractors and trailers, due to the replacement of some older linehaul equipment with leased units. The Company settled a dispute with a third-party service provider resulting in a $4.0 million reduction of expenses in the current quarter. The Company previously incurred costs of approximately $1.4 million associated with this recovery, reducing its pre-tax value to $ 2.6 million. Purchased transportation expenses declined $3 million due to reduced railroad miles in linehaul service and purchased pickup and delivery (P&D) services for our seamless P&D offering. These reductions were offset by increased costs of owner-operators by our Canadian and Mexican subsidiaries. Depreciation expense increased $4 million and reflects recent capital expenditures, primarily for revenue equipment and information technology. The tax rate for the first quarter of 2001 and 2000 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 $54 million, an $10.9 million decrease from year-end 2000. This decrease was largely due to net capital expenditures of $17.7 million during the quarter, primarily for revenue equipment and real estate, which exceeded cash flow from operations. Capital expenditures are under evaluation, but substantial changes from previously announced levels are not anticipated. Cash flow from operations and current financing sources will 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%. The Company continues to take actions to improve operating margins such as working with specific customers to improve the yield on freight. Due to the reduced business levels, approximately 7% of the Company's hourly work force is currently on layoff, and the number of exempt positions has been reduced by 4%. 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, capacity and rate levels in the motor freight industry, fuel prices, labor relations, and the success of the Company's operating plans. These forward-looking statements reflect management's analysis only as of the date of this filing. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure contained herein, readers should carefully review risks and uncertainties contained in other documents the Company files from time to time with the Securities and Exchange Commission. 6 8 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 has 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 $31 million, and prevent the Company's earnings from being directly affected by changes in interest rates related to its trailer leases. Roadway may incur some 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 and earnings 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. PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on March 28, 2001. Two matters were voted upon at this meeting: (i) the election of seven members to the Board of Directors, and (ii) ratification of the appointment of Ernst & Young LLP as the independent auditors. There were 17,692,192 shares voted of the 19,366,031 shares outstanding and entitled to vote. The following table shows the results of the vote.

~~Thirty-six~~PROPOSAL ~~Weeks~~FOR ~~Ended~~AGAINST ~~(Three~~WITHHELD ~~Quarters)~~Election ~~September~~of 9,Directors ~~2000~~Frank ~~September~~P. ~~11,~~Doyle ~~1999 ---------------------------------------------------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 31~~17,~~107~~498,451 ~~$ 25~~193,~~208~~741 ~~Depreciation~~John ~~and~~F. ~~amortization~~Fiedler 3717,~~440~~479,884 30212,~~009~~308 ~~Other~~Dale ~~operating~~F. ~~adjustments~~Frey ~~(16~~17,~~035)~~498,148 18194,~~606~~044 ~~----------------------------------------------------~~Phillip ~~Net~~J. ~~cash~~Meek ~~provided by operating activities 52~~17,~~512 73~~499,~~823~~730 ~~CASH FLOWS FROM INVESTING ACTIVITIES Purchases of carrier operating property (81~~192,~~936)~~462 ~~(43,697)~~Carl ~~Sales~~W. ofSchafer ~~carrier operating property 2~~17,~~895 5~~478,~~225~~845 ~~---------------------------------------------------- Net cash used by investing activities (79~~213,~~041)~~347 ~~(38,472)~~Sarah ~~CASH~~Roush ~~FLOWS~~Werner ~~FROM FINANCING ACTIVITIES Dividends paid (2~~17,~~894) (2~~484,~~905)~~599 ~~Treasury stock activity~~207,593 ~~net~~Michael ~~(411)~~W. ~~(84)~~Wickham ~~---------------------------------------------------- Net cash used by financing activities (3~~15,~~305)~~584,096 (2,~~989) Net (decrease) increase in cash and cash equivalents (29~~108,~~834)~~096 ~~32,362~~Appointment ~~Cash~~of ~~and~~Ernst ~~cash~~& ~~equivalents~~Young atLLP ~~beginning~~as ofindependent ~~period~~auditors 8017,~~797 60~~062,~~232~~766 ~~---------------------------------------------------- Cash and cash equivalents at end of period $ 50~~559,~~963~~929 ~~$ 92~~69,~~594 ====================================================~~497

7 9 ITEM 5. OTHER INFORMATION On January 30, 2001, the Board of Directors declared a cash dividend of $0.05 per share on the Company's common stock payable on March 1, 2001, to shareholders of record on February 21, 2001. On March 28, 2001, the Board of Directors declared a cash dividend of $0.05 per share on the Company's common stock payable on June 1, 2001, to shareholders of record on May 11, 2001. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No exhibits are required to be filed this quarter. 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: April 25, 2001 By: /s/ J. Dawson Cunningham -------------- --------------------------- J. Dawson Cunningham, Executive Vice President and Chief Financial Officer Date: April 25, 2001 By: /s/ John G. Coleman -------------- ---------------------- John G. Coleman, Controller 8

Twelve Weeks Ended Thirty-six Weeks Ended (Third Quarter) (Three Quarters) Sept 9, 2000 Sept 11, 1999 Sept 9, 2000 Sept 11, 1999 ------------------------------------------------------------------------------ (in thousands, except per share data) 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 ------------------------------------------------------------------------------ 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

Twelve Weeks Ended Thirty-six Weeks Ended (Third Quarter) (Three Quarters) Sept 9, 2000 Sept 11, 1999 Sept 9, 2000 Sept 11, 1999 ------------------ ----------------- ------------------ -------------------- (in thousands) Net income $ 10,845 $ 9,645 $ 31,107 $ 25,208 Foreign currency translation adjustments 559 (659) (150) 467 ----------------------------------------------------------------------------- Comprehensive income $ 11,404 $ 8,986 $ 30,957 $ 25,675 =============================================================================

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