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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 JUNE 29, 2002, 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.,Suite 700 60631
Chicago, Illinois
(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 August 6, 2002, 26,912,290 shares of common stock were outstanding.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
USFreightways Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in Thousands)
June 29, December 31,
2002 2001
- -----------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 58,957 $ 79,534
Accounts receivable, net 321,219 295,876
Other 75,239 70,840
----------------- -------------------
Total current assets 455,415 446,250
----------------- -------------------
Property and equipment, net 727,391 732,520
Goodwill 100,504 171,708
Other intangible assets, net 1,792 3,016
Notes receivable 11,036 5,036
Other assets 22,498 20,134
----------------- -------------------
Total assets $ 1,318,636 $ 1,378,664
----------------- -------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current bank debt $ 645 $ 1,037
Accounts payable 85,642 89,979
Accrued salaries, wages and benefits 102,630 90,497
Accrued claims and other 89,729 84,198
----------------- ------------------
Total current liabilities 278,646 265,711
----------------- ------------------
Long-term liabilities:
Long-term bank debt 2,318 2,774
Notes payable 250,000 250,000
Accrued claims and other 81,187 77,055
Deferred income taxes 89,342 93,617
----------------- ------------------
Total long-term liabilities 422,847 423,446
----------------- ------------------
Minority interest - 1,855
Common stockholders' equity 617,143 687,652
----------------- ------------------
Total liabilities and stockholders' equity $ 1,318,636 $ 1,378,664
----------------- ------------------
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Consolidated Statements of Operations
Unaudited (Dollars in Thousands, Except Per-Share Amounts)
Three Months Ended Six Months Ended
------------------------------------- ------------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
- ----------------------------------------------------------------------------- -----------------------------
Operating revenue
LTL Trucking $ 475,173 $ 465,309 $ 905,391 $ 924,328
TL Trucking 28,518 25,592 53,835 50,260
Logistics 69,593 66,915 136,145 138,074
Freight Forwarding 55,499 66,056 111,145 132,603
Intercompany eliminations (2,097) - (4,019) -
----------------- ---------------- ---------- ----------
Total operating revenue 626,686 623,872 1,202,497 1,245,265
Operating expenses:
LTL Trucking 446,660 436,565 860,013 871,486
TL Trucking 26,989 24,708 51,417 48,540
Logistics 67,517 64,681 131,779 133,059
Freight Forwarding 64,576 68,948 121,427 138,789
Freight Forwarding - Asia exit costs - - 12,760 -
Corporate and other 8,898 4,686 15,008 9,296
Intercompany eliminations (2,097) - (4,019) -
----------------- ---------------- ---------- ----------
Total operating expenses 612,543 599,588 1,188,385 1,201,170
----------------- ---------------- ---------- ----------
Income from operations 14,143 24,284 14,112 44,095
----------------- ---------------- ---------- ----------
Non-operating income (expense):
Interest expense (5,229) (5,402) (10,455) (10,982)
Interest income 1,057 254 1,411 388
Other, net (195) 181 (360) 217
---------------- --------------- ---------- ----------
Total non-operating expense (4,367) (4,967) (9,404) (10,377)
---------------- --------------- ---------- ----------
Income before income taxes, minority 9,776 19,317 4,708 33,718
interest, and cumulative effect of
accounting change
Income tax expense (3,836) (7,647) (6,431) (13,327)
Minority interest - (247) - (517)
Income/ (loss) before cumulative
effect of accounting change 5,940 11,423 (1,723) 19,874
Cumulative effect of change in
accounting for goodwill - - (70,022) -
--------------- ------------- ---------- ----------
Net income/(loss) $ 5,940 $ 11,423 $ (71,745) $ 19,874
--------------- ------------- ---------- ----------
Income/ (loss) per share before
cumulative effect - Basic $ 0.22 $ 0.43 $ (0.06) $ 0.76
Income/ (loss) per share before
cumulative effect - Diluted $ 0.22 $ 0.43 $ (0.06) $ 0.74
(Loss) per share - cumulative
effect - Basic $ - $ - $ (2.61) $ -
(Loss) per share - cumulative
effect - Diluted $ - $ - $ (2.61) $ -
Net income/(loss)per share - Basic: $ 0.22 $ 0.43 $ (2.67) $ 0.76
Net income/(loss) per share - Diluted: $ 0.22 $ 0.43 $ (2.67) $ 0.74
Average shares outstanding - Basic 26,892,426 26,270 599 26,845,749 26,233,016
Average shares outstanding - Diluted 27,469,968 26,652,395 26,845,749 26,700,307
----------------- ------------------ ----------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
Six months ended
----------------------------
June 29, June 30,
2002 2001
- --------------------------------------------------------------------------------------
Cash flows from operating activities:
Net Income/(Loss) $ (71,745) $ 19,874
Adjustments to net income/(loss):
Depreciation and amortization 50,941 57,053
Cumulative effect of change in accounting 70,022 -
for goodwill
Impairment of long-lived assets 7,804 -
Other items affecting cash (22,383) 2,053
from operating activities
-------------- -------------
Net cash provided by operating activities 34,639 78,980
-------------- -------------
Cash flows from investing activities:
Capital expenditures (53,831) (34,608)
Proceeds on sales on property and equipment 4,208 6,142
Disposition of USF Asia (6,000) -
-------------- -------------
Net cash used in investing activities (55,623) (28,466)
-------------- -------------
Cash flows from financing activities:
Dividends paid (4,986) (4,865)
Proceeds from sale of stock 6,241 10,310
Proceeds from long-term debt - 10,000
Payments on long-term debt (456) (17,074)
Net change in short-term debt (392) (27,952)
-------------- -------------
Net cash provided by (used in) financing activities 407 (29,581)
-------------- -------------
Net increase/(decrease) in cash (20,577) 20,933
-------------- -------------
Cash at beginning of period 79,534 5,248
-------------- -------------
Cash at end of period $ 58,957 $ 26,181
-------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,811 $ 10,721
Income taxes 9,556 10,020
See accompanying Notes to Condensed Consolidated Financial Statements.
USFreightways Corporation
Condensed Consolidated Statements of Changes in Stockholders' Equity
Unaudited (Dollars in thousands)
Six Months Ended
-----------------
June 29, June 30,
2002 2001
Balance as of December 31, 2001 and 2000 respectively $ 687,652 $ 635,176
Net income/(Loss) (71,745) 19,874
Foreign currency translation adjustments 13 (451)
-------- -------
Comprehensive income $ (71,732) $ 19,423
Proceeds from sale of stock 6,241 10,310
Dividends declared (5,018) (4,903)
---------- ----------
Balance as of June 29, 2002 and June 30, 2001 $ 617,143 $ 660,006
respectively ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
1. Summary of significant accounting policies
General -
The consolidated financial statements include the accounts of USFreightways
and our wholly owned subsidiaries. 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. Intercompany balances and transactions have been eliminated. Our
consolidated financial statements for prior periods have been reclassified to
conform with the current presentation. Our 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 June 29, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to consolidated financial
statements and footnotes thereto included in our annual report on Form 10-K for
the year ended December 31, 2001.
2. Earnings per share
Basic earnings/ (loss) per share are calculated on net income/ (loss)
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 our basic and
diluted earnings per share. The number of options included in the denominator,
used to calculate diluted earnings per share, are 577,542 and 381,796,
respectively, for the second quarters of 2002 and 2001 and 467,291 for year to
date 2001. For the year to date 2002, the diluted loss per share calculation
excludes the effect of the unexercised stock options because their inclusion
would be anti-dilutive.
3. Debt
Our debt includes $100 million of unsecured guaranteed notes due May 1,
2009 and $150 million of unsecured guaranteed notes due April 15, 2010.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are 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 shown in our
consolidated statements. Our management believes that separate financial
statements of, and other disclosures with respect to, the Subsidiary Guarantors
are not meaningful or material to investors.
We also have a $200 million credit facility with a group of banks that
expires in November 2002. This facility is for working capital, general
corporate funding needs, and up to $100 million for letters of credit we issue
under our self-insurance program. We currently have no borrowings drawn under
the facility, but we have approximately $60 million in issued letters of credit.
We believe this facility will be replaced on or before its expiration with an
equivalent credit facility.
4. Stock repurchases
On July 24, 2000, we announced the authorized buyback of up to 1 million
additional shares of our common stock in either public market or private
transactions. This repurchase program is not yet completed. There were no shares
repurchased in the first or second quarters of 2002 or the first or second
quarters of 2001. As of June 29, 2002, we had repurchased 454,200 shares.
5. Notes receivable
USF Asia Group, Ltd.
On January 18, 2002 we relinquished our interest in USF Asia Group, Ltd.,
USF Worldwide's freight forwarding joint venture in Asia. A one-time payment of
$10 million was made to Asia Challenge, Ltd., a Hong Kong based logistics
company and USF Worldwide's former joint venture partner. We also provided $6
million in loans to Asia. The loans included a $3.0 million secured loan and a
$3.0 million unsecured loan. The secured loan is backed by at least 51% of the
common voting shares of USF Asia Group, Ltd. Both loans are due on June 30, 2005
and each bears interest at the six-month LIBOR plus 1%. Interest is payable
quarterly. Income from operations and income before income taxes, were
reduced by approximately $12.8 million in the first quarter as a result of this
transaction.
Auto Warehousing Company ("AWC")
We have notes receivable from AWC, a company that we owned until 1993,
totaling $5.7 million ($0.7 million in accounts receivable)as of June 29, 2002
and December 31, 2001. The notes are due August 28, 2003 and bear interest at
the three month LIBOR plus 7/8%. Interest is payable quarterly and is current.
Principal payments of $0.7 million are due annually in May of each year with a
final installment of approximately $3.6 million due on August 28, 2003. The
notes are secured by a lien on all assets of AWC and a personal guarantee by
AWC's owner including a pledge by the owner of 100% of his stock in AWC.
Our notes receivable are secondary to loans due from AWC to US Bank
totaling approximately $1.2 million as of June 30, 2002. As a result of
financial difficulties being experienced by AWC, AWC has had and may continue to
have difficulty making timely principal payments to us as required by the
notes.The last principal payment was made in May 2000. AWC is pursuing various
actions, including corporate and debt restructuring (including its obligation to
us), that if successful could better enable AWC to meet its financial
obligations. We have evaluated the carrying value of these notes receivable, and
based on AWC's ongoing restructuring efforts and operating results, we believe
the notes receivable from AWC will ultimately be realized. We will continue to
review the value considering the operations of AWC and the results of its
restructuring efforts.
6. Accounting for Goodwill under SFAS 142
Under Statement of Financial Accounting Standards (SFAS) 142 "Goodwill and
Other Intangible Assets", previously recorded goodwill and other intangible
assets with indefinite lives will no longer be amortized but will be subject to
impairment tests annually. As a result of implementing this new standard on
January 1, 2002, we recorded an impairment charge of $70 million at USF
Worldwide, our freight forwarding segment. The charge was shown as a cumulative
effect of change in accounting for goodwill in the current quarter. Also,
effective January 1, 2002 amortization of goodwill ceased under the standard. In
the second quarter of 2001, we amortized $1.6 million of goodwill.
Intangibles consist of the following (dollars in thousands)
June 29, 2002 June 30, 2001
_____________ _____________
Gross Gross
Average Carrying Accumulated Carrying Accumulated
Life (Yrs) Amount Amortization Amount Amortization
__________ ________ ____________ _________ ____________
Amortized intangible
assets:
Customer lists 5 $ 6,073 $ (4,446) $ 6,073 $ (3,240)
Non-competes 5 5,404 (5,239) 8,258 (7,246)
________ __________ ________ __________
Total $ 11,477 $ (9,685) $ 14,331 $ (10,486)
======== ========== ======== ==========
Intangible assets not subject
to amortization:
Goodwill $211,264 $(110,760) $213,007 $ (38,408)
======== ========= ======== =========
Aggregate amortization expense (dollars in thousands)
For the six months ended June 29, 2002 $ 785
Estimated amortization expense for each of the years ended December 31 (dollars
in thousands) is as follows:
2002 $ 1,411
2003 1,072
2004 45
2005 45
2006 4
________
Total $ 2,577
========
The changes in carrying amount of goodwill for the six month period ended June
29, 2002 (dollars in thousands) is as follows:
Freight Corporate
LTL TL Logistics Forwarding and other
segment segment segment segment segemnt Total
_______ _______ _________ __________ _________ _____
Balance as of January 1, 2002 $57,273 $10,574 $32,657 $71,204 $ - $171,708
Goodwill acquired during the year - - - 1,292 - 1,292
Impairment losses - - - (72,496) - (72,496)
_______ _______ _______ _______ _______ _________
Balance as of June 29, 2002 $57,273 $10,574 $32,657 $ - $ - $100,504
======= ======= ======= ======= ======= =========
The following table adjusts earnings and earnings per share for the adoption of SFAS
No. 142. All amounts are in thousands except per share data.
Three Months Ended Six Months Ended
June 29, 2002 June 30, 2001 June 29, 2002 June 30,2001
______________ ______________ _____________ ____________
Reported net income/ (loss) $ 5,940 $ 11,423 $ (71,745) $ 19,874
Add back: goodwill amortization, - 1,619 - 2,958
net of tax _________ __________ __________ _________
Adjusted net income/(loss) $ 5,940 $ 13,042 $ (71,745) $ 22,832
Add back cumulative effect
of accounting change - - 70,022 -
________ __________ _________ ________
Adjusted net income before
Cumulative effect of
accounting change $ 5,940 $ 13,042 $ (1,723) $ 22,832
======== ======= ====== =========
Basic earnings/ (loss) per share:
Reported basic EPS $ 0.22 $ 0.43 $ (2.67) $ 0.76
Add back goodwill amortization - 0.06 - 0.11
net of tax _________ ________ _______ _________
Adjusted basic EPS $ 0.22 $ 0.49 $ (2.67) $ 0.87
Add back cumulative effect of
accounting change - - 2.61 -
________ ________ ________ _______
Adjusted basic EPS before cumulative
effect of accounting change $ 0.22 $ 0.49 $ (0.06) $ 0.87
======= ======= ======= =======
Diluted earnings/ (loss) per share:
Reported diluted EPS $ 0.22 $ 0.43 $ (2.67) $ 0.74
Add back goodwill amortization - 0.06 - 0.11
net of tax ________ _________ _______ __________
Adjusted diluted EPS $ 0.22 $ 0.49 $ (2.67) $ 0.85
Add back cumulative effect of
accounting change - - 2.61 -
_______ ________ ________ ________
Adjusted diluted EPS before
Cumulative effect of
accounting change $ 0.22 $ 0.49 $ (0.06) $ 0.85
======== ======== ======= =======
Weighted average shares:
Basic 26,892 26,271 26,846 26,233
Diluted 27,470 26,652 26,846 26,700
7. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The standard is effective for 2003. We are currently reviewing the
requirements of this new standard and have not yet determined its impact, if
any, on our financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell.
SFAS No. 144 also revises standards for the reporting of discontinued
operations. The standard is effective for 2002 and generally is be applied
prospectively. During the second quarter the extent of operating losses of USF
Worldwide caused a review of the recoverability of it's long-lived assets under
SFAS No. 144. These assets included primarily property and equipment and
intangible assets. We determined that the long-lived assets were impaired based
upon estimates of future cash flows and discounted prices for similar assets and
recorded a charge of $7.8 million ($6.1 million of the charge was recorded in
the Freight forwarding segment while the remaining $1.7 million of the charge
was recorded in Corporate and Other)to write down the assets to their fair
value.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The pronouncement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishments of Debt", and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The pronouncement also rescinds FASB Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1,
2003. We have evaluated this statement and determined that there will be no
impact on our consolidated financial statements.
8. Segment Reporting Three Months Ended Six Months Ended
(dollars in thousands) June 29, June 30, June 29, June 30,
2002 2001 2002 2001
- ------------------------------------------------------------------------------- ---------------------------
Revenue
LTL Group:
USF Holland $ 245,125 $ 241,060 $ 469,400 $ 480,380
USF Reddaway 68,878 67,851 130,583 132,960
USF Red Star 69,641 65,516 129,731 129,921
USF Dugan 53,605 51,816 103,595 103,107
USF Bestway 37,924 39,066 72,082 77,960
- ------------------------------------------------------------------------------- ---------------------------
Sub total LTL Group 475,173 465,309 905,391 924,328
Truckload - Glen Moore 28,518 25,592 53,835 50,260
Logistics subsidiaries 69,593 66,915 136,145 138,074
Freight forwarding 55,499 66,056 111,145 132,603
Corporate and other - - - -
Intercompany eliminations (2,097) - (4,019) -
- ------------------------------------------------------------------------------- ---------------------------
Total Revenue $ 626,686 $ 623,872 $1,202,497 $ 1,245,265
Income From Operations
LTL Group:
USF Holland $ 19,264 $ 20,012 $ 32,844 $ 36,762
USF Reddaway 7,285 6,869 10,976 10,708
USF Red Star (1,236) (1,206) (3,663) (1,790)
USF Dugan 845 1,659 1,472 3,383
USF Bestway 2,355 1,410 3,749 3,779
- ------------------------------------------------------------------------------- ---------------------------
Sub total LTL Group 28,513 28,744 45,378 52,842
Truckload - Glen Moore 1,529 884 2,418 1,720
Logistics subsidiaries 2,076 2,234 4,366 5,015
Freight forwarding (9,077) (1) (2,892) (10,282) (6,186)
Freight forwarding - Asia exit costs - - (12,760) -
Corporate and other (6,787) (2,686) (12,508) (5,559)
Amortization of intangibles (2,111) (1) (2,000) (2,500) (3,737)
- ------------------------------------------------------------------------------- ---------------------------
Total Income from Operations $ 14,143 $ 24,284 $ 14,112 $ 44,095
- ------------------------------------------------------------------------------ ---------------------------
(1) Includes impairment charges totaling $7,804, $6,089 of which is
in Freight forwarding and $1,715 included in amortization of
intangibles
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
Results of Operations
We ("USFreightways Corporation") reported net income for the quarter ended
June 29, 2002 of $5.9 million, compared to net income of $11.4 million that was
reported for the quarter ended June 30, 2001.For the first half of 2002 and
2001, we reported a net loss of $71.7 million and net income of $19.9 million,
respectively.
The net income per share for the current year's quarter was equivalent to
$0.22 diluted earnings per share. Net income per share for the 2001 quarter
amounted to $0.43 diluted earnings per share. Net income for the current year's
quarter included a pre-tax charge of $7.8 million relating to USF Worldwide our
freight forwarding segment: this charge was for long-lived asset impairment
recorded in accordance with Statement of Financial Accounting Standard (SFAS)
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
Earnings before this charge amounted to $10.5 million equivalent to $0.38
diluted earnings per share.
The net loss for year to date 2002 amounted to $71.7 million equivalent to
($2.67) diluted earnings per share compared to net income of $19.9 million
($22.8 million before amortization of goodwill - see footnote 6) equivalent to
$0.74 diluted earnings per share ($0.85 diluted earnings per share before
amortization of goodwill - see footnote 6) in the first half of 2001. The net
loss for the first half of 2002 included pre-tax charges of $12.8 million for
relinquishing our interest in USF Asia in early January, $70.0 million related
to goodwill impairment at USF Worldwide upon implementation of SFAS No. 142 and
$7.8 million relating to long-lived asset impairment under SFAS No. 144 (also at
USF Worldwide). Year to date earnings before these charges amounted to
approximately $0.57 diluted earnings per share. Of the $90.6 million total
pre-tax charges taken, $80.6 million were non-cash.
While we are seeing the early signs of a slight economic recovery in the
2002 second quarter, the results continue to be negatively impacted by the
sluggishness of the economy. Likewise, year to date results in both 2002 and
2001 were negatively impacted by the sluggish economy.
We reported revenue for the second quarter ended June 29, 2002 of $626.7
million compared to $623.9 million reported for the second quarter which ended
June 30, 2001.Revenue for the first half of 2002 amounted to $1.2 billion,a 3.4%
decline from the revenue reported for the first half of 2001.
Total revenue for the current quarter at the regional trucking subsidiaries
increased 2.1% to $475.2 million compared to $465.3 million in the 2001 second
quarter. Because Good Friday occurred in last year's second quarter but in the
first quarter of 2002, there were 64 working days in the current year's quarter
compared to approximately 63.5 working days in last year's second quarter. Total
revenue in the 2002 second quarter increased by 10.4% over the first quarter of
2002. Fuel surcharges, which are included in the reported revenue, declined by
approximately 1.1% as a percent of revenue compared to last year's second
quarter as fuel prices declined. LTL revenue before fuel surcharges increased by
approximately 3.4% in the 2002 quarter compared to the 2001 second quarter. LTL
shipments increased 4.0% and LTL tonnage increased 3.5%. LTL revenue per
shipment decreased 1.7% from $113.57 to $111.66 as the average weight per
shipment decreased 0.6% from 1,117.2 pounds to 1,110.0 pounds. On a comparable
daily basis, for the 2002 second quarter compared to the 2001 second quarter,
LTL shipments increased approximately 3.2%, LTL tonnage increased 2.7% and LTL
revenue per shipment before fuel surcharges decreased 0.6% while LTL revenue per
hundredweight before fuel surcharges decreased approximately 0.1%. On a
comparable working day basis, LTL shipments and LTL tonnage increased by
approximately 7.4% and 7.9%, respectively, compared to the 2002 first quarter.
Total revenue for the first half of 2002 at the regional trucking
subsidiaries decreased by 2.0% to $905.4 million compared to $924.3 million in
the first half of 2001. Year to date LTL shipments increased by 0.6%, LTL
tonnage fell by 0.3%, LTL revenue per shipment declined by 2.2% to $111.52 and
the weight per shipment declined by 0.9% to 1,108.6 pounds from 1,118.8 in the
first half of 2001. Fuel surcharges, included in the reported revenue, declined
by approximately 1.5% as a percent of revenue compared to last year's first half
as fuel prices declined.
Operating earnings for the regional trucking subsidiaries, in the current
year's quarter, were $28.5 million compared to $28.7 million for the same period
of 2001. The consolidated operating ratio for the LTL group increased to 94.0
from 93.8 in the second quarter of 2001. Despite the sluggish economy, USF
Reddaway recorded an improved operating ratio, on a 1.5% increase in revenue, in
the current quarter of 89.4 compared to last year's second quarter operating
ratio of 89.9 (mainly from an improvement in fuel and claims expenses that were
somewhat offset by an increase in operating expenses). USF Holland, which
operates in the central states where the economy is heavily influenced by
manufacturing, particularly in the automotive area, increased revenue by 1.7%
compared to last year's second quarter reported an operating ratio of 92.1
(including a gain on sale of land amounting to approximately $0.6 million)
compared to 91.7 in the 2001 second quarter (increases in labor and workers'
compensation expenses were somewhat offset by decreases in fuel and depreciation
expenses). USF Bestway reported a decline in revenue of 2.9% compared to last
year's second quarter In spite of this revenue decrease, USF Bestway's operating
ratio improved to 93.8 compared to 96.4 in the 2001 second quarter due to lower
claims expense in the 2002 quarter. USF Dugan recorded a revenue increase of
3.5% in the current quarter compared to the 2001 second quarter. On a comparable
daily basis and before fuel surcharges, USF Dugan's revenue increased by 4.2%.
USF Dugan operated at 98.4 in the 2002 second quarter compared to 96.8 in last
year's second quarter (Dugan incurred additional labor and purchased
transportation expenses to improve its service products. These expenses were
somewhat offset by decreases in fuel and operating expenses.) USF Red Star
recorded a 101.8 operating ratio in the 2002 and 2001 second quarters. A USF Red
Star competitor closed operations in late February 2002, and the extra business
enabled USF Red Star to improve its current quarter operating ratio by 2.2
operating points compared to the 2002 first quarter operating ratio of 104.0.
Operating earnings for the regional trucking companies in the first half of
2002 amounted to $45.4, million a decrease of 14.1% compared to operating
earnings of $52.8 million in the first half of 2001 due mainly to the sluggish
economy. The consolidated operating ratio for the regional trucking companies
for the first half of 2002 was 95.0 compared to 94.3 for the first half of 2001.
Year over year operating ratio improvements occurred at USF Bestway (due mainly
to reduced claims expenses in the 2002 first half) and USF Reddaway (due mainly
to improved cost controls in the 2002 first half). USF Red Star's operating
ratio improved in the first half of 2002 compared to the first half of 2001 due
to additional business gained beginning in February 2002 when a competitor
closed. USF Holland reported an increase in its year to date operating ratio to
93.0 in the first half of 2002 compared to a 92.3 in the first half of 2001 as
the economy in the central states (which is heavily automotive related) has been
the most adversely impacted. USF Dugan reported an increase in operating ratio
in the first half of 2002 to 98.6 from 96.7 in the first half of 2001 as it
incurred additional labor and purchased transportation costs in order to improve
service products.
USF Glen Moore, our TL carrier recorded an 11.4% revenue increase to $28.5
million in the 2002 second quarter with operating earnings of $1.5 million and
an operating ratio of 94.6 compared to $0.9 million profit and an operating
ratio of 96.5 in the 2001 second quarter as improvements in fuel, purchased
transportation and claims expenses were partially offset by increases in labor
and workers' compensation expenses.
USF Glen Moore reported revenue in the first half of 2002 of $53.8 million,
an increase of 7.1% compared to $50.3 million in the first half of 2001.
Operating earnings for the first half of 2002 improved by 40.6% to $2.4 million
from $1.7 million in the first half of 2001 and its operating ratio improved to
95.5 in 2002 from 96.6 in 2001 due mainly to reductions in fuel costsand to a
lesser extent, improvement in truckload revenue per mile.
As part of USF Glen Moore's service offerings, it hauls for our LTL
regional trucking companies. Therefore, the intercompany revenue that is
eliminated on our Consolidated Statements of Operations and Footnote No. 8
Segment Reporting is that revenue generated and recorded by USF Glen Moore
wherein it is providing services to our LTL regional trucking companies who in
turn record an expense for transportation services in their results.
Revenue in the Logistics group increased by 4.0% to $69.6 million in the
current quarter from $66.9 million in the prior year. Revenue at USF Logistics
increased by 10.6%. Earnings in the Logistics group decreased by 7.1% from $2.2
million in the 2001 second quarter to $2.1 million in the 2002 second quarter as
startup costs were incurred for new contracts and recently opened distribution
centers. USF Processors contributed lower revenue in the 2002 quarter amounting
to approximately $10.9 million compared to approximately $13.8 million in last
year's quarter as volumes from a major customer were significantly reduced.
Processors operated at near breakeven for the current quarter compared to a
small loss in the 2001 second quarter, but significantly improved its profits
from the 2002 first quarter.
Year to date revenue for the first half of 2002 declined by 1.4% to $136.1
million compared to $138.1 million in the first half of 2001 in the Logistics
group. USF Logistics increased revenue as new distribution centers and new
contracts started up while USF Processors reported lower revenue as volumes from
a major customer were significantly reduced in the first half of 2002 compared
to the first half of 2001. Operating earnings decreased by 12.9% to $4.4 million
in the first half of 2002 as USF Logistics reported increased profits from
recently opened distribution centers, but USFProcessors reported a loss in the
current year compared to a profit in the first half of 2001.
Revenue in the Freight Forwarding segment decreased 16.0% to $55.5 million
from $66.1 million in the 2001 second quarter. $5.8 million of revenue was
reported in USF Asia in the 2001 second quarter, whereas there was no revenue
reported in the 2002 second quarter because we relinquished our interest in USF
Asia in the first week of the 2002 first quarter. Even though the segment's
management team has reduced fixed costs and made organizational changes
continued lower business levels and revenue from operations have led to
increased losses and other charges. The segment reported a 2002 first half
operating loss of $13.0 million including a long-lived asset impairment charge
of $6.1 million under SFAS No. 144 and a $2.8 million charge taken in the first
quarter (part of the total $12.8 million charge to relinquish our interest in
USF Asia - see also Footnote 5 and Corporate and other below). Lower profits
resulted primarily from lower gross margins due to reduced volumes compared to
last year. An additional charge, under SFAS No. 144 of $1.7 million was incurred
in Corporate and Other for the write down of intangible assets.
Revenue in the Freight Forwarding segment in the first half of 2002
declined by 16.2% to $111.1 million from $132.6 million in the first half of
2001. USF Asia reported revenue of $10.2 million in the 2001 first half while
there was no revenue reported in the 2002 first half as we relinquished our
interest in USF Asia in the first week of 2002. Freight forwarding domestic
revenue at USF Worldwide declined by 10.2% to $94.8 million. The segment
reported a 2002 first half operating loss of $10.3 million including a $6.1
million charge under SFAS No. 144. Last year's first half operating loss
amounted to $6.2 million.
Following extended losses and review of the overall strategy of the
USFreightways group, we have concluded that the freight forwarding business, as
currently structured, does not fit as one of our core businesses. We are working
with an investment banking firm to advise us on our strategic alternatives,
including the sale of the freight forwarding business.
Freight Forwarding - Asia exit costs is the $12.8 million charge taken to
relinquish our interest in USF Asia. Included in the costs is a one-time payment
of $10.0 million to Asia Challenge, Ltd., a Hong Kong based logistics company
and USF Worldwide's former joint venture partner (see also Footnote 5).
Corporate and other expenses increased by $4.2 million in the 2002 second
quarter to $8.9 million compared to $4.7 million in the 2001 second quarter.
Corporate expenses increased to $6.8 million in the 2002 second quarter compared
to $2.7 million in the 2001 second quarter as our information technology group
(IT), mainly, increased non-capital expenses in the current quarter as the IT
group continued to upgrade systems and infrastructure. Due to the implementation
of SFAS No. 142, amortization of non-goodwill intangible assets in the 2002
second quarter decreased to $0.4 million compared to $2.0 million amortization
on all intangible assets in the second quarter. An additional asset impairment
charge of $1.7 million relating to USF Worldwide (see comments above) was
recorded in the second quarter of 2002 bringing the total amortization expense
for the 2002 quarter to $2.1 million.
Corporate and other expenses for the first half of 2002 amounted to $15.0
million compared to $9.3 million in the first half of 2001. Corporate expenses
increased to $12.5 million in the first half of 2002 compared to $5.6 million in
the first half of 2001. Our IT group increased its non- capital expenses by $6.2
million in the first half of 2002 compared to the same period in 2001 as is
continues to upgrade systems and infrastructure across all of the business
segments. An asset impairment charge of $1.7 million relating to USF Worldwide
(see note above) was recorded in the second quarter of 2002 in accordance with
SFAS No. 144. Non-goodwill amortization amounted to $0.8 million for the first
half of 2002 compared to $3.7 million for the amortization on all intangible
assets in the first half of 2001.
Income tax expense is calculated on income before income taxes, minority
interest and cumulative effect of accounting change and before the $12.8 million
Asia exit costs (there are no tax benefits associated with these costs).
Therefore, adding back the $12.8 million Asia exit costs to income before income
taxes, minority interest and cumulative effect of accounting change to the 2002
six months income before income taxes, minority interest and cumulative effect
of accounting change would increase the reported amount of $4.7 million to $17.5
million.
The effective income tax rate for the second quarter of 2002 was 39.2%.
Included in the 2002 second quarter income before income taxes was a capital
gain on sale of real estate that was not subject to income taxes. Absent this
transaction, the second quarter 2002 tax rate would have been 42.0%. The second
quarter 2001 tax rate was 40.1% (income before income taxes less minority
interest). The second quarter 2002 effective book tax rate is greater than the
second quarter 2001 effective book tax rate as permanent differences, for tax,
were applicable to a smaller taxable income base in the 2002 second quarter
compared to the 2001 second quarter.
The effective income tax rate for the first half of 2002 was 36.8% after
adding back the loss on disposition of USF Asia ($12.8 million) to income before
income taxes of $4.7 million. Included in the year to date income before income
taxes was the capital gain mentioned above. Also, we received a state income tax
refund in the 2002 first quarter that lowered the effective tax rate for that
period. Absent these adjustments, the tax rate for the 2002 first half would
have been 42.0%. The effective tax rate for the first half of 2001 was
40.1%(income before income taxes less minority interest). The 2002 first half
effective book tax rate is greater than the 2001 first half effective book tax
rate as permanent differences, for tax, were applicable to a smaller taxable
income base in the 2002 first half compared to the 2001 first half.
Liquidity and Capital Resources
Cash flows from operating activities contributed $34.6 million during the
first six months of 2002 compared to $79.0 million during the same period last
year. In the first half of 2002, cash flows from operating activities were
negatively impacted by our net loss of $71.7 million and an increase in accounts
receivable and other current assets amounting to $32.5 million. Offsetting the
aforementioned were the non-cash write-offs of goodwill and long-lived assets at
USF Worldwide amounting to $70.0 million and $7.8 million, respectively,
depreciation of property and equipment and amortization of non-goodwill
intangibles of approximately $50.9 million. (See Table below)
Dollars in Millions
Six Months Ended Six Months Ended
June 29, 2002 June 30, 2001
____________________________
Cash flows from operating activities:
Income before unusual charges $ 15.5 $ 19.9
Subtract unusual charges:
Cash payment - USF Asia (10.0) -
Non-cash USF Asia write-off (2.8) -
Non-cash goodwill write-off (70.0) -
Non-cash fixed assets impairment (4.4) -
_________ _________
Net income/ (loss) $(71.7) $ 19.9
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization $ 50.9 $ 57.1
(Increase)/ decrease in accounts
receivable and other (22.4) 2.0
Goodwill write-off 70.0 -
Non-cash assets impairment 7.8 -
_________ _________
Net cash provided by operating activities $ 34.6 $ 79.0
_________ _________
Capital expenditures for the first half of 2002 amounted to approximately
$53.8 million including additions of $24.0 million for revenue equipment, $14.0
million for terminal facilities, $4.7 million for information technology and
$11.1 for other capital items. Last year for the same period, capital
expenditures amounted to approximately $34.6 million, including additions of
$7.0 million for revenue equipment, $8.9 million for terminal facilities, $13.1
million for IT equipment and $5.6 million for other capital items.
Other cash flows used in operating activities included a $10.0 million cash
payment to USF Worldwide's former joint venture partner in Asia when we
relinquished our interest in the joint venture. We also incurred $6.0 million in
investing activities for loans to USF Asia Group, Ltd.
Total borrowings decreased by $0.8 million during the first half of 2002
and we had approximately $51.3 million invested in overnight money market
deposits. Our net debt to capital ratio was 23.9% at June 29, 2002 compared to
20.2% at December 31, 2001.
Our debt includes $150 million of unsecured guaranteed notes that were
floated in late April, 2000 and are due on April 15, 2010 and $100 million of
unsecured guaranteed notes due May 1, 2009.
Our guaranteed notes are fully and unconditionally guaranteed, on a joint
and several basis, on an unsecured senior basis, by all our direct and indirect
domestic subsidiaries (the "Subsidiary Guarantors"). We are 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 shown in our
consolidated statements. Our management believes that separate financial
statements of, and other disclosures with respect to, the Subsidiary Guarantors
are not meaningful or material to investors.
We also have a $200 million credit facility with a group of banks that
expires in November 2002. This facility is for working capital, general
corporate funding needs, and up to $100 million for letters of credit we issue
under our self-insurance program. We currently have no borrowings drawn under
the facility, but we have approximately $60 million in issued letters of credit.
We believe this facility will be replaced on or before its expiration with an
equivalent credit facility.
On July 24, 2000, we announced the authorized buyback of up to 1 million
additional shares of our common stock. This repurchase program is not yet
completed. There were no shares repurchased in the first or second quarters of
2002 or the first or second quarters of 2001. As of June 29, 2002, we had
repurchased 454,200 shares.
A dividend of 9 1/3 cents per share equivalent to $2.5 million was paid on
July 5, 2002 to shareholders of record on June 21, 2002.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of interest rate changes. Our 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. There have
been no borrowings under this agreement in the 2002 first and second quarters.
The weighted average annual interest rates on borrowings under this credit
agreement were 6.3% in 2001. In addition, we have $150 million of unsecured
notes with an 8 1/2% fixed annual interest rate and $100 million of unsecured
notes with a 6 1/2% fixed annual interest rate at June 29, 2002. We have no
hedging instruments. From time to time, we invest excess cash in overnight money
market accounts. At June 29, 2002, we had invested approximately $51 million in
overnight money market accounts that yielded approximately 1.9%.
Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which the
obligation is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. The standard is effective for 2003. We are currently reviewing the
requirements of this new standard and have not yet determined its impact, if
any, on our financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets
be measured at the lower of carrying amount or fair value less cost to sell.
SFAS No. 144 also revises standards for the reporting of discontinued
operations. The standard is effective for 2002 and generally is be applied
prospectively. During the second quarter the extent of operating losses of USF
Worldwide caused a review of the recoverability of it's long-lived assets under
SFAS No. 144. These assets included primarily property and equipment and
intangible assets. We determined that the long-lived assets were impaired based
upon estimates of future cash flows and discounted prices for similar assets and
recorded a charge of $7.8 million ($6.1 million of the charge was recorded in
the Freight forwarding segment while the remaining $1.7 million of the charge
was recorded in Corporate and Other) to write down the assets to their fair
value.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The pronouncement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishments of Debt", and an amendment of that Statement,
FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." The pronouncement also rescinds FASB Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers" and amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 will be effective for us on January 1,
2003. We have evaluated this statement and determined that there will be no
impact on our consolidated financial statements.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On May 3, 2002, the annual meeting of stockholders of USFreightways
Corporation was held pursuant to notice.
(b) Morley Koffman, Anthony J. Paoni, and John W. Puth were elected
directors at the meeting. The following directors' term of office continued
after the meeting:
Robert V. Delaney Stephen B. Timbers
Samuel K. Skinner William N. Weaver, Jr.
Neil A. Springer
(c) Election of Directors
Morley Koffman FOR: 24,415,392
WITHHOLD: 318,131
ABSTENTIONS: 0
BROKER NON VOTES 0
Anthony J. Paoni FOR: 24,324,350
WITHHOLD: 409,173
ABSTENTIONS: 0
BROKER NON VOTES:0
John W. Puth FOR: 24,590,890
WITHHOLD: 142,633
ABSTENTIONS: 0
BROKER NON VOTES 0
(d) N/A
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
1. None.
(b) Current Reports on Form 8-K were filed:
1. A Current Report on Form 8-K was filed on May 29, 2002
announcing that the Company had dismissed Arthur Andersen LLP
as its independent auditors and had engaged Deloitte & Touche
LLP as its new independent auditors.
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 13th day of
August, 2002.
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