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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 June 16, 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 000-32821
ROADWAY CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 34-1956254
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(State or other jurisdiction (I.R.S. Employer Identification No)
of incorporation or organization)
1077 Gorge Boulevard, Akron, OH 44310
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (330) 384-1717
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Roadway Express, Inc.
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(Former name, former address, and former fiscal year, if changed since 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 .
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The number of shares of common stock ($.01 par value) outstanding as of
June 16, 2001 was 19,378,575.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 16, 2001 December 31, 2000
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(in thousands, except share data)
Assets
Current assets:
Cash and cash equivalents $ 75,362 $ 64,939
Accounts receivable, net 279,284 299,179
Prepaid expenses and supplies 22,310 16,760
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Total current assets 376,956 380,878
Carrier operating property, at cost 1,440,051 1,430,074
Less allowance for depreciation 1,010,009 1,001,389
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Net carrier operating property 430,042 428,685
Goodwill, net 15,678 16,086
Deferred income taxes 48,985 44,756
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Total assets $ 871,661 $ 870,405
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 176,342 $ 178,890
Salaries and wages 114,231 122,280
Freight and casualty claims payable 54,180 51,876
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Total current liabilities 344,753 353,046
Long-term liabilities:
Casualty claims and other 66,039 60,904
Accrued pension and retiree medical 117,985 116,584
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Total long-term liabilities 184,024 177,488
Shareholders' equity:
Common Stock - $.01 par value
Authorized - 100,000,000 shares
Issued - 20,556,714 shares 206 206
Other shareholders' equity 342,678 339,665
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Total shareholders' equity 342,884 339,871
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Total liabilities and shareholders' equity $ 871,661 $ 870,405
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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.
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ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Twelve Weeks Ended
(Second Quarter)
June 16, 2001 June 17, 2000
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(in thousands, except per share data)
Revenue $ 642,109 $ 707,359
Operating expenses:
Salaries, wages and benefits 412,185 446,376
Operating supplies and expenses 115,925 126,807
Purchased transportation 63,707 71,850
Operating taxes and licenses 15,948 18,169
Insurance and claims expense 12,087 15,155
Provision for depreciation 15,678 12,307
Net loss (gain) on disposal of operating property 436 (55)
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Total operating expenses 635,966 690,609
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Operating income 6,143 16,750
Other income, net 858 449
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Income before income taxes 7,001 17,199
Provision for income taxes 2,978 7,327
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Net income $ 4,023 $ 9,872
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Earnings per share - basic $ .22 $ .53
Earnings per share - diluted $ .22 $ .52
Average shares outstanding - basic 18,440 18,650
Average shares outstanding - diluted 18,901 18,977
Dividends declared per share $ 0.05 $ 0.05
See notes to condensed consolidated financial statements.
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ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Twenty-four Weeks Ended
(Two Quarters)
June 16, 2001 June 17, 2000
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(in thousands, except per share data)
Revenue $ 1,292,594 $ 1,384,678
Operating expenses:
Salaries, wages and benefits 824,311 868,491
Operating supplies and expenses 229,634 253,431
Purchased transportation 128,088 139,348
Operating taxes and licenses 33,487 37,216
Insurance and claims expense 25,267 27,924
Provision for depreciation 30,939 23,658
Net loss on disposal of operating property 622 514
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Total operating expenses 1,272,348 1,350,582
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Operating income 20,246 34,096
Other (expense) income, net (4,571) 1,205
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Income before income taxes 15,675 35,301
Provision for income taxes 6,662 15,039
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Net income $ 9,013 $ 20,262
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Earnings per share - basic $ .49 $ 1.09
Earnings per share - diluted $ .48 $ 1.07
Average shares outstanding - basic 18,445 18,672
Average shares outstanding - diluted 18,905 18,992
Dividends declared per share $ 0.10 $ 0.10
See notes to condensed consolidated financial statements.
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ROADWAY CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Twenty-four Weeks Ended
(Two Quarters)
June 16, 2001 June 17, 2000
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(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,013 $ 20,262
Depreciation and amortization 31,347 23,979
Other operating adjustments 5,055 (5,052)
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Net cash provided by operating activities 45,415 39,189
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of carrier operating property (33,358) (58,791)
Sales of carrier operating property 440 2,188
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Net cash used by investing activities (32,918) (56,603)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,937) (1,925)
Treasury stock activity, net (337) (330)
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Net cash used by financing activities (2,274) (2,255)
Effect of exchange rate on cash 200 (96)
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Net increase (decrease) in cash and cash equivalents 10,423 (19,765)
Cash and cash equivalents at beginning of period 64,939 $ 80,797
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Cash and cash equivalents at end of period $ 75,362 $ 61,032
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See notes to condensed consolidated financial statements.
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Roadway Corporation 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 June 16, 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 Twenty-four Weeks Ended
(Second Quarter) (Two Quarters)
June 16, 2001 June 17, 2000 June 16, 2001 June 17, 2000
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(in thousands, except per share data)
Net income $ 4,023 $ 9,872 $ 9,013 $ 20,262
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Weighted-average shares for
basic earnings per share 18,440 18,650 18,445 18,672
Management incentive stock plans 461 327 460 320
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Weighted-average shares for
diluted earnings per share 18,901 18,977 18,905 18,992
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Earnings per share - basic $ 0.22 $ 0.53 $ 0.49 $ 1.09
Earnings per share - diluted $ 0.22 $ 0.52 $ 0.48 $ 1.07
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Note 4--Comprehensive Income
Comprehensive income differs from net income due to foreign currency translation
adjustments as shown below:
Twelve Weeks Ended Twenty-four Weeks Ended
(Second Quarter) (Two Quarters)
June 16, 2001 June 17, 2000 June 16, 2001 June 17, 2000
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(in thousands)
Net income $ 4,023 $ 9,872 $ 9,013 $ 20,262
Foreign currency translation
adjustments 1,529 (624) 565 (709)
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Comprehensive income $ 5,552 $ 9,248 $ 9,578 $ 19,553
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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
Effective May 30, 2001, Roadway Express, Inc. reorganized its corporate
structure forming a holding company. The name of the new holding company is
Roadway Corporation, and as with Roadway Express, Inc., it is a Delaware
corporation. In connection with the reorganization, holders of common stock of
Roadway Express, Inc. became holders of an identical number of shares of common
stock of Roadway Corporation, and Roadway Express, Inc. became a wholly owned
direct subsidiary of Roadway Corporation. The reorganization was effected by a
merger pursuant to Section 251(g) of the Delaware General Corporation Law, which
provides for the formation of a holding company structure without a vote of the
stockholders of the Company. As a result of the reorganization, all the business
and operations previously conducted by Roadway Express, Inc. are now conducted
by Roadway Corporation and its subsidiaries. The assets and liabilities of
Roadway Corporation and its subsidiaries on a consolidated basis are the same as
the assets and liabilities of Roadway Express, Inc. immediately before the
Merger. The Certificate of Incorporation and the Bylaws of Roadway Corporation
are identical to the Certificate of Incorporation and Bylaws of Roadway Express,
Inc. as in effect
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immediately prior to the reorganization. The capital stock of Roadway
Corporation has the same designations, rights, and preferences as the capital
stock of Roadway Express, Inc. prior to the reorganization. In addition, the
persons who were directors and executive officers of the Company immediately
prior to the Merger were the directors and executive officers of Roadway
Corporation immediately after the Merger. The common stock of Roadway
Corporation is listed for trading on the Nasdaq National Market under the symbol
"ROAD", as was the common stock of Roadway Express, Inc. Certificates formerly
representing shares of Common Stock of the Company are deemed to represent
shares of Common Stock of Roadway Corporation.
The Company had net income of $4.0 million or $0.22 per share (diluted), for the
second quarter ended June 16, 2001, compared to income of $9.9 million, or $0.52
per share (diluted) in the same quarter last year, a decrease of 59%. Revenues
were $642 million in the current quarter, a 9% decrease from second quarter
2000.
The Company delivered 1.7 million tons of freight in the current quarter, down
13% compared to the prior year quarter. Less-than-truckload (LTL) tons were down
14% and truckload tons were down 12%. The tonnage decline is primarily
attributable to the national economic slowdown. Net revenue per ton was $368.64,
up 4.7% 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 rate
increase in the fourth quarter of 2000, and adjustments in contract rates. A
variable rate fuel surcharge that averaged 3.0% of revenue in the current
quarter was virtually unchanged from the prior-year quarter. Total operating
expenses were down $55 million, but increased 6.2% on a per-ton basis with the
decline in tonnage. The operating ratio deteriorated to 99.0% of revenue,
compared to 97.6% in the same quarter last year.
Salaries, wages, and benefits increased to 64.2% of revenue, up from 63.1% in
the second quarter of 2000 due to increases in the cost of health care and
pension benefits. Reductions in variable pay related to performance and workers
compensation costs offset part of this increase. Other salary and wage expenses
were flat as a percentage of revenue. Due to the reduced business levels, the
Company's work force has been reduced by approximately 10% through layoffs and
hiring restrictions.
Operating supplies and expenses were down $11 million, reflecting reduced
business levels, with significant reductions occurring in the areas of terminal
operations and general and administrative expenditures.
Purchased transportation expenses declined $8 million, primarily due to a 20%
reduction of railroad miles in linehaul service. Rail miles were 24% of total
miles, compared to 27% in the same quarter last year. Canadian and Mexican
owner-operators miles were unchanged from last year.
Improved cargo handling performance as well as the reduction in tonnage led to
the 20% decline in claims and insurance expense. The decrease in operating taxes
reflects lower fuel taxes associated with the decline in business levels.
Depreciation expense increased $3 million and reflects recent capital
expenditures, primarily for revenue equipment and information technology.
The tax rate for the second 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 $75
million, a $10 million increase from year-end 2000. This increase was due to a
reduction of capital expenditures during the current year, and an increase in
cash flow from operations. Capital expenditures for the year are expected to be
$80 million, which is an 11% reduction from previous expectations. 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%. Roadway continues to take actions to increase operating
margins and yield on freight, such as working with specific customers to improve
efficiencies and reduce unnecessary transportation costs. Pricing adjustments
are negotiated with contract
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customers throughout the year under terms of the agreements. The Company plans
to implement a general freight rate increase averaging 5.85% on August 20, 2001,
consistent with pricing actions in the industry.
On May 30, 2001 Roadway Corporation also announced its participation as a
minority shareholder of Integres Global Logistics, Inc. Integres is an
integrated airfreight service provider. Roadway Express will serve as Integres'
primary North American ground carrier. Other Integres partners include: United
Airlines, American Airlines, Unisys, G-Log, and UTi Worldwide. Integres is
slated for a third quarter 2001 launch.
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.
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 $29 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 in Item 2 above.
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 11, 2001, the Board of Directors declared a cash dividend of $0.05 per
share on the Company's common stock payable on September 4, 2001, to
shareholders of record on August 14, 2001.
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ITEM 6. EXHIBIT INDEX AND REPORTS ON FORM 8-K
Exhibit No.
10.29 $50,000,000 credit agreement between Roadway Corporation and Bank One,
NA dated March 9, 2001.
List of the Current Reports on Form 8-K which were filed during the current
quarter:
Date of Form 8-K Description
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May 30, 2001 Formation of the holding company Roadway Corporation
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 CORPORATION
Date: July 26, 2001 By: /s/ J. Dawson Cunningham
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J. Dawson Cunningham, Executive Vice President
and Chief Financial Officer
Date: July 26, 2001 By: /s/ John G. Coleman
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John G. Coleman, Controller
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