Exhibit 99.3
Con-way Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
as of and for the six months ended June 30, 2007
and for the year ended December 31, 2006
On August 23, 2007, under the Agreement and Plan of Merger entered into on
July 13, 2007, Con-way Inc. ("Con-way") acquired the common stock of
Transportation Resources, Inc. and subsidiaries ("TRI"). Subsidiaries of TRI
consist of Contract Freighters, Inc. ("CFI"), a truckload carrier
headquartered in Joplin, Missouri, and other affiliated companies. The
acquisition of TRI and its subsidiaries is referred to as the "Acquisition."
The unaudited pro forma condensed consolidated financial statements are
presented in accordance with the rules specified by Article 11 of Securities
and Exchange Commission ("SEC") Regulation S-X, promulgated by the SEC to
give effect to the Acquisition as if it had occurred on earlier dates using
the purchase method of accounting. The unaudited pro forma condensed
consolidated balance sheet of Con-way as of June 30, 2007 gives effect to the
Acquisition as if it were consummated on June 30, 2007, and the unaudited pro
forma condensed consolidated statements of income of Con-way for the six
months ended June 30, 2007 and the year ended December 31, 2006 give effect
to the Acquisition as if it were consummated on January 1, 2006. The
unaudited pro forma condensed consolidated financial statements are for
illustrative purposes only, are hypothetical in nature and do not purport to
represent what Con-way's consolidated statements of income, balance sheet or
other financial information would have been if the Acquisition had occurred
as of the dates indicated or what such results will be for any future
periods.
The unaudited pro forma adjustments are based upon available information and
certain assumptions that Con-way believes are reasonable, including estimates
related to purchase-method fair-value accounting adjustments, the effect of
financing transactions and conforming changes in accounting policies.
However, the pro forma condensed consolidated statements of income reflect
only pro forma adjustments expected to have a continuing effect on the
consolidated results beyond 12 months from the consummation of the
Acquisition and do not reflect any changes in operations that may occur,
including synergistic benefits that may be realized through the consolidation
of the two companies or the costs that may be incurred in integrating their
operations. These estimates are preliminary and are based on information
currently available and could change significantly.
The unaudited pro forma condensed consolidated financial statements and
accompanying notes should be read in conjunction with Con-way's historical
consolidated financial statements included in Con-way's Annual Report on Form
10-K for the year ended December 31, 2006 and Con-way's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2007 and with TRI's
historical consolidated financial statements included in Exhibits 99.1 and
99.2 to this Current Report on Form 8-K/A.
1
Con-way Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 2007
(Dollars in millions)
Historical Pro Forma
-------------------------------- ----------------------------------
TRI Con-way Adjustments Consolidated
--------------- --------------- --------------- ---------------
Assets
Cash and cash equivalents $ 13.3 $ 345.4 $ (337.0) [a] $ 21.7
Marketable securities 0.9 197.5 -- 198.4
Trade and other accounts
receivable 55.2 489.4 (4.6) [b] 544.6
4.6 [c]
Deferred income taxes -- 42.9 (4.8) [c] 38.1
Other 12.4 62.2 (4.4) [d] 70.2
--------------- --------------- --------------- ---------------
Current assets 81.8 1,137.4 (346.2) 873.0
Property, plant and equipment,
net 264.4 1,093.8 4.4 [d] 1,456.4
2.5 [e]
91.3 [f]
Deferred charges and other
assets 0.7 59.7 3.1 [f] 71.7
4.0 [g]
4.2 [a]
Goodwill -- 0.7 460.5 [f] 461.2
Identifiable intangible assets -- -- 15.7 [f] 15.7
Deferred income taxes 0.7 22.6 (23.3)[c] --
--------------- --------------- --------------- ---------------
Total assets $ 347.6 $ 2,314.2 $ 216.2 $ 2,878.0
=============== =============== =============== ===============
Liabilities and Stockholders'
Equity
Accounts payable and accrued
liabilities $ 35.1 $ 514.9 $ 9.3 [a] $ 553.5
(1.2)[c]
(4.6)[b]
Self-insurance accruals 12.2 98.1 2.3 [f] 112.6
Current maturities of long-term
debt -- 22.7 -- 22.7
--------------- --------------- --------------- ---------------
Current liabilities 47.3 635.7 5.8 688.8
Long-term debt and guarantees 1.1 532.4 425.0 [a] 958.5
Self-insurance accruals 5.2 114.2 -- 119.4
Other liabilities and deferred
credits 25.1 285.2 (20.3)[g] 290.0
Deferred income taxes -- -- 74.6 [c] 74.6
--------------- --------------- --------------- ---------------
Long-term liabilities 31.4 931.8 479.3 1,442.5
--------------- --------------- --------------- ---------------
Total Liabilities 78.7 1,567.5 485.1 2,131.3
Preferred equity -- 61.7 -- 61.7
Common equity
Common stock - Par -- 38.6 -- 38.6
Common stock - APIC 152.8 561.6 (152.8)[f] 561.6
Retained earnings 116.0 909.1 (116.0)[f] 909.1
Treasury stock -- (724.3) -- (724.3)
--------------- --------------- --------------- ---------------
Total common equity 268.8 785.0 (268.8) 785.0
Accumulated other comprehensive
income (loss) 0.1 (100.0) (0.1)[f] (100.0)
--------------- --------------- --------------- ---------------
Total Stockholders' Equity 268.9 746.7 (268.9) 746.7
--------------- --------------- --------------- ---------------
Total Liabilities and
Stockholders' Equity $ 347.6 $ 2,314.2 $ 216.2 $ 2,878.0
=============== =============== =============== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
2
Con-way Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the six months ended June 30, 2007
(Dollars in millions, except share and per share data)
Historical Pro Forma
-------------------------------- -----------------------------------
TRI Con-way Adjustments Consolidated
--------------- --------------- --------------- ---------------
Revenues $ 218.5 $ 2,075.9 $ 41.1 [d] $ 2,317.0
(18.5)[b]
Operating expenses 190.8 1,942.6 41.1 [d] 2,159.8
(18.5)[b]
3.6 [f]
(1.8)[g]
2.0 [e]
--------------- --------------- --------------- ---------------
Operating income 27.7 133.3 (3.8) 157.2
Non-operating income (expense)
Investment income -- 11.3 (9.2)[a] 2.1
Interest expense (0.2) (17.3) (14.6)[a] (32.1)
Miscellaneous, net (0.3) 0.2 -- (0.1)
--------------- --------------- --------------- ---------------
(0.5) (5.8) (23.8) (30.1)
Income from continuing
operations before taxes 27.2 127.5 (27.6) 127.1
Tax provision 0.6 47.3 0.2 [c] 48.1
--------------- --------------- --------------- ---------------
Income from continuing
operations 26.6 80.2 (27.8) 79.0
Preferred stock
dividends -- 3.5 -- 3.5
--------------- --------------- --------------- ---------------
Net income $ 26.6 $ 76.7 $ (27.8) $ 75.5
=============== =============== =============== ===============
Earnings per Share
Basic
Average shares -- 45,636,617 -- 45,636,617
EPS $ -- $ 1.68 $ -- $ 1.65
=============== =============== =============== ===============
Diluted
Average shares -- 48,757,823 -- 48,757,823
EPS $ -- $ 1.58 $ -- $ 1.56
=============== =============== =============== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
3
Con-way Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Income
for the fiscal year ended December 31, 2006
(Dollars in millions, except share and per share data)
Historical Pro Forma
-------------------------------- -----------------------------------
TRI Con-way Adjustments Consolidated
--------------- --------------- --------------- ---------------
Revenues $ 427.6 $ 4,221.5 $ 85.3 [d] $ 4,700.6
(33.8)[b]
Operating expenses 359.3 3,819.7 85.3 [d] 4,238.2
(33.8)[b]
10.3 [f]
(3.9)[g]
1.3 [e]
--------------- --------------- --------------- ---------------
Operating income 68.3 401.8 (7.7) 462.4
Non-operating income (expense)
Investment income -- 24.8 (18.3)[a] 6.5
Interest expense (0.4) (34.2) (29.3)[a] (63.9)
Miscellaneous, net 0.9 (0.1) -- 0.8
--------------- --------------- --------------- ---------------
0.5 (9.5) (47.6) (56.6)
Income from continuing
operations before taxes 68.8 392.3 (55.3) 405.8
Tax provision 1.0 120.0 7.1 [c] 128.1
--------------- --------------- --------------- ---------------
Income from continuing
operations 67.8 272.3 (62.4) 277.7
Preferred stock
dividends -- 7.1 -- 7.1
--------------- --------------- --------------- ---------------
Net income $ 67.8 $ 265.2 $ (62.4) $ 270.6
=============== =============== =============== ===============
Earnings per Share
Basic
Average shares -- 48,962,382 -- 48,962,382
EPS $ -- $ 5.42 $ -- $ 5.53
=============== =============== =============== ===============
Diluted
Average shares -- 52,280,341 -- 52,280,341
EPS $ -- $ 5.09 $ -- $ 5.20
=============== =============== =============== ===============
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
4
Con-way Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
1. Purchase Price
On August 23, 2007, Con-way acquired all of the outstanding common stock of
TRI. Under the purchase method of accounting required by SFAS 141, "Business
Combinations," the assets and liabilities of TRI will be recorded at their
fair value as of the Acquisition date and will be consolidated with
those of Con-way. The reported financial statements of Con-way subsequent to
the Acquisition will reflect these new values, but will not be restated
retroactively to reflect the historical financial information of TRI.
In the presentation below, the preliminary allocation of the purchase price is
based on the purchase price calculated as of the August 23, 2007 Acquisition
closing date and the estimated fair value or carrying amount (which
approximates fair value) of assets acquired and liabilities assumed as of the
same date. The purchase-price accounting is based on a preliminary calculation
of the purchase price, current estimates of the assets acquired and
liabilities assumed, and a preliminary evaluation of the effect of conforming
TRI's accounting policies to those of Con-way. Accordingly, revisions to the
preliminary calculations, estimates, and evaluations may be necessary as these
items are finalized.
The preliminary purchase-price allocation in the pro forma condensed
consolidated balance sheet as of June 30, 2007 is based [1] the purchase
price calculated as of the August 23 Acquisition closing date, [2] the fair
value of property and equipment, internal-use software and acquired
identifiable intangible assets as of the August 23, 2007 Acquisition closing
date, and [3] the carrying amount (which approximates fair value) of other
tangible assets acquired and liabilities assumed as of June 30, 2007. Based
on an the earlier pro forma date of valuation for certain tangible assets
acquired and liabilities assumed, the amount of goodwill reported in the pro
forma condensed consolidated balance sheet as of June 30, 2007 is different
than the amount presented below.
Calculation of purchase price (dollars in millions):
Cash consideration paid
Purchase price $ 750.0
Adjustments for working capital, and for cash and
debt acquired 12.0
Direct transaction costs 5.1
----------
Gross purchase price $ 767.1
Cash acquired (15.4)
----------
Net purchase price $ 751.7
==========
Allocation of purchase price (dollars in millions):
Current assets, excluding cash acquired $ 61.9
Non-current assets
Property and equipment 362.6
Intangible assets
Customer relationships $ 14.0
Trademarks 1.7
Goodwill 460.6
---------
476.3
Other assets
Internal-use software 3.0
Restricted cash 4.0
---------
7.0
Current liabilities (46.2)
Non-current liabilities
Deferred taxes (98.2)
Other (11.7)
----------
$ 751.7
==========
As required by SFAS 142, "Goodwill and Intangible Assets," intangible assets
with an indefinite life are not amortized while intangible assets with lives
of definite duration are amortized over their estimated useful lives.
Accordingly, goodwill will not be amortized and is not deductible for income-tax
purposes, but will be subject to an annual impairment test. Identifiable
intangible assets will be amortized on a straight-line basis over the
estimated useful lives of the assets, which are 10 years for customer
relationships and 2 years for trademarks.
5
In connection with the Acquisition, former shareholders of TRI paid $4.0
million into an escrow account for the purpose of retaining certain key
executive officers of TRI. Under the escrow agreement, the key executive
officers will receive pro rata payments if they remain employees of TRI over
a two-year period ending August 23, 2009. Accordingly, $4.0 million has been
allocated to the purchase price as the value of the retention-related
restricted cash and an equal liability to the key executive officers will be
accrued ratably over the two-year service period. If the key executive
officers terminate employment prior to August 23, 2009, any unearned portion
of the restricted cash in escrow would be remitted to Con-way.
2. Unaudited Pro Forma Condensed Consolidated Balance Sheet and
Income Statement
The unaudited pro forma condensed consolidated balance sheet combines the
historical consolidated balance sheets of Con-way and TRI as of June 30,
2007, giving effect to the Acquisition as if it occurred on that same date.
The unaudited pro forma condensed consolidated statements of income combine
the historical consolidated statements of income of Con-way for the year
ended December 31, 2006 and the six months ended June 30, 2007 with the
historical financial statements of TRI for the same periods, giving effect to
the Acquisition as if it occurred on January 1, 2006.
The following adjustments have been reflected in the unaudited pro forma
condensed consolidated financial statements:
[a] Record the effects of debt and cash financing of the purchase price.
On August 23, 2007, Con-way entered into an agreement that established
a $500.0 million bridge-loan facility. On that date, Con-way borrowed
$425.0 million under the bridge-loan facility to fund a portion of the
purchase price in its Acquisition of TRI. Under the borrowing, the
principal amount of $425.0 million is due in full on August 21, 2008.
Subject to market conditions, Con-way intends to refinance the bridge-
loan facility with longer-term debt. Accordingly, these pro forma
condensed consolidated financial statements include adjustments that
reflect assumptions applicable to long-term debt rather than the
bridge-loan facility.
The pro forma adjustments to the balance sheet are summarized below
(dollars in millions).
Financing requirements:
Gross purchase price, including direct
transaction costs $ 767.1
Debt issuance costs 4.2
----------
$ 771.3
==========
Financing sources:
Long-term debt $ 425.0
Accrued liabilities for direct
transaction costs and debt-issuance costs 9.3
Cash 337.0
----------
$ 771.3
==========
The pro forma adjustments to the income statement reflect increases in
interest expense and amortization of debt costs and a decrease in
investment income from lower average balances of cash-equivalent
investments. The annual interest rate on long-term debt is assumed to
be 6.75% and a change of 1/8% in the interest rate would result in a
$0.5 million change in annual interest expense. The annual interest
rate on cash-equivalent investments is assumed to be 5.29% and a
change of 1/8% in the interest rate would result in a $0.4 million
change in annual investment income.
[b] Eliminate the effect of transactions between Con-way and TRI.
Pro forma adjustments to the balance sheet eliminate accounts
receivable and accounts payable recognized in the historical balance
sheets of TRI and Con-way, respectively, while pro forma adjustments
to the income statement eliminate revenue and purchased transportation
expense recognized in the historical income statements of TRI and Con-way,
respectively.
6
[c] Record the effects of income taxes.
The pro forma adjustments to the balance sheet include the recognition
of current and deferred income tax assets and liabilities attributable
to the tax effect of pro forma adjustments, including primarily
adjustments to record the estimated fair value of property and
equipment and definite-lived intangible assets.
The pro forma adjustments to the income statement include [1] an
increase in the historical tax expense of TRI as if it were treated as
a "C" corporation rather than a "Subchapter S" corporation, and [2] the
tax effect of pro forma adjustments. The pro forma adjustments reflect
the estimated consolidated effective tax rate of 31.6% in the fiscal
year ended December 31, 2006 and 37.9% in the six months ended June 30,
2007.
[d] Reclassify TRI amounts to conform to Con-way's method of presentation.
Con-way's historical balance sheet presents the cost of new tires on
tractors as a component of property and equipment while TRI's
historical balance sheet presents such costs as prepaid tire expense.
Con-way's historical income statements present fuel surcharges as
revenue while TRI's historical income statements present such amounts
as a reduction in operating expenses.
[e] Conform TRI's accounting policies to conform to those applied by Con-
way.
In Con-way's historical income statements, the cost of new tires on
tractors is amortized over the estimated useful lives of the new
equipment, while in TRI's historical income statements, the cost of new
tires on tractors is amortized over 12 to 15 months.
In Con-way's historical income statements, gains on the sale of revenue
equipment are based on the net book value of the equipment, without any
adjustment for earlier trade-in activity, as was the case for TRI, as
described below. In TRI's historical income statements, prior to TRI's
adoption of SFAS 153, "Exchanges on Nonmonetary Assets," as more fully
discussed in Exhibit 99.1, the purchase price of replacement property
was reduced by an amount equal to the trade-in value in excess of the
net book value of replaced equipment. Accordingly, the pro forma
consolidated condensed income statements includes pro forma adjustments
to reduce the amount of gains recognized from the sale of lower-basis
property.
[f] Record the purchase of TRI, including [1] the balance-sheet and income-
statement effect of purchase-method accounting adjustments to TRI's
property and equipment, goodwill, identifiable intangible assets, and
self-insurance reserves, and [2] the elimination of TRI's historical
equity accounts.
[g] Eliminate the effect of TRI's share-based compensation plans, which
terminate upon change in control, and include the effect of a retention
arrangement for key executive officers, as described above in Note 1,
"Purchase Price."
The pro forma balance sheet primarily reflects the elimination of a
$20.3 million share-based compensation liability reported in TRI's
historical balance sheet, and the recognition of a $4.0 million asset
related to the retention arrangement. The pro forma adjustments to the
income statement include a net decline in operating expense resulting
from the elimination of $5.9 million of annual share-based compensation
expense and additional annual expense of $2.0 million related to the
retention arrangement.
7