1
CAROLINA FREIGHT CORPORATION
END-YEAR SUMMARY
(Dollar amounts in thousands, except per share data) 1993 1992 1991
Revenue and Earnings:
Operating revenue $ 845,350 $ 801,138 $ 769,150
Pre-tax earnings (loss) (5,329) (9,900) 2,535
Net earnings (4,162) 3,648 1,575
- --------------------------------------------------------------------------------------------------
Per Share of Common Stock:
Earnings $ (.65) $ .54 $ .23
Dividends 0.20 .50 .60
Market value at year-end 12.75 14.63 20.00
Common book value at year-end 18.20 19.04 19.00
- --------------------------------------------------------------------------------------------------
Financial Position:
Working capital (Note 2) $ (12,448) $ 1,091 $ 10,508
Current ratio (Note 2) .89 to 1 1.01 to 1 1.11 to 1
Net plant and equipment $ 246,428 $ 262,937 $266,793
Total assets 363,938 389,254 378,896
Common stockholders' equity 119,401 124,964 124,679
Total stockholders' equity 121,612 127,175 126,890
Long-term debt, excluding debentures 21,182 45,838 46,711
Convertible subordinated debentures 49,994 49,994 50,000
Number of common stockholders 3,642 2,565 2,384
- --------------------------------------------------------------------------------------------------
Capital Expenditures, Net of Disposals:
Revenue and service equipment $ 11,548 $ 19,665 $ 27,714
Land and structures (3,097) 10,152 7,106
Other 7,354 4,192 3,589
- --------------------------------------------------------------------------------------------------
Total $ 15,805 $ 34,009 $ 38,409
- --------------------------------------------------------------------------------------------------
Operations:
Tons transported (thousands) 3,758 3,424 3,298
Intercity miles traveled (thousands) 270,436 250,568 239,785
Shipments handled (thousands) 5,350 5,133 5,243
Equipment owned and operated at year-end:
Tractors 4,179 4,070 4,042
Trailers 13,639 13,034 12,220
Trucks 164 163 181
Total 17,982 17,267 16,443
Employees at year-end 11,174 10,516 10,821
- --------------------------------------------------------------------------------------------------
(Note 1) Data for 1987 and 1986 have been restated to reflect the adoption of
ASB 94, Consolidation of All Majority-Owned Subsidiaries.
(Note 2) Working capital for 1989, 1988, and 1987 has been restated for the
Reclassification of claims payable in excess of one year to long-term
Liabilities in the amounts of $12,645,000, $8,262,000, and $6,828,000,
Respectively.
. . . .
18
2
CAROLINA FREIGHT CORPORATION
1990 1989 1988 1987 1986 1985 1984
$ 738,876 $ 670,363 $ 650,236 $ 594,261 $ 595,317 $ 523,369 $ 468,787
3,465 1,835 15,190 14,059 29,556 25,911 21,491
2,379 1,165 9,953 8,621 16,644 14,448 12,097
- --------------------------------------------------------------------------------------------------
$ .35 $ .16 $ 1.50 $ 1.30 $ 2.53 $ 2.26 $ 2.16
.60 .60 .54 .50 .44 .40 .36
13.00 18.75 24.63 20.75 35.00 28.75 22.25
19.37 19.66 20.11 19.15 18.30 16.12 12.70
- --------------------------------------------------------------------------------------------------
$ 10,714 $ 3,348 $ 28,413 $ 36,550 $ 32,825 $ 15,435 $ 6,295
1.12 to 1 1.04 to 1 1.33 to 1 1.44 to 1 1.36 to 1 1.21 to 1 1.10 to 1
$ 258,595 $ 250,532 $ 229,055 $ 204,320 $ 190,481 $ 154,630 $ 123,079
366,320 347,347 347,374 329,440 320,138 249,809 201,144
127,091 128,668 131,464 124,987 118,347 103,412 69,809
129,302 130,879 133,675 127,198 120,558 105,623 72,020
38,952 26,657 35,054 32,173 33,433 50,479 48,856
50,000 50,000 50,000 50,000 50,000 - -
2,333 2,378 2,460 2,359 2,350 2,600 2,557
- --------------------------------------------------------------------------------------------------
$ 26,194 $ 23,289 $ 34,186 $ 21,216 $ 42,510 $ 30,385 $ 24,747
13,101 29,224 14,081 15,435 12,890 12,424 11,786
6,387 3,446 10,802 5,935 5,189 9,638 3,191
- --------------------------------------------------------------------------------------------------
$ 45,682 $ 55,959 $ 59,069 $ 42,586 $ 60,589 $ 52,447 $ 39,724
- --------------------------------------------------------------------------------------------------
3,235 3,224 3,139 3,286 3,553 3,252 3,004
234,688 214,820 205,645 186,226 189,471 161,022 146,012
5,254 5,058 5,115 5,107 4,841 4,267 3,803
4,030 3,867 3,855 3,597 3,426 3,052 2,807
11,392 10,899 10,563 9,519 9,027 7,275 6,421
202 223 258 308 329 395 401
15,624 14,989 14,676 13,424 12,782 10,722 9,629
10,533 10,248 9,935 10,203 9,525 8,219 7,765
- --------------------------------------------------------------------------------------------------
. . . .
19
3
CAROLINA FREIGHT CORPORATION
MANAGEMENT'S REVIEW
OPERATING REVENUE
(GRAPH)
CORPORATE TONS HANDLED
(GRAPH)
CARDINAL REVENUE
(GRAPH)
RESULTS OF OPERATIONS
- -------------------------------------------------------------------------------
OVERVIEW
Carolina Freight Corporation's results for 1993 reflect many changes within the
transportation industry and the Company. The Company's revenue increased 5.5%
to $845,350,000 for 1993. Operating income improved from a loss of $615,000 in
1992 to operating income of $5,038,000 in 1993. The operating loss in 1992 was
adversely affected by $4,408,000 of certain nonrecurring charges. Earnings per
share were a loss of $.65 in 1993 compared with income of $.54 in 1992. The
1992 results were positively impacted by changes in accounting principles
relating to income taxes, post-retirement benefits, and revenue recognition.
During the third quarter of 1993 the Company incurred an additional tax
pro-vision of $580,000 relating to a restatement of the Company's deferred tax
liability under the provisions of Financial Accounting Standards Board (FASB)
Statement No. 109. This additional tax provision represents restating the
Company's deferred tax liability to the new 35% top marginal tax rate for
corporations. In the fourth quarter of 1993 the Company completed the
conversion of its $35 million revolving sale of receivables facility and $25
million of its bank credit lines to a new $60 million receivables
securitization facility. The costs associated with this conversion were
$750,000, which were expensed in total in the fourth quarter results.
As mentioned above, the 1992 results were impacted by the adoption of FASB
109, FASB 106, and a new revenue recognition policy retroactive to January 1,
1992. The net effect of these provisions increased 1992 net income by
$9,836,000. Exclusive of these changes the Company incurred a net loss in 1992
of $6,188,000, or $.96 per share.
LESS-THAN-TRUCKLOAD OPERATIONS
Carolina Freight Carriers Corporation and Red Arrow Freight Lines, on a
combined basis, achieved revenue of $658,266,000 in 1993, an increase of 3.4%
over 1992 revenue of $636,384,000. Revenue in 1992 exceeded 1991 revenue by
2.0%. G.I. Trucking realized a 10.3% increase in revenue for 1993 compared with
a revenue increase of 6.5% in 1992.
Shipments weighing less than 10,000 pounds are classified as
less-than-truckload (LTL) shipments. All larger shipments are classified as
truckload (TL). The table below shows tons transported and revenue per ton for
years 1991 through 1993 for the Corporation's LTL operations. Amounts have been
restated for prior years to eliminate the double counting of shipments and tons
for interline movements between subsidiaries.
LTL OPERATING STATISTICS
1993 1992 1991
LTL TL LTL TL LTL TL
- --------------------------------------------------------------------------------------
Tons (Thousands) 2,396 592 2,286 559 2,228 544
Revenue per Ton $296.40 $117.36 $297.73 $ 117.71 $297.25 $ 119.30
Revenue per Shipment $135.97 $995.43 $135.42 $1,014.52 $128.75 $1,037.42
- --------------------------------------------------------------------------------------
20
4
CAROLINA FREIGHT CORPORATION
TOTAL ASSETS
(Graph)
CORPORATE SHIPMENTS HANDLED
(Graph)
CARDINAL OPERATING INCOME
(Graph)
Despite a 4.6% general rate increase on January 1, 1993 and additional
price improvement efforts beginning in August 1993, LTL freight rates were .4%
lower than rates in 1992. Management believes that the enhancement of freight
rates must be accomplished to return the industry and the Corporation to levels
of profitability experienced in prior years. A general rate increase of
approximately 4.7% was instituted by the LTL companies on January 3, 1994.
Net earnings of the LTL companies are shown in the following table:
NET EARNINGS (THOUSANDS)
1993 1992 1991
Net Earnings (Loss) Net Earnings (Loss) Net Earnings
- ------------------------------------------------------------------------------------
Carolina $(7,513) $ (668) $262
G.I. 28 1,423 127
- ------------------------------------------------------------------------------------
The earnings in the LTL operations were negatively impacted by higher pay
rates, increased employee benefit costs, increased purchased transportation
costs, and higher claims costs.
In order to improve profitability, Carolina Freight Carriers and Red Arrow
Freight Lines have instituted several initiatives for 1994 including: (1)
implementation of a new origin terminal load plan during the first quarter of
1994, which will reduce freight handling costs, (2) installation during 1994 at
major breakbulk facilities of a new computerized dock/yard control system,
which will substantially improve the efficiency and real-time tracing
capability, (3) conversion of its linehaul tractor fleet from a seven-year
trade cycle to a four-year trade cycle, which will allow the Company to reduce
maintenance costs and to improve fuel efficiency, and (4) a restructuring of
its intermodal linkage between Carolina Freight Carriers and G.I. Trucking.
This restructuring will significantly decrease rail cost, while reducing the
number of company-owned trailers required to transport the freight.
Carolina Freight Carriers is a signatory to the National Master Freight
Agreement with the International Brotherhood of Teamsters. The current
agreement expires April 1, 1994. Negotiations are in progress for a new
contract.
CARDINAL FREIGHT CARRIERS, INC.
Cardinal, operating exclusively as a truckload carrier, had 1993 revenue of
$40,403,000, a 33.8% increase over 1992. Revenue for 1992 exceeded 1991 revenue
by 8.8%. Net earnings for 1993 were $2,224,000 compared to $1,479,000 in 1992
and $284,000 in 1991.
Cardinal's 1993 results were positively impacted by improved yields,
higher equipment utilization, lower maintenance costs, and a significant
increase in fleet size. Tonnage was up 33.2% for 1993 along with a 29.7%
increase in vehicle miles.
It is anticipated that Cardinal's revenue growth and improved margins will
continue into 1994 given the limited capacity in the regional truckload
marketplace and the company's planned equipment additions. In order to better
serve its customers, Cardinal has created a new division to serve the flatbed
trailer market, in addition to the existing dry van division.
. . . .
21
5
MANAGEMENT'S REVIEW
CAROLINA FREIGHT CORPORATION
COMPLETE LOGISTICS REVENUE
(GRAPH)
DEBT TO EQUITY
(GRAPH)
COMMON BOOK VALUE PER SHARE AT YEAR-END
(GRAPH)
THE COMPLETE LOGISTICS COMPANY
CLC, a full-service equipment and driver leasing company, generated 1993
revenue of $16,456,000, an increase of 8.3% over 1992 revenue. Net earnings
were $945,000 in 1993 compared with $391,000 in 1992 and $555,000 in 1991.
The Complete Logistics Company experienced an improvement in margins
during 1993 due to reduced employee compensation costs and vehicle liability
claims. Productivity and accident-prevention programs introduced in 1993
reduced these costs. Cost control was also aided by the installation of a
separate data processing system for CLC and its regional offices.
In 1994, CLC plans to open at least six new regional offices. It is
anticipated that expansion of service territory will increase revenue while
expanding the market presence of the company to the Midwest, Southwest, and
Southeast.
GENERAL INFORMATION
The fiscal year of the Corporation consists of three 12-week quarters and a
final 16-week quarter. The income tax provision rate for 1993 was 21.9%
compared to 37.5% for 1992 and 37.9% for 1991. The Income Taxes footnote to the
Financial Statements contains an analysis of the income tax provision and a
discussion of FASB 109 on accounting for income taxes.
For a discussion of FASB 106 and FASB112 regarding post-retirement
benefits other than pensions and post-employment benefits, refer to the
Employee Retirement Plans footnote to the Financial Statements.
For discussion of the effect of changing the Corporation's policy for
revenue recognition in 1992, as required by the FASB Emerging Issues Task
Force, refer to the Summary of Significant Accounting Policies footnote to the
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------------------------------------------------------
The Corporation is in sound financial condition. Net working capital at
December 31, 1993 was a negative $12.4 million; cash was $6.5 million. Net
working capital was $1.1 million at December 31, 1992; cash was $6.8 million.
At December 31, 1991 net working capital was $10.5 million; cash was $5.6
million.
Capital expenditures during 1993, net of dispositions, amounted to $15.8
million. Expenditures for revenue and service equipment totaled $17.3 million;
expen-ditures for acquisition, construction, and renovation of land and
buildings amounted to $4.7 million; and $7.3 million was expended for office,
shop, and terminal equipment. These expenditures were financed through
internally generated funds. The proceeds from dispositions totaled $13.5
million, which included the sale of termi- nal facilities in Atlanta,
Cincinnati, Austin, Houston, and San Antonio. Planned net capital expenditures
for 1994 are $16.2 million. It is anticipated that approximately $9.6 million
will be expended for revenue and service equipment; $2.7 million on terminal
construction and renovation; and $3.9 million for office, computer, and
terminal equipment.
. . . .
22
6
CAROLINA FREIGHT CORPORATION
COMPLETE LOGISTICS OPERATING INCOME
(Graph)
GROSS CAPITAL EXPENDITURES
(Graph)
EMPLOYEES AT YEAR-END
(Graph)
Management anticipates that 1994 capital expenditures and other working
capital requirements will be financed through internally generated funds and
borrowings under the revolving credit agreement. Management does not anticipate
that the maximum borrowing level under the revolving credit agreement will be
exceeded in 1994.
In December 1993 the Corporation entered into an agreement to sell, on a
revolving basis, a $60 million ownership interest in a designated pool of its
customer receivables. The pool of receivables eligible for sale is held by a
trust in which the Corporation retains the residual ownership interest. The
agreement for this revolving sale of receivables expires in December 2000.
As of December 31, 1993, there were no outstanding borrowings under the
terms of the Corporation's $25 million revolving credit agreement; $18.0
million was outstanding as of December 31, 1992; and $18.5 million as of
December 31, 1991.
The long-term debt-to-equity ratio of the Corporation at December 31, 1993
was 58.5% compared with 75.4% at December 31, 1992 and 76.2% at December 31,
1991.
On March 17, 1994, Carolina Freight Carriers and Red Arrow Freight Lines
entered into a new $45,000,000 revolving credit and letter of credit agreement
with a group of banks. Under this agreement, which currently provides
approximately $18,000,000 of revolving line of credit availability, $27,000,000
of letters of credit and expires on June 30,1996, substantially all of their
revenue and service equipment, $45.8 million of their land and structures, and
the Corporation's customer receivables held by trust are pledged as collateral.
This agreement and other existing agreements contain restrictions regarding the
maintenance of specified debt-to-equity, tangible net worth, and cash flow
ratios. See "Notes to Consolidated Financial Statements - Long-Term Debt and
Subsequent Event." These debt obligations are primarily those of Carolina
Freight Carriers and Red Arrow, and the restrictions have not affected, and are
not expected to affect, the ability of the Corporation to meet its consolidated
obligations.
The Corporation began a 10-year program in 1989 to upgrade its underground
storage tanks. Of the approximately 400 tanks maintained by the operating
subsid-iaries, all will be either retrofitted with protective devices,
replaced, or eliminated. In 1993, the fifth year of the 10-year plan, the
Corporation experienced varying amounts of contamination at most of the
underground tank locations where work was performed. The contamination resulted
from overfilling of tanks, spills, or leaks in either the tanks or connected
pipes. The amounts of contamination encountered are considered to be at levels
that normally would be expected considering the age of those tanks. Management
expects this trend to continue during the balance of the 10-year period but to
a lesser extent in future years due to stricter controls on fuel handling
implemented during 1989.
Carolina Freight Carriers has also been named as a potentially responsible
party at a number of former waste disposal sites. In these instances the
Company's involvement is limited and relatively minor. The liability for
involvement, if any, is joint and several and may not be settled for a number
of years.
. . . .
23
7
CAROLINA FREIGHT CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(Dollars in thousands)
1993 1992
Assets
Current Assets:
Cash $ 6,502 $ 6,826
Temporary investments restricted under letter of
credit arrangments (at cost, which approximates market) 10,169 10,870
Customer and interline receivables, net 10,091 51,433
Customer receivables held by trust, net 35,787 -
Other receivables, net 6,985 9,504
Reinsurance balances receivable 13,815 14,509
Prepayments -
Tires on equipment in use 13,632 13,678
Other 5,755 6,011
Inventories of operating supplies 2,869 2,841
- --------------------------------------------------------------------------------------------
Total current assets 105,605 115,672
- --------------------------------------------------------------------------------------------
Plant and Equipment, at cost:
Revenue and service equipment 267,112 277,925
Land and structures 179,220 182,626
Other equipment 57,356 57,245
Leasehold improvements 1,512 1,347
- --------------------------------------------------------------------------------------------
505,200 519,143
Less - Accumulated depreciation and amortization (258,772) (256,206)
- --------------------------------------------------------------------------------------------
Net plant and equipment 246,428 262,937
- --------------------------------------------------------------------------------------------
Other Assets 11,905 10,645
- --------------------------------------------------------------------------------------------
$363,938 $389,254
============================================================================================
The notes to consolidated financial statements are an integral part of these
balance sheets.
. . . .
24
8
CAROLINA FREIGHT CORPORATION
December 31, 1993 and 1992
(Dollars in thousands,
except share data)
1993 1992
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 33,266 $ 32,357
Accrued wages, salaries and vacation pay 34,191 30,584
Claims and insurance accruals 33,084 33,383
Income taxes
Current 522 84
Deferred - 2,077
Other payables and accrued expenses 11,496 11,571
Current maturities of long-term debt 5,494 4,525
- --------------------------------------------------------------------------------------------
Total current liabilities 118,053 114,581
- --------------------------------------------------------------------------------------------
Long-Term Debt:
6.25% Convertible Subordinated Debentures, Due 2011 49,994 49,994
Other long-term debt 21,182 45,838
- --------------------------------------------------------------------------------------------
Total long-term debt 71,176 95,832
- --------------------------------------------------------------------------------------------
Reserves and Deferred Credits:
Income taxes 15,168 15,870
Other deferred liabilities 8,211 8,877
Insurance claims 29,718 26,919
- --------------------------------------------------------------------------------------------
Total reserves and deferred credits 53,097 51,666
- --------------------------------------------------------------------------------------------
Leases, Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $100 par value, 4% cumulative, authorized
25,000 shares, outstanding 22,112 shares 2,211 2,211
Common stock, $.50 par value, authorized 20,000,000
shares, outstanding 6,561,672 shares in 1993 and 1992 3,281 3,281
Paid-in capital 44,349 44,349
Retained earnings 71,771 77,334
- --------------------------------------------------------------------------------------------
Total stockholders' equity 121,612 127,175
- --------------------------------------------------------------------------------------------
$363,938 $389,254
============================================================================================
The notes to consolidated financial statements are an integral part of these
balance sheets.
. . . .
25
9
CAROLINA FREIGHT CORPORATION CONSOLIDATED STATEMENTS
OF EARNINGS
For the years ended
December 31, 1993, 1992, and 1991
(Dollars in thousands, except share data)
1993 1992 1991
Operating Revenue $845,350 $801,138 $769,150
- --------------------------------------------------------------------------------------------
Operating Expenses:
Employee compensation-
Linehaul 149,514 139,474 131,614
Pickup and delivery 141,033 134,257 131,268
Platform and terminal 181,192 169,370 161,768
Other 66,388 62,894 62,100
- --------------------------------------------------------------------------------------------
Total employee compensation 538,127 505,995 486,750
Fuel and fuel taxes 43,364 41,035 41,794
Tires, repair parts and other operating expenses 39,523 35,524 34,500
Operating taxes and licenses 12,352 11,962 10,661
Insurance premiums and claims 24,386 26,413 20,044
Communications and utilities 11,185 11,545 10,934
Depreciation and amortization, net of gain
(loss) on disposition of operating assets
{1993-$3,222; 1992-($886); 1991-($544)} 31,887 40,670 39,070
Purchased transportation 100,717 88,233 76,051
Equipment and building rents 5,041 5,063 6,057
General supplies and expenses 33,730 30,905 30,592
Nonrecurring charges - 4,408 -
- --------------------------------------------------------------------------------------------
Total operating expenses 840,312 801,753 756,453
- --------------------------------------------------------------------------------------------
Earnings (Loss) From Operations 5,038 (615) 12,697
- --------------------------------------------------------------------------------------------
Other Income and (Expenses):
Interest expense (6,553) (6,565) (6,975)
Interest income 415 509 836
Other expense, net (4,229) (3,229) (4,023)
- --------------------------------------------------------------------------------------------
(10,367) (9,285) (10,162)
- --------------------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes (5,329) (9,900) 2,535
Income Tax Provision (Benefit) (1,167) (3,712) 960
- --------------------------------------------------------------------------------------------
Net earnings (loss) before cumulative effect
of changes in accounting principles (4,162) (6,188) 1,575
Cumulative effect of changes in accounting principles - 9,836 -
- --------------------------------------------------------------------------------------------
Net Earnings (Loss) ($ 4,162) $ 3,648 $ 1,575
============================================================================================
Net earnings (loss) per share before cumulative
effect of changes in accounting principles ($ .65) ($ .96) .23
Cumulative effect of changes in accounting principles - 1.50 -
- --------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Share ($ .65) $ .54 $ .23
============================================================================================
The notes to consolidated financial statements are an integral part of these
statements.
. . . .
26
10
CONSOLIDATED STATEMENTS CAROLINA FREIGHT CORPORATION
OF CASH FLOWS
For the years ended
December 31, 1993, 1992, and 1991
(Dollars in thousands)
1993 1992 1991
Cash Flows From Operating Activities:
Net earnings (loss) for the year $ (4,162) $ 3,648 $ 1,575
Noncash items included in earnings (loss):
Depreciation and amortization 35,109 39,784 38,526
Deferred income taxes (3,612) (3,439) (1,915)
Cumulative effect of accounting principle
change on deferred tax accounts - (12,203) -
Net proceeds from sales of receivables 25,000 - -
Increase in customer and interline receivables (14,445) (5,055) (3,001)
Increase in accounts payable 909 7,344 259
Increase in claims payable and insurance accruals 2,500 11,331 6,558
Net increase (decrease) in other
working capital items 2,457 (253) (5,076)
Other, net (3,888) (339) 2,599
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,868 40,818 39,525
- --------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of plant and equipment:
Revenue and service equipment (17,283) (22,235) (29,789)
Land and structures (4,665) (10,152) (7,626)
Other equipment and leasehold improvements (7,354) (4,192) (3,589)
Proceeds from disposal of plant and equipment 13,497 2,570 2,595
- --------------------------------------------------------------------------------------------
Net cash used for investing activities (15,805) (34,009) (38,409)
- --------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 578 1,567 215
Repayment of long-term debt (6,265) (3,258) (3,005)
Net proceeds from (repayments of)
revolving credit agreements (18,000) (500) 3,500
Common stock issued - 6 37
Dividends on common and preferred stock (1,401) (3,369) (4,024)
- --------------------------------------------------------------------------------------------
Net cash used for financing activities (25,088) (5,554) (3,277)
- --------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Temporary Investments (1,025) 1,255 (2,161)
Cash and Temporary Investments at
Beginning of Year 17,696 16,441 18,602
- --------------------------------------------------------------------------------------------
Cash and Temporary Investments at End of Year $ 16,671 $ 17,696 $ 16,441
============================================================================================
Supplemental Disclosure of Cash Flows Information
Cash paid during the year for:
Interest $ 6,563 $ 6,511 $ 7,029
Income taxes 682 831 5,612
Supplemental Disclosure of Noncash Investing Activities:
Capital lease obligations of $3,196,000 and $9,055,000
were incurred in 1992 and 1991, respectively, when the
Company entered into leases for new computer equipment.
============================================================================================
The notes to consolidated financial statements are an integral part of these
statements.
. . . .
27
11
CAROLINA FREIGHT CORPORATION CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
For the years ended
December 31, 1993, 1992, and 1991
(Dollars in thousands, except share data)
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
Balances at December 31, 1990 $2,211 $3,280 $44,307 $79,504
Net earnings for the year - - - 1,575
Dividends declared:
Preferred stock - $4.00 per share - - - (88)
Common stock - $.60 per share - - - (3,936)
Stock options exercised (1,500 shares) - 1 36 -
- ------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1991 2,211 3,281 44,343 77,055
Net earnings for the year - - - 3,648
Dividends declared:
Preferred stock - $4.00 per share - - - (88)
Common stock - $.50 per share - - - (3,281)
Debentures converted (126 shares) - - 6 -
- ------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 2,211 3,281 44,349 77,334
Net loss for the year - - - (4,162)
Dividends declared:
Preferred stock - $4.00 per share - - - (88)
Common stock - $.20 per share - - - (1,313)
- ------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 $2,211 $3,281 $44,349 $71,771
==================================================================================================================
The Notes to consolidated financial statements are an integral part of these
statements.
. . . .
28
12
NOTES TO CONSOLIDATED CAROLINA FREIGHT CORPORATION
FINANCIAL STATEMENTS
For the years ended
December 31, 1993, 1992, and 1991
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Carolina Freight Corporation (the Corporation) and its wholly owned
subsidiaries, Carolina Freight Carriers Corporation (CFCC), Red Arrow Freight
Lines, Inc. (Red Arrow), G.I. Trucking Company (GITC), Cardinal Freight
Carriers, Inc., Carrier Computer Services, Inc., The Complete Logistics
Company, Innovative Logistics Incorporated, Carolina Freight Funding
Corporation, Motor Carrier Insurance, Ltd. (MCI), Carolina Freight Canada,
Ltd., Carolina Freight de Mexico, S.A. de C.V. and Carolina Breakdown Service,
Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
SECURITIZATION OF RECEIVABLES:
In December 1993, the Corporation entered into an agreement to sell, on a
revolving basis, a $60 million ownership interest in a designated pool of its
customer receivables. The pool of receivables eligible for sale is held by a
trust in which the Corporation retains the residual ownership interest. As of
December 31, 1993, customer and interline receivables are shown net of
$95,786,000 of receivables transferred to the trust. The Corporation's interest
in the pool of receivables held by the trust is included in customer
receivables held by trust, net, on the accompanying 1993 balance sheet.
The agreement for this revolving sale of receivables expires in December
2000. Investment banking, legal and other costs associated with executing this
transaction of $750,000 are included in other expense, net, on the accompanying
1993 statements of earnings.
Prior to December 1993, the Corporation had entered into an agreement to
sell, on a revolving basis, an undivided ownership interest in a designated
pool of its customer and interline receivables. The agreement allowed for the
sale of such receivables up to a maximum of $40.3 million plus unpaid financing
charges. The purchaser had limited recourse such that 15% of the purchase price
could be held back and not paid unless the related receivables were collected.
As of December 31, 1992, customer and interline receivables were shown net of
$40,355,000, which represent the receivables sold. As a result of this sale,
the Corporation had received a total of $35,000,000 and was owed $5,355,000 as
of December 31, 1992 by the purchaser under the holdback provision of the
agreement. This amount is included in other receivables on the accompanying
balance sheets.
The Corporation maintains an allowance for doubtful accounts ($5,182,000
in 1993 and $4,982,000 in 1992) based upon the expected collectibility of all
customer and interline receivables, including receivables sold.
The ongoing costs of these programs of $1,494,000 in 1993 and $1,706,000
in 1992 are included in other expense, net, on the accompanying statements of
earnings.
REINSURANCE RECEIVABLES:
Reinsurance receivables represent amounts due to MCI, the Corporation's
wholly owned captive insurance subsidiary, from United Insurance Company
(United) for reinsurance premiums and amounts advanced to United for payment of
insurance claims.
PLANT AND EQUIPMENT:
The cost of revenue equipment does not include the cost of tires, which is
carried as a prepaid expense and amortized over the estimated tire lives.
Depreciation of plant and equipment is computed on the straight-line basis for
financial statement purposes over the following estimated useful lives: revenue
and service equipment (three to 10 years, 5-15% salvage); structures (15 to 50
years); other equipment (three to 10 years, 0-10% salvage); and leasehold
improvements (lease term).
MAINTENANCE AND REPAIRS:
Expenditures for normal maintenance and repairs are expensed, whereas
those for renewals or betterments that affect the nature of an asset or
increase its useful life are capitalized. Upon the retirement of fixed assets,
the related accumulated depreciation is removed from the accounts and any gain
or loss is reflected in the Corporation's statement of earnings with the
exception of gains on trade-ins, which are included in the bases of the new
assets.
. . . .
29
13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
CLAIMS AND INSURANCE ACCRUALS:
Claims and insurance accruals reflect the Corporation's estimated cost of
uninsured claims incurred but not paid prior to year-end for cargo loss and
damage, bodily injury and property damage, workers' compensation,
noncontractual employees' medical expenses, and revenue adjustments. The
present value of such claims is accrued using a discount rate of 7%. The total
undiscounted liability (both current and long-term) was $73,474,000 as of
December 31, 1993, and $71,526,000 as of December 31, 1992.
ENVIRONMENTAL ACCRUALS:
Costs incurred to remediate environmental contamination, caused primarily
by defective underground storage tanks, are recorded when it is probable that a
liability has been incurred and the related amount can be reasonably estimated.
Claims for potential recoveries from third parties are recognized as
receivables when collection of the recoverable amounts is probable.
INCOME TAXES:
Effective January 1, 1992, the Corporation adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," which requires a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates to differences between financial statement carrying amounts and tax bases
of existing assets and liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company recorded an additional $580,000 of
deferred tax expense in 1993 to reflect the corporate tax rate increase to 35%.
Prior to January 1, 1992, the Corporation used the deferred method for
accounting for income taxes. Under the deferred method, the provision for
deferred income taxes represented the tax effect of differences in the timing
of income and expense recognition for tax and financial reporting purposes;
deferred taxes were recognized using the tax rate applicable in the year of the
calculation and were not adjusted for subsequent changes in tax rates.
POST-RETIREMENT BENEFITS OTHER THAN PENSIONS:
Effective January 1, 1992, the Corporation adopted SFAS No. 106,
"Employers' Accounting for Post-Retirement Benefits Other than Pensions." Under
SFAS No. 106, the Corporation is required to accrue the estimated cost of
post-retirement benefits other than pensions during its employees' active
service periods. Prior to January 1, 1992, the Corporation expensed the cost of
these benefits as claims were paid.
RECOGNITION OF REVENUE:
Effective January 1, 1992, the Corporation changed its revenue recognition
policy to recognize revenue on apercentage-of-completion basis. The change
resulted from a review by the Emerging Issues Task Force of the FASB of the
various methods used by transportation companies to recognize revenue and
expense. Prior to 1992 the Corporation recognized freight charges as revenue
when freight was received for shipment.
EARNINGS PER SHARE:
Earnings per share have been computed based on the weighted average number
of common shares outstanding, which was 6,561,672 in 1993, 6,561,634 in 1992,
and 6,560,788 in 1991.
STATEMENTS OF CASH FLOWS:
The Corporation considers all highly liquid investments with a maturity of
three months or less when purchased to be temporary investments, including
temporary investments restricted under letter of credit arrangements associated
with MCI.
. . . .
30
14
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES:
- -------------------------------------------------------------------------------
As discussed in the Accounting Policies footnote, the Corporation changed its
methods of accounting for income taxes, post-retirement benefits other than
pensions, and revenue recognition as of January 1, 1992. The cumulative effect
on 1992 net earnings of each of these changes is discussed in the following
footnotes and is summarized as follows:
Change in accounting for deferred tax liabilities $12,203
Liability for post-retirement benefits,
net of related income taxes (570)
Change in method of revenue recognition,
net of related income taxes (1,797)
- ------------------------------------------------------------------------------------------------------------
$ 9,836
============================================================================================================
INCOME TAXES:
- -------------------------------------------------------------------------------
As discussed in the Summary of Significant Accounting Policies, the Corporation
adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1992.
The cumulative effect on prior years of this change in accounting principle
increased 1992 net earnings by $12,203,000 or $1.86 per share, and is reported
as part of the cumulative effect of changes in accounting principles in the
accompanying 1992 consolidated statements of earnings.
The provision for income taxes consists of the following (in thousands):
1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
Current provision (benefit) -
Federal $ 1,856 $ (276) $ 2,175
State 589 3 700
- ------------------------------------------------------------------------------------------------------------
2,445 (273) 2,875
- ------------------------------------------------------------------------------------------------------------
Deferred taxes arising from -
Accelerated depreciation and other book/tax
differences for plant and equipment (1,542) 616 (313)
Prepaid tires expensed for tax purposes (18) (137) 562
Reserves not currently deductible (3,493) (1,905) (151)
Revenue not currently taxable 531 413 (463)
Effect of alternative minimum tax 839 (1,668) (464)
Effect of increase in tax rate 580 - -
Other, net (509) (496) (459)
- ------------------------------------------------------------------------------------------------------------
(3,612) (3,177) (1,288)
- ------------------------------------------------------------------------------------------------------------
Investment tax credit -
Amortization - (262) (627)
- ------------------------------------------------------------------------------------------------------------
Total provision (benefit) $(1,167) $(3,712) $ 960
============================================================================================================
The total provision for income taxes varies from the statutory corporate
tax rate for the following reasons:
1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
Statutory federal tax rate (35.0%) (34.0%) 34.0%
Increase (reduction) in taxes resulting from -
Effect of increase in tax rate to 35% on deferred tax liabilities 10.9 - -
Amortization of investment tax credit, net of
tax basis reduction impact - (2.6) (21.5)
Nondeductible business expenses 6.4 1.9 9.2
Nontaxable life insurance (proceeds) costs, net (2.9) (1.7) 8.0
State income taxes, net of federal tax benefit (3.4) (3.9) 7.5
State NOL carryforward - - (2.6)
Other items, net 2.1 2.8 3.3
- ------------------------------------------------------------------------------------------------------------
Actual tax rate (21.9%) (37.5%) 37.9%
============================================================================================================
. . . .
31
15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The tax effect of temporary differences giving rise to the Company's
consolidated deferred tax liability at December 31, 1993 and December 31, 1992
are as follows:
December 31, December 31,
1993 1992
- ------------------------------------------------------------------------------------------------------------
Deferred tax assets -
Claims and insurance reserves $ 17,878 $ 14,705
Alternative minimum tax credit carryforward 5,702 6,541
Allowance for bad debts 2,010 1,892
Accrued vacation payable 5,049 4,608
Deferred compensation costs 1,921 1,837
Other 215 149
- ------------------------------------------------------------------------------------------------------------
Total deferred tax assets 32,775 29,732
- ------------------------------------------------------------------------------------------------------------
Deferred tax liabilities-
Depreciation and other differences for plant and equipment (31,192) (31,977)
Accrued pension costs (5,862) (6,379)
Prepaid tires (5,303) (5,198)
Unearned revenue (4,754) (4,125)
- ------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (47,111) (47,679)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $(14,336) $(17,947)
============================================================================================================
The Company did not record any valuation allowances against deferred tax
assets. In the opinion of management, the reversal of taxable temporary
differences will allow the realization of the deferred tax assets.
Alternative minimum tax was paid by the Corporation in 1991 when its
alternative minimum tax liability exceeded the regular tax liability by
$464,000. In 1992, the Corporation remained in an alternative tax position as
the Corporation's alternative minimum tax benefit was less than its regular tax
benefit by $1,668,000. In 1993, the Corporation was in a regular tax position
and was able to partially utilize its existing alternative minimum tax credit
carryforward. The cumulative alternative minimum tax in excess of regular tax
of $5,702,000 at December 31, 1993 is available as a credit in future years
when regular tax exceeds alternative minimum tax.
LONG-TERM DEBT:
- ------------------------------------------------------------------------------
Long-term debt at December 31, 1993 and 1992 consisted of the following (in
thousands):
1993 1992
Long-Term Current Long-Term Current
Portion Portion Portion Portion
- ------------------------------------------------------------------------------------------------------------
6.25% Convertible Subordinated Debentures,
due 2011, issued in April 1986 $49,994 $ - $49,994 $ -
Revolving credit agreements with banks - - 18,000 -
9.40% Note - $365,000 due quarterly through
January 1995 with balance of $545,000 due April 1995 - 2,370 2,370 1,460
7.25% to 8.125% Industrial Revenue Bonds due through
1996, collateralized by certain terminal properties 236 294 530 294
Industrial Revenue Bonds due through October 2001,
bearing interest at 65% to 88% of prime rate,
collateralized by certain terminal properties 7,418 732 9,949 682
Industrial Revenue Bonds due through October 1998,
bearing interest at 65.6% of prime rate plus 2%,
collateralized by certain terminal properties 740 188 905 188
8% to 10% Notes - due monthly through August 2003,
collateralized by certain terminal properties and
computer equipment 337 60 397 54
Capitalized Computer Leases expiring December 31,
1997 with interest of 6.91% 6,372 1,846 8,198 1,830
Other (primarily borrowings against life insurance
policies bearing interest at 7.40% to 11.75%) 6,079 4 5,489 17
- ------------------------------------------------------------------------------------------------------------
Total $71,176 $ 5,494 $95,832 $ 4,525
============================================================================================================
The 6.25% Convertible Subordinated Debentures may be converted into common
stock at $47.50 per share. The price of the common stock of the Corporation on
the date of issue was $38.
. . . .
32
16
CAROLINA FREIGHT CORPORATION
The Corporation may redeem the debentures at a price of 101.875% declining
to 100% at April 15, 1996. FASB 107, "Disclosures about Fair Value of Financial
Instruments," requires that the fair value of the debentures be disclosed. The
debentures had a quoted market value of $42,995,000 at December 31, 1993 and
$39,245,000 at December 31, 1992. At December 31, 1993 the Corporation had
other fixed rate obligations of $17,598,000. In the opinion of management,
based on the borrowing rates currently available to the Corporation for loans
with similar terms and maturities, the recorded amounts closely approximate
fair value.
At December 31, 1993, CFCC had a loan commitment of $25 million under an
unsecured revolving credit agreement (credit agreement) with a group of banks.
The credit commitment had been as high as $35 million during 1993 and it was
reduced by $10 million on December 29, 1993. There was no indebtedness under
the credit agreement as of December 31, 1993. As of December 31, 1992,
indebtedness was $18 million. The maxi-mum amount outstanding under the
agreement at any month-end, the average amount outstanding during the year, and
the weighted average interest rates were (in thousands):
1993 1992 1991
- ------------------------------------------------------------------------------------------
Maximum amount outstanding at month-end $35,000 $25,500 $27,500
Average amount outstanding 27,592 22,668 22,705
Average interest rate 4.8% 4.4% 6.9%
- ------------------------------------------------------------------------------------------
The agreement expires March 31,1994 (see Subsequent Event below) and
carries a commitment fee of .375% of the unused commitment which was increased
from .25% in June 1993.
CFCC's credit agreement and the 9.40% note are currently unsecured. The
credit and note agreements permit, with certain exceptions, the lenders to
obtain pro rata security should CFCC create any liens on any of its assets. The
agreements and certain industrial revenue bonds contain various covenants and
restrictions. Requirements include maintenance of specified debt (including
capital lease obligations) to equity and working capital ratios. Covenants also
require maintenance of ratios for funded debt to cash flow, earnings coverage
of fixed charges, and total liabilities to tangible net worth. The credit
agreement states that the occurrence of a material adverse change in the
Corporation's financial condition, as determined by the participating banks, is
an event of default. If an event of default occurs, then the lenders may
declare the outstanding borrowings under the credit agreement, the 9.40% note,
certain other debt, and all interest thereon to be due and payable. The
Corporation has guaranteed repayment of CFCC's debt. The guaranty contains
certain restrictions including debt-to-equity ratios, cash flow and working
capital requirements, and limitations on the payment of cash dividends. Under
the most restrictive covenants of the agreements, future dividends of the
Corporation are limited to approximately $3.7 million plus 50% of earnings, as
defined, after December 31, 1993.
The aggregate annual maturities of long-term debt for each of the five
years ending December 31 are as follows: 1994-$5,494,000; 1995-$3,321,000;
1996-$4,001,000; 1997-$6,488,000; and 1998-$4,023,000.
SUBSEQUENT EVENT:
On March 17, 1994, the Carolina Freight Carriers Corporation and Red Arrow
Freight Lines entered into a new $45,000,000 revolving credit and letter of
credit agreement with a group of banks. Under this agreement, which currently
provides approximately $18,000,000 of revolving line of credit availability,
$27,000,000 of letters of credit and expires June 30, 1996, substantially all
of their revenue and service equipment, $45.8 million of their land and
structures and the Corporation's customer receivables held by trust, are
pledged as collateral. This agreement and existing agreements contain
restrictions regarding the maintenance of specified debt, tangible net worth,
and cash flow ratios. CFCC paid off the 9.40% note and $456,000 of certain
other debt with amounts borrowed under this agreement. The interest rate for
borrowings under this agreement will be, at the Corporation's option, the lead
bank's base rate or another variable rate which fluctuates (in part) based on
changes in certain financial ratios of the Corporation. This agreement states
that the occurrence of a material adverse change in the Corporation's financial
condition, as determined by the participating banks, is an event of default. If
an event of default occurs, then the lenders may declare the outstanding
borrowings under the agreement, certain other debt, and all interest thereon to
be due and payable.
. . . .
33
17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
EMPLOYEE RETIREMENT PLANS:
- -------------------------------------------------------------------------------
The Corporation has three pension plans to provide retirement benefits
to employees not covered by collective bargaining agreements.
The following Table sets forth the defined benefit plans' funded status
at December 31
(in thousands):
1993 1992
- ---------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations -
Vested benefits $ 51,594 $ 46,292
Nonvested benefits 2,636 2,664
- ---------------------------------------------------------------------------------------------
Accumulated benefit obligations 54,230 48,956
Effect of projected future compensation levels 13,950 13,892
- ---------------------------------------------------------------------------------------------
Projected benefit obligations 68,180 62,848
Plans' assets at fair market value 73,046 66,319
- ---------------------------------------------------------------------------------------------
Plans' assets in excess of projected benefit obligations $ 4,866 $ 3,471
=============================================================================================
Consisting of -
Unrecognized net assets at January 1, 1986 net of
amortization over 13-19 years $ 2,636 $ 3,134
Unrecognized net gain due to past experience
different from assumptions made 13,356 5,515
Less: Unfunded accrued pension cost (11,126) (5,178)
- ---------------------------------------------------------------------------------------------
Total $ 4,866 $ 3,471
=============================================================================================
The plans' assets consist primarily of corporate stocks, United States
government securities, common trust bond funds, and real estate investments.
The plans hold 94,234 shares of the Corporation's common stock. A 7.5% weighted
average discount rate and a 5.5% rate of increase in future payroll costs were
used in determining the actuarial present value of the projected benefit
obligations. The expected long-term rate of return on assets was 7.5%.
The net periodic pension cost of defined benefit plans includes the
following components (in thousands):
1993 1992 1991
- ---------------------------------------------------------------------------------------------
Service costs (benefits earned during the year) $ 4,466 $ 4,447 $ 4,317
Interest cost on projected benefit obligations 4,686 4,619 4,009
Actual return on plan assets (8,135) (3,921) (13,244)
Net amortization and deferral (2,225) (2,977) 7,661
- ---------------------------------------------------------------------------------------------
Net periodic pension cost $ 3,242 $ 2,168 $ 2,743
=============================================================================================
An additional benefit plan provides certain death and retirement benefits
for the officers and directors of the Corporation. As of December 31, 1993, the
projected and accumulated benefit obligations of the plan were $2,651,000, of
which $2,482,000 represented vested benefits. The plan is not funded; however,
the Corporation has accrued a liability in an amount approximating the
projected benefit obligation. The unrecognized net liability and unrecognized
net gain components of the above are not significant. The Corporation has
purchased insurance on the participants' lives (face coverage amount -
$14,282,000) which will effectively be used to fund the payment of plan
benefits. The Corporation is the owner and beneficiary of these policies.
. . . .
34
18
CAROLINA FREIGHT CORPORATION
The Corporation has an Executive Deferred Compensation Plan agreement
with certain directors and officers. Under the plan the participants are
guaranteed a minimum of 12% annual return on compensation deferred with
payments beginning upon retirement of the participants. The Corporation has
purchased insurance on the participants' lives (face coverage amount -
$5,958,000) which will be used to fund the payment of plan benefits. The
Corporation is owner and beneficiary of the policies.
CFCC and Red Arrow contributed $30,810,000 in 1993, $28,343,000 in 1992,
and $27,008,000 in 1991 to multi-employer pension plans for employees covered
by collective bargaining agreements.
As discussed in the Summary of Significant Accounting Policies, the
Corporation adopted SFAS No. 106, "Employees' Accounting for Post-Retirement
Benefits Other than Pensions," effective January 1, 1992. Until July 1, 1993
employees retiring from the Corpo-ration after attaining age 62 who had
rendered at least 12 years of service to the Corporation were entitled to
post-retirement health care and dental benefit coverage until age 65. These
benefits are subject to deductibles and other limitations. This program was
discontinued effective with retirements after July 1, 1993. The accumulated
post-retirement benefit obligation at January 1, 1992 of $920,000 (net of
related income taxes of $350,000) was recognized by the Corporation as a
cumulative effect of a change in accounting principle in 1992. This change
decreased 1992 net earnings by $570,000 or $.09 per share. The pro forma
effects of retroactive application of the change on the financial statements
for the years prior to 1992 have not been presented because implementing the
new accounting method would not have a material effect on earnings reported for
1991.
In determining the present value of the accumulated post-retirement
benefit obligations, the company used a 14% health care cost trend rate for
1993 and 1992 decreasing 1% per year after 1993 until leveling off at 5%. A 1%
increase in the trend rate would increase the accumulated benefit obligation as
of December 31, 1993 and 1992 by approximately 2%. The weighted average
discount rate used in calculating the obligation for 1993 and 1992 was 7.5%.
On September 1, 1992 the Corporation offered a Retirement Incentive
Program to eligible employees which provided for enhanced pension benefits and
extended health care, dental coverage and life insurance until age 65. Of the
172 individuals eligible, 112 elected to participate prior to its expiration in
late 1992. The implementation of the Retirement Incentive Program resulted in a
nonrecurring charge of $4,408,000 in 1992, which is comprised of a $3,331,000
increase in the post-retirement benefit obligation and $1,077,000 increase in
the net pension liability. The Corporation's post-retirement benefit
obligations are not funded.
In November 1992, the Financial Accounting Standards Board issued a new
standard on accounting for post-employment benefits (FASB 112). This standard
requires that the expected costs of these benefits be charged to expense during
the years that the employees render service. This is a change from the
Corporation's current policy of recognizing these costs as they are incurred.
The Corporation intends to comply with these rules in fiscal 1994. Management
has not yet determined the effect that the change in accounting will have on
the Corporation's reported financial position and results of operations.
CAPITAL STOCK:
- -------------------------------------------------------------------------------
The 4% cumulative preferred stock is redeemable by the Corporation, in whole or
in part, at any time at $104 per share plus accrued dividends. There are no
dividends in arrears on the preferred stock. The Corporation has established
four incentive stock option plans for its key personnel. These plans allow for
acceleration of option exercises in the event of a change in control of the
Corporation.
. . . .
35
19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
A summary of changes in stock options for the three-year period ended
December 31, 1993 follows:
Price Number of
Ranges Shares
- ---------------------------------------------------------------------------------------------
Under option at December 31, 1990
(224,960 shares exercisable) 14.50 to 34.38 379,370
Granted 16.38 2,000
Exercised 17.25 to 18.63 (2,000)
Lapsed 18.63 to 25.88 (34,020)
Under option at December 31, 1991
(243,915 shares exercisable) 14.50 to 34.38 345,350
Granted 20.00 1,000
Lapsed 14.50 to 19.63 (12,350)
Under option at December 31, 1992
(274,780 shares exercisable) 16.38 to 34.38 334,000
Granted 13.38 to 14.50 314,250
Lapsed 17.31 to 20.00 (65,800)
Cancelled 16.38 to 34.38 (164,400)
Under option at December 31, 1993
(215,300 shares exercisable) 13.38 to 19.63 418,050
- ----------------------------------------------------------------------------------------------
At December 31, 1993, 482,538 shares were reserved for issuance under the stock
option plan.
LEASES, COMMITMENTS AND CONTINGENCIES
The Corporation leases certain terminals and equipment under operating lease
agreements expiring at various dates through 2000. Aggregate future minimum
rentals payable under these operating leases are as follows (in thousands):
- ---------------------------------------------------------------------------------------------
1994 $ 7,554
1995 5,940
1996 5,291
1997 3,337
1998 1,044
1999-2000 201
- ---------------------------------------------------------------------------------------------
Total $23,367
=============================================================================================
The Corporation is contingently liable under letters of credit for
$37,065,000 in connection with its insurance programs and industrial revenue
bond terminal financings. As of December 31, 1993, the Corporation has pledged
approximately $10,150,000 of temporary investments as collateral under such
letter of credit arrangements. The letters of credit serve to guarantee the
payment of insurance claims by CFCC, GITC, Red Arrow and MCI, which are
provided for on their respective balance sheets.
Carolina Freight Carriers Corporation has been named by the Environmental
Protection Agency and by several state environmental agencies as a potentially
responsible party at six federal and state Superfund sites. CFCC's exposure in
these matters is either de minimis or is not expected to be material.
The Corporation is involved in various litigation arising in the normal
course of business. In the opinion of management, the ultimate recovery or
liability, if any, resulting from such matters will not materially affect the
financial position or results of operations of the Corporation.
RECOGNITION OF REVENUE:
- -------------------------------------------------------------------------------
As discussed in the Summary of Significant Accounting Policies, the Corporation
changed its revenue recognition policy effective January 1, 1992. The
cumulative effect of this change in accounting principle created an after-tax
charge of approximately $1,800,000 or $.27 per share in the first quarter of
1992 and is reported as part of the cumulative effect of changes in accounting
principles in the 1992 consolidated statements of earnings. If the Corporation
had reported its 1991 operating results using the percentage-of-completion
method for the full year, net earnings would have been reduced by $959,000 or
$.15 per share.
. . . .
36
20
CAROLINA FREIGHT CORPORATION
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -------------------------------------------------------------------------------
The following table presents certain financial information for each quarter
during 1993 and 1992 (in thousands except per share data):
1993
- -------------------------------------------------------------------------------------------------------
First Second Third Fourth Total
- -------------------------------------------------------------------------------------------------------
Operating revenue $187,331 $196,773 $198,557 $262,689 $845,350
Operating income 1,357 1,403 1,159 1,119 5,038
Net loss (390) (548) (1,583) (1,641) (4,162)
- -------------------------------------------------------------------------------------------------------
Loss per share $ (.06) $ (.09) $ (.24) $ (.26) $ (.65)
- -------------------------------------------------------------------------------------------------------
1992
- -------------------------------------------------------------------------------------------------------
First Second Third Fourth Total
- -------------------------------------------------------------------------------------------------------
Operating revenue $172,117 $183,898 $185,862 $259,261 $801,138
Operating income (loss) 963 2,481 2,051 (6,110) (615)
Net earnings (loss) before cumulative effect
of changes in accounting principles (600) 290 77 (5,955) (6,188)
Cumulative effect of changes in
accounting principles 9,836 - - - 9,836
Net earnings (loss) 9,236 290 77 (5,955) 3,648
- -------------------------------------------------------------------------------------------------------
Net earnings (loss) per share before cumulative
effect of changes in accounting principles $ (0.10) $ .04 $.01 $ (.91) $ (.96)
Cumulative effect of changes in
accounting principles 1.50 - - - 1 .50
Earnings (loss) per share 1.40 .04 01 (.91) .54
- -------------------------------------------------------------------------------------------------------
The Corporation's fiscal year consists of three quarters of 12 weeks each
and a final quarter of 16 weeks.
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Carolina Freight Corporation:
We have audited the accompanying consolidated balance sheets of Carolina
Freight Corporation (a North Carolina corporation) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
earnings, cash flows and stockholders' equity for each of the three years in
the period ended December 31, 1993. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carolina Freight
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements,
effective January 1, 1992, the Corporation changed its methods of accounting
for revenue recognition, post-retirement benefits other than pensions, and
income taxes.
Charlotte, North Carolina, Arthur Andersen & Co.
January 31, 1994 (except with respect to the
matter discussed in the Subsequent Event footnote,
as to which the date is March 17, 1994).
. . . .
37