1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 26, 1994 Commission File Number 1-8441
CAROLINA FREIGHT CORPORATION
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(Exact name of registrant as specified in its charter)
North Carolina 56-1349996
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 150 East, Cherryville, N.C. 28021
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(Address of principal executive offices) (Zip Code)
Registrant`s telephone number, including area code (704) 435-6811
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No Changes
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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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock, $.50 par value 6,561,672
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Class Outstanding at March 26, 1994
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CAROLINA FREIGHT CORPORATION
INDEX
Page No.
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Part I. Financial Information:
Item 1: Financial Statements
Consolidated Condensed Statements of Earnings--
Twelve Weeks Ended March 26, 1994 and
March 27, 1993 2
Consolidated Balance Sheets--
March 26, 1994 and December 31, 1993 3-4
Consolidated Statements of Cash Flows--
Twelve Weeks Ended March 26, 1994 and
March 27, 1993 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2: Management's Discussion and Analysis 7-10
Part II. Other Information 11
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PART 1: ITEM 1. FINANCIAL INFORMATION
CAROLINA FREIGHT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
Twelve Weeks Ended March 26, 1994 and March 27, 1993
(UNAUDITED)
(Dollars in thousands except per share amounts)
Twelve Weeks Ended
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March 26, March 27,
1994 1993
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Operating revenue $192,630 $187,331
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Operating expenses:
Employee compensation 122,691 119,183
Purchased transportation 22,640 20,430
Fuel and fuel taxes 10,671 9,757
Tires, repair parts and other operating supplies 9,631 8,674
Depreciation and amortization 8,109 8,348
Insurance premiums and claims 5,606 5,811
Communications and utilities 2,741 2,636
Operating taxes and licenses 2,761 2,708
Equipment and building rents 1,232 1,140
Gain on disposition of operating assets (51) (19)
General supplies and expenses 8,521 7,306
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Total operating expenses 194,552 185,974
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Earnings (Loss) from operations (1,922) 1,357
Interest and other expense, net 2,403 2,013
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Loss before income taxes (4,325) (656)
Income tax benefit (1,407) (266)
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Net loss before cumulative effect of change in
accounting principle (2,918) (390)
Cumulative effect of change in accounting principle (1,222) -
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Net loss ($4,140) ($390)
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Loss per share before cumulative
effect of change in accounting principle ($0.44) ($0.06)
Cumulative effect of change in
accounting principle ($0.19) -
Loss per share ($0.63) ($0.06)
Average common stock and common stock
equivalent shares outstanding 6,561,672 6,561,672
Cash dividends per common share $0.00 $0.05
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CAROLINA FREIGHT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED) (AUDITED)
March 26, December 31,
1994 1993
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Assets
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Current assets:
Cash $ 6,402 $ 6,502
Temporary investments restricted under letter of
credit arrangements (at cost, which approximates market) 10,751 10,169
Customer and interline receivables, net 10,698 10,091
Customer receivables held by trust, net 43,030 35,787
Other receivables, net 7,957 6,985
Reinsurance balances receivable 17,026 13,815
Prepayments -
Tires on equipment in use 13,491 13,632
Other 8,538 5,755
Inventories of operating supplies 2,910 2,869
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Total current assets 120,803 105,605
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Plant and equipment, at cost:
Revenue and service equipment 268,004 267,112
Land and structures 179,844 179,220
Other equipment 58,147 57,356
Leasehold improvements 1,517 1,512
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507,512 505,200
Less - accumulated depreciation and amortization (265,947) (258,772)
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Net plant and equipment 241,565 246,428
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Other assets 12,624 11,905
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$374,992 $363,938
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CAROLINA FREIGHT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED) (AUDITED)
March 26, December 31,
1994 1993
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable $ 34,000 $ 33,266
Accrued wages, salaries and vacation pay 38,200 34,191
Claims and insurance accruals 43,078 33,084
Income taxes
Current (1,042) 522
Deferred 0 -
Other payables and accrued expenses 12,729 11,496
Current maturities of long-term debt 2,830 5,494
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Total current liabilities 129,795 118,053
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Long-term debt:
6 1/4% Convertible Subordinated Debentures, due 2011 49,994 49,994
Other long-term debt 30,370 21,182
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Total long-term debt 80,364 71,176
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Reserves and Deferred Credits:
Income taxes 14,149 15,168
Other deferred liabilities 8,126 8,211
Insurance claims 25,085 29,718
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Total reserves and deferred credits 47,360 53,097
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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 in 1994 and 1993 3,281 3,281
Paid-in capital 44,349 44,349
Retained earnings 67,632 71,771
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Total stockholders' equity 117,473 121,612
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$374,992 $363,938
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CAROLINA FREIGHT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Twelve Ended March 26, 1994 and March 27, 1993
(UNAUDITED)
(Dollars in Thousands)
Twelve Weeks Ended
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March 26, March 27,
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($4,140) ($390)
Noncash items included in income:
Depreciation and amortization 8,109 8,348
Deferred income taxes (1,019) (1,004)
Increase in customer and interline receivables (7,850) (7,753)
Increase (Decrease) in accounts payable 734 (1,598)
Increase (Decrease) in claims payable and insurance accruals 5,361 (18)
Net increase (decrease) in other working capital items (3,273) 3,162
Other, net (888) (706)
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Net cash provided by (used for) operating activities (2,966) 41
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of plant and equipment:
Revenue and service equipment (2,332) (3,612)
Land and structures (624) (275)
Other equipment and leasehold improvements (778) (701)
Proceeds from disposal of plant and equipment 681 2,348
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Net cash used for investing activities (3,053) (2,240)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 8 8
Repayment of long-term debt (3,485) (573)
Net proceeds from revolving credit agreements 10,000 4,500
Common stock issued - -
Dividends on common and preferred stock (22) (350)
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Net cash provided by financing activities 6,501 3,585
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NET INCREASE IN CASH AND TEMPORARY INVESTMENTS 482 1,386
CASH AND TEMPORARY INVESTMENTS AT BEGINNING OF YEAR 16,671 17,696
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CASH AND TEMPORARY INVESTMENTS AT END OF QUARTER $17,153 $19,082
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CAROLINA FREIGHT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The accompanying consolidated condensed financial statements contain all
adjustments and eliminations which, in the opinion of management, are necessary
to present fairly the results of operations for the twelve weeks ended March
26, 1994 and March 27, 1993, the financial position as of March 26, 1994 and
December 31, 1993, and the cash flows for the twelve weeks ended March 26, 1994
and March 27, 1993.
During the first quarter of 1994, the Securities and Exchange Commission
issued a new directive to publicly held corporations regarding the discount
rates used on reserves reported in the liabilities section of their balance
sheets. This directive requires that the discount rates used to reduce these
obligations to their present value be stated at a "risk free" rate. The effect
of this change is to reduce the discount rates used in computing the reserves
on the consolidated balance sheet of Carolina Freight Corporation from 7% to
risk free rates. The effect of this change is shown as a change in accounting
principle of $1,222,000, or $.19 per share on the consolidated statement of
earnings.
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PART I: ITEM 2. FINANCIAL INFORMATION
CAROLINA FREIGHT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Revenue for the twelve weeks ended March 26, 1994 increased 2.8% to
$192,630,000 compared with revenue of $187,331,000 in the first quarter of
1993. Due primarily to a number of major snow and ice storms that struck the
eastern part of the United States during the first quarter and the earthquake
in California in January, the Company sustained a net loss before the
cumulative effect of a change in accounting principle of $2,918,000, or $.44
per share for the quarter compared to a net loss of $390,000, or $.06 per share
for the first quarter of 1993. Including the effect of the accounting change
described below, the net loss in the first quarter was $4,140,000, or $.63 per
share. The Company's fiscal year consists of three twelve-week quarters and a
final sixteen-week quarter.
Although it is difficult to quantify the full impact of these storms
on operations, the Company calculated the reduced shipment volume, lower
productivity, and increased direct cost related to the storms. Based on this
data, it was estimated that pre-tax earnings were reduced by approximately $3.5
million for the first quarter of 1994.
During the first quarter of 1994, the Securities and Exchange
Commission issued a new directive to publicly held corporations regarding the
discount rates used on reserves reported in the liabilities section of their
balance sheets. This directive requires that the discount rates used to reduce
these obligations to their present value be stated at a "risk free" rate. The
effect of this change is to reduce the discount rates used in computing the
reserves on the consolidated balance sheet of Carolina Freight Corporation from
7% to risk free rates. The effect of this change is shown as a change in
accounting principle of $1,222,000, or $.19 per share on the consolidated
statement of earnings.
A general rate increase of approximately 4.7% effective January 3,
1994 improved prices at our less-than-truckload (LTL) subsidiaries. At the end
of the first quarter price levels at Carolina Carriers and G.I. Trucking
Company were 1.4% higher than those in the first quarter of 1993.
The labor contract with the International Brotherhood of Teamsters
(IBT), which covers employees at Carolina Freight Carriers Corporation, expired
on March 31, 1994. Trucking
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Management, Inc. (TMI), the negotiating body for the largest unionized LTL
carriers, was unable to reach a negotiated settlement with the Teamsters Union
by the extended deadline of April 6, 1994. On that date the union called for a
nationwide strike of 22 members of TMI. Carolina Freight Carriers was excluded
from the strike action as a result of its signing an interim agreement on April
5th stating that it would abide by the provisions of the National Master
Freight Agreement that is ultimately entered into between TMI and the IBT. As
a result of this agreement, Carolina Freight Carriers continues to operate.
During the first quarter of 1994, several actions were implemented
that are designed to improve operating results.
- A new terminal load plan began at Carolina Freight
Carriers that will significantly reduce freight
handling cost.
- A new computerized dock/yard tracking system was
initiated at Carolina Freight Carriers that will
substantially improve the efficiency and real time
tracking capability for the breakbulk system.
- Carolina Freight Carriers' operations management
was decentralized with the abolishment of a divisional
officer alignment in favor of regional vice presidents
who are now stationed in strategic geographic areas.
- G.I. Trucking restructured its intermodal linkage on
transcontinental traffic, allowing the use of ocean
containers and a double stack rail configuration,
which will reduce rail cost and the need to use company
equipment.
During the second quarter of 1994, Carolina Freight Carriers will
implement the conversion of its linehaul tractor fleet from a 7-year trade
cycle to a 4-year trade cycle utilizing an operating lease which will allow the
Company to reduce maintenance cost and improve fuel efficiency.
The Company has placed the international operations under the masthead
of one entity - CaroTrans International, Inc. Previously, the Company's
international operations were conducted through Carolina Freight Carriers and
Innovative Logistics, both of which have operated as non-vessel operating
common carriers (NVOs). As a neutral NVO, CaroTrans will be positioned to
offer a broad range of services with greater flexibility.
The actions taken are positive moves that management believes are
necessary to begin the improvement process within the core business - LTL
freight transportation. At the same time, management is encouraging the other
business segments to pursue a course of vigorous growth. Management believes
these are the keys to returning the Company to a profitable position.
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The total number of service centers for the consolidated group at the end
of the quarter was 228.
Liquidity and Capital Resources
Net working capital at March 26, 1994 was a negative $9.0 million and at
December 31, 1993 was a negative $12.4 million. Cash and cash equivalents were
$17.2 million at March 26, 1994 and $16.7 million at December 31, 1993.
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.
On March 17, 1994, the Carolina Freight Carriers Corporation (CFCC) 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 $2,370,000 of existing term debt 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. The revolving credit indebtedness
under the agreement at March 26, 1994 was $10.0 million. No revolving credit
was outstanding at December 31, 1993.
Capital expenditures (net of proceeds from disposal of operating
property) through the first quarter of 1994 were $3.1 million compared with $2.2
million in the prior year period. Planned 1994 capital expenditures are
approximately $17.0 million. It is anticipated that approximately $9.6 million
will be expended on revenue and service equipment, $2.7 million on terminal
construction and renovation, and $4.7 million for office, computer, and terminal
equipment.
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Capital expenditures (net of proceeds from disposal of operating property)
during 1993 were $15.8 million. Of this amount, $17.3 million was expended for
revenue and service equipment, $4.7 million for acquisition, construction, and
renovation of land and buildings and $7.3 million for office, shop, and
terminal equipment. Capital expenditures were financed through internally
generated funds and borrowings under the terms of the revolving credit
agreement.
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.
The long-term debt-to-equity ratio of the Corporation at March 26, 1994
was 68.4% compared with 58.5% at December 31, 1993.
The Board of Directors suspended payment of the dividend on common stock
of the Company on January 10, 1994.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings None
There are not now pending any material legal proceedings, other than ordinary
routine litigation incident to its business, to which the Company or its
subsidiaries are a party or to which any of their property is subject. During
the first quarter of 1994, no material litigation or governmental proceeding
was instituted or pending against the Company or its subsidiaries arising from
any alleged violation of any emission control standards or other environmental
regulations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(k) Secured Revolving Credit and Letter of Credit Agreement dated
March 15, 1994.
(b) Registrant did not file, nor was it required to file, with the
Commission in respect of any period in the quarter ended March 26, 1994,
a report on Form 8-K.
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.
CAROLINA FREIGHT CORPORATION
(Registrant)
DATE May 5, 1994 BY /s/ Lary R. Scott
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Lary R. Scott
Chief Executive Officer
DATE May 5, 1994 BY /s/ Shawn W. Poole
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Shawn W. Poole
Treasurer
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