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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the period ended March 23, 1996
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-10716
CALIBER SYSTEM, INC.
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(Exact name of company as specified in its charter)
Ohio 34-1365496
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3560 West Market Street, P.O. Box 5459, Akron, Ohio 44334-0459
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code is (330) 665-5646
Indicate by check mark whether the company (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
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The number of shares of common stock without par value outstanding as of April
19, 1996 was 39,188,517.
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INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED MARCH 23, 1996
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--March 23, 1996 and
December 31, 1995
Condensed Statements of Consolidated Income--Twelve weeks ended
March 23, 1996 and March 25, 1995
Condensed Statements of Consolidated Cash Flows--Twelve weeks
ended March 23, 1996 and March 25, 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
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Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
CALIBER SYSTEM, INC.
March 23, December 31,
1996 1995
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(dollars in thousands)
ASSETS
Cash and cash equivalents............................ $ 14,313 $ 34,908
Accounts receivable.................................. 292,369 273,124
Prepaid expenses and supplies........................ 78,112 66,630
Deferred income taxes................................ 36,986 27,562
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TOTAL CURRENT ASSETS.............................. 421,780 402,224
Property and equipment............................... 1,495,568 1,474,934
Less allowances for depreciation..................... 636,376 617,587
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TOTAL PROPERTY AND EQUIPMENT...................... 859,192 857,347
Cost in excess of net assets of businesses acquired.. 89,162 89,761
Other assets......................................... 38,156 39,938
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TOTAL OTHER ASSETS................................ 127,318 129,699
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TOTAL ASSETS...................................... $1,408,290 $1,389,270
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................... $ 213,931 $ 219,406
Salaries and wages................................... 67,075 74,790
Short-term debt...................................... 235,400 197,500
Other current liabilities............................ 54,735 63,663
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TOTAL CURRENT LIABILITIES......................... 571,141 555,359
Self-insurance accruals.............................. 39,370 39,832
Deferred income taxes................................ 58,587 57,778
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TOTAL LONG-TERM LIABILITIES....................... 97,957 97,610
Common stock - 40,896,414 shares issued.............. 39,898 39,898
Additional capital................................... 50,404 51,322
Earnings reinvested in the business.................. 699,385 696,803
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789,687 788,023
Less cost of common stock in treasury - 1,353,000
shares in 1996 and 1,394,000 shares in 1995......... 50,495 51,722
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TOTAL SHAREHOLDERS' EQUITY........................ 739,192 736,301
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $1,408,290 $1,389,270
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See notes to condensed consolidated financial statements.
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CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
CALIBER SYSTEM, INC.
Twelve Weeks Ended
(First Quarter)
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March 23, March 25,
1996 1995
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(amounts in thousands,
except per share data)
REVENUE.......................................... $ 582,074 $ 543,469
OPERATING EXPENSES
Salaries, wages and benefits................... 230,023 210,952
Purchased transportation....................... 166,491 155,020
Operating supplies and expenses................ 110,795 92,509
Operating taxes and licenses................... 12,043 11,183
Insurance and claims........................... 11,194 12,049
Provision for depreciation..................... 33,347 28,284
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TOTAL OPERATING EXPENSES..................... 563,893 509,997
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OPERATING INCOME............................. 18,181 33,472
Other (expense) income, net...................... (1,232) 1,709
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.......................... 16,949 35,181
Provision for income taxes....................... 7,328 13,651
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INCOME FROM CONTINUING OPERATIONS............ 9,621 21,530
LOSS FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAXES............................... - (15,679)
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NET INCOME................................... $ 9,621 $ 5,851
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EARNINGS (LOSS) PER SHARE
Income from continuing operations............ $ 0.24 $ 0.54
Loss from discontinued operations............ - (0.39)
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NET INCOME................................... $ 0.24 $ 0.15
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DIVIDENDS DECLARED PER SHARE..................... $ 0.18 $ 0.35
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AVERAGE SHARES OUTSTANDING....................... 39,505 39,434
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See notes to condensed consolidated financial statements.
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CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
CALIBER SYSTEM, INC.
Twelve Weeks Ended
(First Quarter)
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March 23, March 25,
1996 1995
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(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations.............. $ 9,621 $ 21,530
Adjustments.................................... (6,601) 1,478
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NET CASH PROVIDED BY
OPERATING ACTIVITIES.................... 3,020 23,008
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............ (37,830) (52,630)
Sales of property and equipment................ 3,331 781
Net advances to discontinued operations........ (14,277) (59,600)
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NET CASH USED IN INVESTING ACTIVITIES........ (48,776) (111,449)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid................................. (13,671) (13,653)
Dividends received from discontinued operations - 7,500
Increase in short-term debt, net............... 37,900 85,800
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NET CASH PROVIDED BY
FINANCING ACTIVITIES...................... 24,229 79,647
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CASH FLOWS USED IN
CONTINUING OPERATIONS..................... (21,527) (8,794)
CASH FLOWS PROVIDED BY
DISCONTINUED OPERATIONS................... 932 12,903
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NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS...................... (20,595) 4,109
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR...................... 34,908 14,780
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CASH AND CASH EQUIVALENTS
AT END OF FIRST QUARTER................... $ 14,313 $ 18,889
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See notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CALIBER SYSTEM, INC.
Note A - Basis of Presentation
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The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twelve weeks ended March 23, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
First quarter amounts for 1995 have been restated to reflect the spin-off of
Roadway Express, Inc. and the exit from the air freight business served by
Roadway Global Air, Inc. during 1995 which are reflected as discontinued
operations. During 1995, certain costs were estimated and recognized in
connection with the discontinuance of these businesses. Although actual results
could differ from these estimates, it is management's opinion that significant
adjustments to these estimates are not currently required.
For further information, refer to consolidated financial statements and
footnotes thereto included in the company's annual report on Form 10-K for the
year ended December 31, 1995.
Note B - Accounting Period
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The company operates on a 13 four-week period calendar with 12 weeks in each
of the first three quarters and 16 weeks in the fourth quarter.
Item 2. Management's Discussion and Analysis of Financial Condition
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and Results of Operations
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Consolidated revenue for the first quarter ended March 23, 1996 amounted to
$582.1 million, an increase of $38.6 million or 7.1% over first quarter 1995
revenue of $543.5 million. Although revenue increased at all operating units
except Roberts Express (Roberts), first quarter revenues were impacted by severe
winter weather, including flooding in the northwest, a soft economy and
declining rate levels. Revenue at RPS, the company's small-package carrier,
increased to $287.7 million or 0.6% over first quarter 1995. Package volume was
below first quarter 1995 levels due primarily to the weather and the economy,
particularly in the retail sector. Although rates at RPS improved slightly over
1995 levels, a portion of the February rate increase has not been retained due
to aggressive discounting in the small-package market. Revenues at Viking
Freight (Viking), the company's superregional carrier amounted to $211.3
million, an increase of 13.6% over first quarter 1995. This increase came from
higher volume from existing customers, as well as new customers attracted by the
consolidation of the company's former regional carrier group. Rate levels at
Viking were below first quarter 1995 levels due to continued discounting and
overcapacity in the industry. Rates currently appear to be stabilizing. Caliber
Logistics revenue increased 49.2% for the first quarter of 1996 compared to
1995, reflecting increased penetration of the logistics market. Roberts, the
company's expedited carrier, experienced a revenue decline of 9.3% due
principally to the sluggish economy.
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Total operating expenses increased $53.9 million or 10.6% over the first quarter
1995. This increase resulted primarily from higher business volumes at Viking
and Caliber Logistics, which reported operating expense increases of 16.9% and
51.2%, respectively. Operating supplies and expenses at Viking were impacted not
only by volume growth but also by the consolidation costs associated with the
conversion of four regional freight carriers to a common operating system and
standardization of business practices among the regional operating units, a
process that continues. Operating expenses increased 3.6% at RPS due primarily
to the impact of the winter weather and increased fixed costs resulting from the
company's continuing expansion. The decline in insurance and claims related
expenses of 7.1% in the first quarter 1996 is attributable to on-going claims
management and safety-related programs. Depreciation expense increased 17.9%
over first quarter 1995 levels due to continuing expansion at RPS, and
continuing investments in technology and systems development primarily at RPS
and Viking.
Operating income amounted to $18.2 million for the first quarter 1996 compared
to $33.5 million for 1995 and operating margins declined from 6.2% to 3.1%.
Despite stringent cost controls at RPS, operating income decreased 23.6% from
the first quarter 1995. In addition to the weather, RPS was negatively impacted
by lower than planned volume and increased fixed costs from expansion. Viking's
operating margins were impacted by lower rates, consolidation costs, and to a
lesser extent weather, resulting in an increased operating loss of $7 million
over 1995.
The change in other expense, net, reflected additional interest expense (net of
amounts capitalized) of $1.5 million over first quarter 1995 levels and the loss
of interest income from discontinued operations, which amounted to $1.8 million
for the first quarter of 1995.
Income taxes were 43.2% of pre-tax income for the first quarter 1996 which
approximated the effective tax rate for the year ended December 31, 1995. This
rate exceeded the U.S. federal statutory rate due primarily to state income
taxes and non-deductible operating costs.
Discounting and the effects of overcapacity in the industry are expected to
continue throughout the remainder of 1996 causing industry margins to remain
under pressure. Although first quarter package volume at RPS was below plan, the
company expects an increase in current year revenue and operating income at RPS
through expanded service offerings and effective cost controls. By the end of
June, 1996 RPS will open 32 new terminals, extending service to 100% of the U.S.
population. RPS is also investing in state-of-the-art package handling equipment
and technology and increasing its penetration of the overnight ground delivery
market. The consolidation efforts at Viking are on target and are expected to be
completed by the end of 1996. Operating losses at Viking for the current year
are now expected to approximate $35 million with the majority of this loss being
incurred in the first half of 1996. All operating units will continue to
strengthen their respective service channels for customers wanting to work with
individual carriers for specific services and products, while the company also
directs significant resources to meeting customer requirements for blended
transportation, logistics and related information services.
Net cash provided by operating activities of $3 million was not sufficient to
fund net property additions of $34.5 million and dividends of $13.7 million,
requiring the company to incur outside borrowings. Borrowings under financing
agreements amounted to $235.4 million at the end of the first quarter. The
company believes it will be able to arrange financing through a combination of
new and existing sources that, together with cash flows from operations, will be
sufficient to fund its projected capital expenditures and provide adequate
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levels of working capital and funds for payments of dividends and interest.
Total capital expenditures in 1996 are currently projected at approximately $335
million.
The foregoing contains forward-looking statements that are based on current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from current expectations due to a number of
factors, including general economic conditions; weather conditions; competitive
initiatives and pricing pressures; availability and cost of capital; shifts in
market demand; the performance and needs of industries served by the company's
businesses; actual future costs of operating expenses such as fuel and related
taxes; self-insurance claims and employee wages and benefits; actual costs of
continuing investments in technology; and the actual costs and effects of the
continuing consolidation of the regional carriers.
PART II - OTHER INFORMATION
Item 5. Other Information
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In April, 1996, Robert J. Quinn was elected Vice President-Corporate
Planning effective immediately. Mr. Quinn previously served on special
assignment in Europe, and most recently was special assistant to the Chairman
of the company.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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(10.1) Caliber System, Inc. Long-Term Stock Award Incentive Plan as
amended and restated as of January 2, 1996.
(10.2) Restricted Book Value Shares Plan For Caliber System, Inc. and
Certain Operating Companies as amended and restated as of
January 2, 1996.
(27) Financial Data Schedule
(b) Reports on Form 8-K Filed During the First Quarter of 1996
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A Form 8-K dated January 2, 1996 was filed under Item 5, Other
Materially Important Events, to announce the declaration of a spin-off
to the company's shareholders of record at the close of business on
December 29, 1995 of approximately 95% of the Common Stock of the
company's wholly-owned subsidiary, Roadway Express, Inc. (REX) on the
basis of one share of Common Stock of REX for every two outstanding
shares of Common Stock of the company.
In connection with the spin-off, the company changed its corporate name
to Caliber System, Inc. effective January 2, 1996.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CALIBER SYSTEM, INC.
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(Company)
Date: May 3, 1996 By /s/ D. A. Wilson
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D. A. Wilson, Senior Vice
President-Finance and Planning,
Secretary and Chief Financial
Officer
Date: May 3, 1996 By /s/ Kathryn W. Dindo
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Kathryn W. Dindo,
Vice President and Controller
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