1
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 June 15, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________ to ___________
Commission file number 0-10716
CALIBER SYSTEM, INC.
- -------------------------------------------------------------------------------
(Exact name of company as specified in its charter)
Ohio 34-1365496
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3560 West Market Street, P.O. Box 5459, Akron, Ohio 44334-0459
- --------------------------------------------------- ------------------
(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
--- ---
The number of shares of common stock without par value outstanding as of June
30, 1996 was 39,178,792.
2
INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED JUNE 15, 1996
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- June 15, 1996 and
December 31, 1995
Condensed Statements of Consolidated Income -- Twelve weeks and
twenty-four weeks ended June 15, 1996 and June 17, 1995
Condensed Statements of Consolidated Cash Flows -- Twenty-four
weeks ended June 15, 1996 and June 17, 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
Item 4. Results of Votes of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
-2-
3
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
CALIBER SYSTEM, INC.
June 15, December 31,
1996 1995
-------- ------------
(dollars in thousands)
ASSETS
Cash and cash equivalents............................................ $ 8,122 $ 34,908
Accounts receivable.................................................. 319,632 273,124
Prepaid expenses and supplies........................................ 78,156 66,630
Deferred income taxes................................................ 35,842 27,562
---------- ----------
TOTAL CURRENT ASSETS................................................. 441,752 402,224
Property and equipment............................................... 1,560,267 1,474,934
Less allowances for depreciation..................................... 646,343 617,587
---------- ----------
TOTAL PROPERTY AND EQUIPMENT................................. 913,924 857,347
---------- ----------
Cost in excess of net assets of businesses acquired.................. 88,531 89,761
Other assets......................................................... 36,656 39,938
---------- ----------
TOTAL OTHER ASSETS........................................... 125,187 129,699
---------- ----------
TOTAL ASSETS................................................. $1,480,863 $1,389,270
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................................... $ 237,572 $ 219,406
Salaries and wages................................................... 70,310 74,790
Short-term debt...................................................... 284,700 197,500
Other current liabilities............................................ 55,106 63,663
---------- ----------
TOTAL CURRENT LIABILITIES.................................... 647,688 555,359
Self-insurance accruals.............................................. 37,707 39,832
Deferred income taxes................................................ 63,764 57,778
---------- ----------
TOTAL LONG-TERM LIABILITIES.................................. 101,471 97,610
Common stock -- 40,896,414 shares issued............................. 39,898 39,898
Additional capital................................................... 50,538 51,322
Earnings reinvested in the business.................................. 692,537 696,803
---------- ----------
782,973 788,023
Less cost of common stock in treasury -- 1,379,000
shares in 1996 and 1,394,000 shares in 1995.......................... 51,269 51,722
--------- ----------
TOTAL SHAREHOLDERS' EQUITY.................................... 731,704 736,301
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................... $1,480,863 $1,389,270
========== ==========
See notes to condensed consolidated financial statements.
- 3 -
4
CALIBER SYSTEM, INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
Twelve Weeks Ended Twenty-Four Weeks Ended
(Second Quarter) (First Half)
----------------------- ---------------------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
-------- ------- ---------- ----------
(amounts in thousands, except per share data)
REVENUE.................................................... $615,901 $550,779 $1,197,975 $1,094,248
OPERATING EXPENSES
Salaries, wages and benefits............................. 241,010 211,890 471,033 422,842
Purchased transportation................................. 181,332 151,973 347,823 306,993
Operating supplies and expenses.......................... 131,535 101,683 242,330 194,192
Operating taxes and licenses............................. 13,426 11,371 25,469 22,554
Insurance and claims..................................... 13,848 12,477 25,042 24,526
Provision for depreciation............................... 33,336 29,646 66,683 57,930
-------- -------- ---------- ----------
TOTAL OPERATING EXPENSES............................... 614,487 519,040 1,178,380 1,029,037
-------- -------- ---------- ----------
OPERATING INCOME..................................... 1,414 31,739 19,595 65,211
Other (expense) income, net................................ (1,370) 2,449 (2,602) 4,158
-------- -------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................................. 44 34,188 16,993 69,369
Income tax (benefit) provision............................. (176) 11,831 7,152 25,482
-------- -------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS.................... 220 22,357 9,841 43,887
LOSS FROM DISCONTINUED OPERATIONS, NET
OF INCOME TAXES...................................... -- (24,359) -- (40,038)
-------- -------- ---------- ----------
NET INCOME (LOSS).................................... $ 220 $ (2,002) $ 9,841 $ 3,849
======== ======== ========== ==========
EARNINGS (LOSS) PER SHARE
Income from continuing operations........................ $ 0.01 $ 0.57 $ 0.25 $ 1.11
Loss from discontinued operations........................ -- (0.62) -- (1.01)
======== ======== ========== ==========
NET INCOME (LOSS).................................... $ 0.01 $ (0.05) $ 0.25 $ 0.10
======== ======== ========== ==========
DIVIDENDS DECLARED PER SHARE........................... $ 0.18 $ 0.35 $ 0.36 $ 0.70
======== ======== ========== ==========
AVERAGE SHARES OUTSTANDING............................. 39,525 39,467 39,515 39,451
======== ======== ========== ==========
See notes to condensed consolidated financial statements.
-4-
5
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
CALIBER SYSTEM, INC.
Twenty-Four Weeks Ended
(First Half)
-----------------------
June 15, June 17,
1996 1995
-------- --------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations............................ $ 9,841 $ 43,887
Adjustments.................................................. 32,651 30,838
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 42,492 74,725
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment.......................... (126,769) (143,110)
Sales of property and equipment.............................. 4,345 1,423
Net advances to discontinued operations...................... (10,227) (56,100)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES...................... (132,651) (197,787)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid............................................... (20,725) (27,331)
Dividends received from discontinued operations.............. -- 7,500
Increase in short-term debt, net............................. 87,200 141,600
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................. 66,475 121,769
--------- ---------
CASH FLOWS USED IN CONTINUING OPERATIONS................... (23,684) (1,293)
CASH FLOWS USED IN DISCONTINUED OPERATIONS................. (3,102) (1,941)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................. (26,786) (3,234)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 34,908 14,780
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF SECOND QUARTER......... $ 8,122 $ 11,546
========= =========
See notes to condensed consolidated financial statements.
-5-
6
CALIBER SYSTEM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the twenty-four weeks
ended June 15, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
Second 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 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
The registrant 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 and
Results of Operations
Consolidated revenue for the second quarter ended June 15, 1996 amounted to
$615.9 million, an increase of $65.1 million or 11.8% over second quarter 1995
revenue of $550.8 million. For the twenty-four weeks constituting the company's
first half, revenue was $1,198 million, an increase of $103.8 million or 9.5%
from $1,094.2 million for the first half of 1995.
All operating units experienced revenue improvements over second quarter 1995
levels. Revenue for the second quarter at RPS, the company's small package
carrier, increased to $302.5 million or 3.7% over the second quarter last year.
The increase was primarily attributable to higher package volume from the growth
of its Overnight Ground(SM) product. However, revenues at RPS continue to be
adversely affected by economic pressures in the retail segment. Revenue at
Viking Freight (Viking), the company's emerging superregional carrier, amounted
to $226.3 million for the second quarter, an increase of 17.8% over 1995 levels.
Revenues increased at Viking due to volume growth but were impacted by continued
aggressive discounting in the industry. Second quarter revenues for Caliber
Logistics were up approximately 50% with revenues from Roberts Express
(Roberts), the company's expedited carrier, up 9.2% over second quarter 1995.
Operating expenses for the second quarter 1996 increased $95.4 million or 18.4%
over comparable 1995 levels, while first half operating expenses were up $149.3
million or 14.5% over the same period in 1995. The increase for the quarter
was, in largest part, due to operating expense increases at Viking of $59.9
million. Besides the expected increases in costs related to revenue growth,
Viking experienced significantly greater expenses associated with operating
inefficiencies and the consolidation of the company's regional carriers, and to
-6-
7
a lesser extent, higher fuel costs. Viking's rapid revenue growth resulted in
additional expenses for training of new hires, purchased transportation,
equipment rentals and overtime. At the same time, Viking experienced
substantial nonrecurring consolidation costs from the integration of multiple
information systems, re-identification of equipment, merging of administrative
operating systems and the closing of three regional corporate headquarters.
These consolidation costs will continue throughout the second half with the
integration of the company's former regional carriers into the "new" Viking
expected to be completed by year end.
Operating expenses increased at RPS due primarily to higher business volumes
and fixed costs resulting from the company's continuing expansion. Higher
business volumes resulted in increased operating expenses at Caliber Logistics
and Roberts.
Operating income for the second quarter and first half declined $30.3 million
and $45.6 million, respectively, from comparable 1995 levels. Operating income
at RPS amounted to $24.5 million for the second quarter compared to $33.8
million for 1995. This decline in operating income at RPS was due to lower
than expected volume growth, an aggressive pricing environment and higher fixed
costs associated with its continuing expansion and investments in equipment and
technology. Viking's operating loss for the quarter was $31.2 million compared
to an operating loss of $5.5 million in second quarter 1995. For the first
half, Viking's operating loss amounted to $43.1 million compared to $10.3
million last year. Roberts continues to maintain excellent margins while
Caliber Logistics met its profit objective for the quarter.
The change in other expense, net for the quarter and first half from comparable
1995 periods, reflects additional net interest expense of $1.9 million and $3.4
million, respectively and the loss of interest income from discontinued
operations, amounting to $2.3 million and $4.1 million, respectively.
Income taxes were 42.1% of pre-tax income for the first half 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. As a result of the impact of continuing economic pressure in
the retail segment and an aggressive pricing environment, RPS will not realize
targeted goals for double digit growth in revenue or improved year-over-year
operating income during 1996. At Viking, while tactical plans for managing the
rapid growth and associated expenses are being implemented, and consolidation
costs are being incurred for the remainder of year, it is expected that
operating losses will significantly exceed the company's earlier estimate for
1996. As a result of the company's first half operating results and
expectations for the rest of the year, it is anticipated that earnings from
continuing operations for 1996 will be significantly below those of 1995.
RPS reached its goal of opening 32 new terminals by the end of June, allowing
it to effectively serve 100% of the U.S. population. In addition, RPS will
continue to invest in state-of-the-art package handling equipment and
technology and plans to increase its penetration of the overnight ground
delivery market. The company will direct significant resources to meet
customer requirements for blended transportation, logistics and related
information services, even at the expense of short-term profits. The company
will continue to strengthen the respective operating units for customers who
want special services and products.
-7-
8
For the first half, net cash provided by operating activities of $42.5 million
was not sufficient to fund net property additions of $122.4 million and
dividends of $20.7 million, requiring the company to incur additional outside
borrowings of $87.2 million. Borrowings under financing agreements amounted to
$284.7 million at the end of the second quarter. The company believes it will
be able to arrange short and long term financing through public or private
sources or both that, together with cash flows from operations and its existing
credit facilities, will be sufficient to fund its projected capital
expenditures and provide adequate 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; competitive initiatives and
pricing pressures; availability and cost of capital; shifts in market demand;
weather conditions; 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; the timing and amount of
capital expenditures; and the actual costs and effects of the continuing
consolidation of the regional carriers.
PART II -- OTHER INFORMATION
Item 4. Results of Votes of Security Holders
On May 8, 1996, the registrant held its Annual Meeting of Shareholders at which
the following directors were elected, receiving the number of votes set forth
beside their names.
George B. Beitzel 33,622,559 Charles R. Longsworth 33,627,612
R. A. Chenoweth 33,625,521 G. James Roush 33,637,247
Norman C. Harbert 33,638,720 Daniel J. Sullivan 33,610,955
Harry L. Kavetas 33,539,416 H. Mitchell Watson, Jr. 33,631,244
With respect to a motion to approve the adoption of the 1996 Equity Incentive
Compensation Plan, 31,979,947 votes were cast in favor of the proposal;
1,740,537 votes were cast against such proposal; and 137,694 votes abstained.
With respect to a motion to approve the amendment to the 1989 Nonemployee
Directors' Stock Plan, 32,611,695 votes were cast in favor of the proposal;
958,205 votes were cast against such proposal; and 288,278 votes abstained.
With respect to a motion to approve the adoption of the Nonemployee Directors'
Stock Retainer Plan, 32,613,213 votes were cast in favor of the proposal,
1,097,305 votes were cast against such proposal; and 147,660 votes abstained.
With respect to a shareholder proposal in favor of cumulative voting, no vote
was taken as neither the proponent of the proposal nor her representative was
in attendance to present the proposal.
With respect to a shareholder proposal for amendment of the Company Code of
Regulations to require that an independent director serve as Chairman of the
Board of Directors, no vote was taken as neither the proponent of the proposal
nor his representative was in attendance to present the proposal.
With respect to the ratification of Ernst & Young LLP as independent auditors,
33,495,190 votes were cast in favor of the proposal; 132,369 votes were cast
against such proposal; and 230,619 votes abstained.
-8-
9
Item 5. Other Information
On July 3, 1996, the registrant filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 for a shelf registration of up
to $400 million in debt securities.
On July 3, 1996, the registrant announced that Randolph C. Bangham, Chairman
and Chief Executive Officer of Viking Freight, Inc., the company's emerging
superregional carrier, plans to retire at the end of this year. Mr. Bangham
will continue as Chairman through December. Ronald G. Pelzel, Viking's
President, immediately assumed the chief executive responsibilities. Mr.
Pelzel has been President since 1993 and has held executive officer positions
since 1983 when he joined the company as Vice President-Finance.
On July 8, 1936, the registrant announced that John E. Lynch had been elected
Vice President, General Counsel and Secretary of Caliber System, Inc. Mr.
Lynch had previously been a Trial Partner with Squire, Sanders & Dempsey,
Cleveland, Ohio, where he engaged in civil trial and appellate practice as well
as administrative proceedings. Mr. Lynch graduated from Hamilton College in
Clinton, New York with a B.A. in economics and received his Juris Doctor from
Case Western Reserve University School of Law.
On July 9, 1996, the registrant announced that Douglas A. Wilson, Senior Vice
President-Finance and Planning and Chief Financial Officer of Caliber System,
Inc. had left the company to pursue other interests. A successor was not
announced. On an interim basis, Mr. Wilson's financial responsibilities will
be divided between Kathryn W. Dindo, Vice President and Controller, and John P.
Chandler, Vice President and Treasurer.
-9-
10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
10.1 Caliber System, Inc. Directors' Deferred Compensation Plan as
Amended and Restated as of May 8, 1996.
10.2 Caliber System, Inc. Nonemployee Directors' Stock Retainer Plan
as approved by the Company's shareholders on May 8, 1996.
10.3 Caliber System, Inc. Nonemployee Directors' Stock Plan (1989)
as Amended as of May 8, 1996.
10.4 Caliber System, Inc. 1994 Nonemployee Directors' Stock Plan as
Amended as of May 8, 1996.
10.5 Caliber System, Inc. Retirement Plan for Employee Directors as
Amended as of May 8, 1996.
10.6 Caliber System, Inc. 1996 Equity Incentive Compensation Plan as
approved by the Company's shareholders on May 8, 1996.
10.7(a) Caliber System, Inc. Excess Plan effective January 2, 1996.
10.7(b) Caliber System, Inc. 401(a)(17) Benefit Plan effective January
2, 1996.
10.7(c) Caliber System, Inc. Administrative Document for Excess Plan
and 401(a)(17) Benefit Plan effective January 2, 1996.
10.8 Credit Agreement entered into between Caliber System, Inc. and
Morgan Guaranty Trust Company of New York on July 8, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K Filed During the Second Quarter of 1996
-----------------------------------------------------------
On July 1, 1996, a Current Report on Form 8-K was filed by the
registrant with the Securities and Exchange Commission to report Second
Quarter results.
-10-
11
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.
CALIBER SYSTEM, INC.
---------------------------------
(Registrant)
Date: July 12, 1996 By /s/ Daniel J. Sullivan
------------- ------------------------------
Daniel J. Sullivan
Chairman, President and
Chief Executive Officer
Date: July 12, 1996 By /s/ Kathryn W. Dindo
------------- ------------------------------
Kathryn W. Dindo
Vice President and Controller
-11-