1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the period ended June 21, 1997
-----------------
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)
3925 Embassy Parkway, 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
----
The number of shares of common stock without par value outstanding as of July
19, 1997 was 38,935,452.
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INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED JUNE 21, 1997
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--June 21, 1997 and
December 31, 1996
Condensed Consolidated Statements of Income--Twelve
weeks and twenty-four weeks ended June 21, 1997 and
June 15, 1996
Condensed Consolidated Statements of Cash
Flows--Twenty-four weeks ended June 21, 1997 and June
15, 1996
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.
ASSETS JUNE 21, DECEMBER 31,
1997 1996
----------- ---------
(dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 23,148 $ 38,829
Accounts receivable 302,280 365,033
Prepaid expenses and supplies 59,659 72,813
Deferred income taxes 68,960 47,801
---------- ----------
TOTAL CURRENT ASSETS 454,047 524,476
PROPERTY AND EQUIPMENT, NET 819,283 848,319
Cost in excess of net assets of businesses
acquired, net of amortization 4,933 5,015
Other assets 45,764 54,357
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TOTAL OTHER ASSETS 50,697 59,372
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TOTAL ASSETS $1,324,027 $1,432,167
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 115,000 $ 230,000
Accounts payable 337,051 262,313
Salaries and wages 57,742 80,259
Other current liabilities 55,897 57,469
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TOTAL CURRENT LIABILITIES 565,690 630,041
LONG-TERM LIABILITIES
Long-term debt 200,000 200,000
Self-insurance accruals 41,299 40,809
Deferred income taxes 26,174 22,670
---------- ----------
TOTAL LONG-TERM LIABILITIES 267,473 263,479
SHAREHOLDERS' EQUITY
Serial preferred stock - without par value:
Authorized - 40,000,000 shares; Issued - none -- --
Common stock - without par value:
Authorized - 200,000,000 shares; Issued - 40,896,414 shares 39,898 39,898
Additional capital 51,243 50,735
Retained earnings 456,975 503,496
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548,116 594,129
Treasury stock, at cost
(1997 - 1,687,000 shares, 1996 - 1,605,000 shares) 57,252 55,482
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TOTAL SHAREHOLDERS' EQUITY 490,864 538,647
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,324,027 $1,432,167
========== ==========
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CALIBER SYSTEM, INC.
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
(SECOND QUARTER) (FIRST HALF)
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JUNE 21, JUNE 15, JUNE 21, JUNE 15,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(dollars in thousands, except per share data)
REVENUE $ 574,676 $ 615,901 $ 1,215,872 $ 1,197,975
OPERATING EXPENSES
Salaries, wages and benefits 204,700 241,010 452,126 471,033
Purchased transportation 185,453 181,332 375,163 347,823
Operating supplies and expenses 109,933 131,535 239,091 242,330
Operating taxes and licenses 10,775 13,426 24,261 25,469
Insurance and claims 10,917 13,848 28,837 25,042
Provision for depreciation 27,938 33,336 57,908 66,683
Restructuring charge - - 85,000 -
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 549,716 614,487 1,262,386 1,178,380
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 24,960 1,414 (46,514) 19,595
Other expense, net (2,403) (1,370) (2,528) (2,602)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 22,557 44 (49,042) 16,993
Income tax provision (benefit) 8,972 (176) (13,403) 7,152
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 13,585 $ 220 $ (35,639) $ 9,841
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ 0.34 $ 0.01 $ (0.91) $ 0.25
=========== =========== =========== ===========
DIVIDENDS DECLARED PER SHARE $ 0.10 $ 0.18 $ 0.28 $ 0.36
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING 39,208 39,525 39,228 39,515
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CALIBER SYSTEM, INC.
Twenty-Four Weeks Ended
(First Half)
-------------------------
June 21, June 15,
1997 1996
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(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (35,639) $ 9,841
Restructuring charge 85,000 -
Other adjustments 76,854 32,651
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NET CASH PROVIDED BY OPERATING ACTIVITIES 126,215 42,492
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (49,665) (126,769)
Sales of property and equipment 20,793 4,345
Proceeds from sale of investment 15,995 -
Net advances to discontinued operations - (10,227)
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NET CASH USED IN INVESTING ACTIVITIES (12,877) (132,651)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (14,019) (20,725)
Increase (decrease) in short-term debt, net (115,000) 87,200
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (129,019) 66,475
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CASH FLOWS USED IN CONTINUING OPERATIONS (15,681) (23,684)
CASH FLOWS USED IN DISCONTINUED OPERATIONS - (3,102)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (15,681) (26,786)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 38,829 $ 34,908
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF SECOND QUARTER $ 23,148 $ 8,122
========= =========
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 twenty-four weeks ended June 21, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be retroactively adopted on
December 31, 1997 with all prior periods being restated. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. This statement will not change earnings per
share as reported for the quarter or first half ended June 21, 1997.
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, 1996.
Note B - Viking Restructuring
- -----------------------------
The company announced a major restructuring of Viking's operations on March 27,
1997, which included terminating operations at its former Coles Express unit in
the Northeast and Spartan Express in the Southeast and Midwest. Operations at
these divisions ceased on March 27, 1997. In connection with the Viking
restructuring, the company recorded in 1996 a non-cash $225 million asset
impairment charge related to the write-down of goodwill of $82 million and
property and equipment of $143 million. First quarter 1997 results included a
restructuring charge of $85 million for employee-related costs, including
severance and benefits, costs related to lease terminations, additional non -
cash asset impairments and other expenses resulting from the restructuring.
Subsequent to the end of the second quarter, the company finalized the sale of
Viking's Southwestern Division, which is now operating under the name Central
Freight Lines, Inc. Caliber received $43 million in cash, retained certain
properties that will be sold at a later date, and transferred approximately $22
million in liabilities to Central Freight Lines, Inc. The total value of this
transaction, including the anticipated proceeds from the retained properties, is
estimated at approximately $80 million. This transaction is not anticipated to
materially impact earnings.
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Results of operations at the former Coles, Spartan, and Southwestern Division
from the beginning of the quarter until shut down or sale of operations are
included in the consolidated second quarter results. Revenue associated with
these divisions was $49.9 million, expenses were $66 million, resulting in $16.1
million of transition costs attributable to operating losses at the former
Southwestern Division and to other non-recurring costs related to the closing of
the former Coles and Spartan divisions.
Assets held for sale from the restructuring are included in property and
equipment in the accompanying condensed consolidated balance sheet. In the
second quarter, the company received $16.2 million from the sale of certain
Viking property and equipment, and paid $13.2 million primarily in severance and
related costs associated with the restructuring.
Note C - Deferred Income Taxes
- ------------------------------
Net deferred tax assets increased to $43 million at June 21, 1997 from $25
million at December 31, 1996, reflecting the tax effects of the restructuring
charge. The company has determined that no valuation allowance is required on
net deferred tax assets based on the ability to recover taxes previously paid.
Note D - Accounting Period
- --------------------------
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.
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Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Consolidated revenue for the second quarter ended June 21, 1997 decreased 6.7%
to $574.7 million over second quarter 1996 revenue of $615.9 million as a
result of the Viking restructuring announced on March 27, 1997. Excluding
Viking, revenue increased 14% for the quarter, from $389.6 million in 1996 to
$443.4 million in 1997. For the twenty-four weeks constituting the company's
first half, consolidated revenue was $1,215.9 million, an increase of $17.9
million or 1.5% from $1,198.0 million for the first half of 1996. First half
revenues excluding Viking amounted to $883.5 million for 1997, a 16.2% increase
over comparable 1996 first half revenues of $760.4 million. First half 1997
revenues benefited from three more shipping days than first half 1996.
All business units except Viking experienced revenue improvements over second
quarter 1996 levels. The general strength of the economy has contributed to
increased demand for transportation services. Revenue at RPS, the company's
small package carrier, increased to $338.7 million or 12.0% over second quarter
revenue of $302.5 million last year. Package volume increased 13% over last
year; however, lower package weights and a greater percentage of overnight
ground packages in RPS's mix reduced revenue yields even though indexed rates
were up slightly over last year. On-time service at RPS continues to run at
record levels and approximates 96%. Second quarter net revenues at Caliber
Logistics, which are included in consolidated revenues, increased 34%, while
gross revenues increased 35%. Roberts' Express, the company's expedited carrier,
reported revenue growth of 6% over the second quarter last year.
The company announced a major restructuring of Viking's operations on March 27,
1997, which included terminating operations at its former Coles Express unit in
the Northeast and Spartan Express in the Southeast and Midwest. As a result of
the Viking restructuring, the company recorded in 1996 a non-cash $225 million
asset impairment charge related to the write-down of goodwill of $82 million and
property and equipment of $143 million. First quarter 1997 results included a
restructuring charge of $85 million for employee-related costs, including
severance and benefits, costs related to lease terminations, additional non -
cash asset impairments and other expenses resulting from the restructuring.
In the second quarter, the company received $16.2 million from the sale of
certain Viking property and equipment and paid $13.2 million primarily in
severance and related costs associated with the restructuring.
Subsequent to the end of the second quarter, the company finalized the sale of
Viking's Southwestern Division, which is now operating under the name Central
Freight Lines, Inc. Caliber received $43 million in cash, retained certain
properties that will be sold at a later date, and transferred approximately $22
million in liabilities to Central Freight Lines, Inc. The total value of this
transaction, including the anticipated proceeds from the retained properties, is
estimated at approximately $80 million. This transaction is not anticipated to
materially impact earnings.
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Results of operations at the former Coles, Spartan, and Southwestern Division
from the beginning of the quarter until shut down or sale of operations are
included in the consolidated second quarter results. Revenue associated with
these divisions was $49.9 million, expenses were $66 million, resulting in $16.1
million of transition costs attributable to operating losses at the former
Southwestern Division and to other non-recurring costs related to the closing of
the former Coles and Spartan Divisions.
Viking's ongoing operations now provide regional freight service to customers in
12 western states through 43 terminals. Second quarter revenue from Viking's
ongoing operations amounted to $81.4 million. Viking's ongoing operations
reported $80 million of operating expenses, resulting in a second quarter
operating profit of $1.4 million in the first full quarter since the unit's
restructuring as a regional carrier. In total, Viking reported operating losses
of $14.7 million in the second quarter of 1997 compared to $33.3 million for the
same period last year.
Without Viking, second quarter operating expenses were $403.7 million in 1997
compared to $355 million in the second quarter of 1996, an increase of 13.7%.
This change resulted primarily from higher business volumes at RPS and
Logistics, which reported operating expense increases of 11.7% and 33.3%,
respectively.
Excluding the restructuring charge and related transition costs, operating
income was $41.1 million for the quarter and $54.6 million for the first half,
compared to 1996 second quarter operating income of $1.4 million and first half
1996 operating income of $19.6 million.
Second quarter operating income without Viking was $39.7 million, an increase of
14.4% over $34.7 million last year. RPS reported a 15% rise in second quarter
operating income to $32.3 million from $28.2 million for the same period last
year. RPS's second quarter margins increased from 9.3% in 1996 to 9.5% in 1997.
Roberts continues to maintain excellent margins, while Logistic's margins have
improved over 1996 for both the second quarter and first half.
For the first half, operating income was $86.3 million without Viking, a 29.2%
improvement compared to $66.8 million in the first half of 1996. Growth in first
half operating income was due primarily to RPS, where operating income rose 27%
from $55.9 million in 1996 to $71 million in 1997. First half margins at RPS
improved from 9.48% to 10.48%. RPS's first half operating income was positively
impacted by a $5.3 million change in employee benefits. Excluding the impact of
the change in employee benefits, RPS's first half margin was 9.7% compared to
9.48% in the first half of 1996.
The change in "other expense, net" of $1 million for the second quarter and $0.1
million for the first half consisted primarily of additional net interest
expense of $3.1 million for the quarter and $6.7 million for the first half over
1996 levels offset by a gain on the sale of investment of $2.3 million for the
quarter and $7.6 million for the first half.
The consolidated income tax benefit rate was 27.3% for the first half. The
income tax expense rate related to ongoing operations was 39.5% for the first
half. Both rates differed from the U.S. federal statutory rate due primarily to
state income taxes and non-deductible operating costs.
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Net income from ongoing operations (net income excluding transition costs) for
the second quarter was $24.3 million or $0.62 per share. Including the Viking
transition costs, the company's net income for the quarter was $13.6 million or
$0.34 per share, compared to net income of $220,000 or $0.01 per share for the
second quarter of 1996. Transition costs negatively impacted net income for the
quarter by $10.7 million or $0.28 per share. Net income from ongoing operations
was positively affected by the gain on sale of investment of $1.8 million or
$0.05 per share.
Net income for the first half from ongoing operations was $31.5 million or $0.80
per share. Including the second quarter net transition costs of $10.7 million or
$0.28 per share and the first quarter restructuring charge of $56.4 million or
$1.43 per share, net loss for the first half was $35.6 million or $0.91 per
share compared to net income of $9.8 million or $0.25 per share in 1996. First
half net income from ongoing operations was positively impacted by the gain on
sale of investment of $4.6 million or $0.12 and by the one-time after tax change
in RPS's employee benefits of $2.8 million or $0.07 per share.
For the first half, net cash provided by operating activities of $126.2 million
was sufficient to fund net property additions of $28.9 million and dividends of
$14 million and to reduce outside borrowings. The company is party to bank
credit facilities providing for up to $300 million of term loans and up to $25
million of borrowings under revolving credit. Both agreements are unsecured and
interest is based on variable rates. Outstanding bank borrowings, which are
classified as short-term debt on the accompanying balance sheet, amounted to
$115 million at the end of the second quarter with $210 available for future
borrowings subject to the limitations of the loan covenants. Outstanding bank
borrowings as of July 18, 1997 (the end of the seventh accounting period) have
been further reduced to $50 million as a result of the proceeds from the sale
of Viking's Southwestern Division and cash flows from operating activities. The
bank loan agreements contain covenants requiring the company to maintain a
minimum level of consolidated net worth and limiting, among other things, the
ratio of debt to earnings, the incurrence of secured debt and sales of certain
of the company's assets.
1997 capital expenditures are currently estimated to approximate $125 million,
of which 60% is expected to be for technology and highly automated equipment,
30% for real estate and 10% for revenue and support equipment. The company
anticipates that through available borrowings and cash flows from operations, it
will be able to fund the remaining short-term cash requirements from the Viking
restructuring, capital expenditures during 1997 and provide adequate levels of
working capital and funds for the payment of dividends and interest. In March
1997, the Board of Directors reduced the quarterly dividend from $0.18 per share
to $0.10 per share payable August 1, 1997. The future amount of cash dividends
is subject to the discretion of the Board. Future dividend decisions will be
affected by a number of factors, including the company's future operating
results, financial conditions and other factors.
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 serviced by the
company's businesses; actual future costs including employee wages and benefits;
actual costs of continuing investments in technology; the timing and amount of
capital expenditures; and actual costs and effects of the restructuring of the
business served by Viking.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
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At the annual meeting of shareholders on May 14, 1997, the following proposals
were voted upon:
Concerning Election of Directors
Nominees for Director Votes Cast For Votes Withheld
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George B. Beitzel 34,458,582 1,186,568
Richard A. Chenoweth 34,509,199 1,135,951
Norman C. Harbert 34,525,173 1,119,977
Harry L. Kavetas 34,513,343 1,131,807
Charles R. Longsworth 34,479,279 1,165,871
G. James Roush 34,528,753 1,116,397
Daniel J. Sullivan 34,134,678 1,510,472
H. Mitchell Watson, Jr. 34,464,209 1,180,941
Concerning Ratification of the Designation of Independent Auditors
Votes Cast For: 35,142,050
Votes Cast Against: 309,157
Abstentions: 193,943
Broker Non-Votes: N/A
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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10.1 Trust Agreement between Caliber System, Inc. and Bank One Trust
Company, N.A., dated April 30, 1997
10.2 Rider No. 1 to Caliber System, Inc. Long-Term Stock Award
Incentive Plan effective January 2, 1996
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10.3 Rider No. 2 to Caliber System, Inc. Long-Term Stock Award
Incentive Plan effective January 2, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K Filed During the Second Quarter of 1997
-----------------------------------------------------------
On April 21, 1997, a Current Report on Form 8-K was filed by the
registrant to report First Quarter results.
On April 30, 1997, a Current Report on Form 8-K was filed by the
registrant to announce an agreement in principal to sell the operations
of Viking Freight, Inc.'s Southwestern Division.
On May 28, 1997, a Current Report on Form 8-K was filed by the
registrant to announce the signing of a definitive agreement to sell
the operations of Viking Freight, Inc.'s Southwestern Division.
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SIGNATURES
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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.
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(Registrant)
Date: August 1, 1997 By [Louis J. Valerio]
--------------- --------------------
Louis J. Valerio
Senior Vice President-Finance and
Chief Financial Officer
Date: August 1, 1997 By [Kathryn W. Dindo]
---------------- --------------------
Kathryn W. Dindo
Vice President and Controller
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EXHIBIT INDEX
10.1 Trust Agreement between Caliber System, Inc. and Bank One Trust Company,
N.A. dated April 30, 1997
10.2 Rider No. 1 to Caliber System, Inc. Long-Term Stock Award Incentive Plan
effective January 2, 1996 (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q dated March 23, 1996, and incorporated
herein by reference).
10.3 Rider No. 2 to Caliber System, Inc. Long-Term Stock Award Incentive Plan
effective January 2, 1996 (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q dated March 23, 1996, and incorporated
herein by reference).
27 Financial Data Schedule