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 September 13, 1997
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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 __________.
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)
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
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The number of shares of common stock without par value outstanding as of October
11, 1997 was 38,945,283.
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INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED SEPTEMBER 13, 1997
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--September 13,
1997 and December 31, 1996
Condensed Consolidated Statements of Income--Twelve
weeks and thirty-six weeks ended September 13, 1997
and September 7, 1996
Condensed Consolidated Statements of Cash
Flows--Thirty-six weeks ended September 13, 1997 and
September 7, 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 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 SEPT. 13, DECEMBER 31,
1997 1996
------------------- --------------------
(dollars in thousands)
CURRENT ASSETS
Cash and cash equivalents $ 20,307 $ 38,829
Accounts receivable 320,427 365,033
Prepaid expenses and supplies 59,443 72,813
Deferred income taxes 58,585 47,801
------------------- --------------------
TOTAL CURRENT ASSETS 458,762 524,476
PROPERTY AND EQUIPMENT, NET 746,262 848,319
Cost in excess of net assets of businesses
acquired, net of amortization 4,891 5,015
Other assets 48,419 54,357
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TOTAL OTHER ASSETS 53,310 59,372
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TOTAL ASSETS $ 1,258,334 $ 1,432,167
=================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 13,000 $ 230,000
Accounts payable 335,307 262,313
Salaries and wages 61,728 80,259
Other current liabilities 55,486 57,469
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TOTAL CURRENT LIABILITIES 465,521 630,041
LONG-TERM LIABILITIES
Long-term debt 200,000 200,000
Self-insurance accruals 32,230 40,809
Deferred income taxes 41,096 22,670
------------------- --------------------
TOTAL LONG-TERM LIABILITIES 273,326 263,479
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 51,417 50,735
Retained earnings 485,526 503,496
------------------- --------------------
576,841 594,129
Treasury stock, at cost
(1997 - 1,690,000 shares, 1996 - 1,605,000 shares) 57,354 55,482
------------------- --------------------
TOTAL SHAREHOLDERS' EQUITY 519,487 538,647
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,258,334 $ 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 THIRTY-SIX WEEKS ENDED
(THIRD QUARTER) (THREE QUARTERS)
------------------------------------ ------------------------------------------
SEPT. 13, SEPT. 7, SEPT. 13, SEPT. 7,
1997 1996 1997 1996
-------------- ------------------- -------------------- -------------------
(dollars in thousands, except per share data)
REVENUE $ 592,488 $ 627,226 $ 1,808,360 $ 1,825,201
OPERATING EXPENSES
Salaries, wages and benefits 181,922 247,157 634,048 718,190
Purchased transportation 203,512 182,775 578,675 530,598
Operating supplies and expenses 101,322 135,244 340,413 377,574
Operating taxes and licenses 8,100 13,083 32,361 38,552
Insurance and claims 11,340 14,549 40,177 39,591
Provision for depreciation 27,870 34,194 85,778 100,877
Restructuring charge - - 85,000 -
-------------- ------------------- -------------------- -------------------
TOTAL OPERATING EXPENSES 534,066 627,002 1,796,452 1,805,382
-------------- ------------------- -------------------- -------------------
OPERATING INCOME 58,422 224 11,908 19,819
Other expense, net (3,039) (2,965) (5,567) (5,567)
-------------- ------------------- -------------------- -------------------
INCOME (LOSS) BEFORE INCOME TAXES 55,383 (2,741) 6,341 14,252
Income tax provision (benefit) 22,934 (771) 9,531 6,381
-------------- ------------------- -------------------- -------------------
NET INCOME (LOSS) $ 32,449 $ (1,970) $ (3,190) $ 7,871
============== =================== ==================== ===================
EARNINGS (LOSS) PER SHARE $ 0.83 $ (0.05) $ (0.08) $ 0.20
============== =================== ==================== ===================
DIVIDENDS DECLARED PER SHARE $ 0.10 $ 0.18 $ 0.38 $ 0.54
============== =================== ==================== ===================
AVERAGE SHARES OUTSTANDING 39,207 39,505 39,221 39,512
============== =================== ==================== ===================
See notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CALIBER SYSTEM, INC.
THIRTY-SIX WEEKS ENDED
(THREE QUARTERS)
---------------------------------------
SEPT. 13, SEPT. 7,
1997 1996
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(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,190) $ 7,871
Restructuring charge 85,000 -
Other adjustments 102,310 68,058
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NET CASH PROVIDED BY OPERATING ACTIVITIES 184,120 75,929
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (68,800) (203,486)
Sales of property and equipment 85,079 4,652
Proceeds from sale of investment 15,995 -
Net advances to discontinued operations - (5,927)
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 32,274 (204,761)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (17,916) (27,777)
Decrease in short-term debt, net (217,000) (55,400)
Proceeds from issuance of long-term debt - 200,000
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (234,916) 116,823
----------------- --------------------
CASH FLOWS USED IN CONTINUING OPERATIONS (18,522) (12,009)
CASH FLOWS USED IN DISCONTINUED OPERATIONS - (7,402)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (18,522) (19,411)
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CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 38,829 34,908
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CASH AND CASH EQUIVALENTS AT END OF THIRD QUARTER $ 20,307 $ 15,497
================= ====================
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 thirty-six weeks ended September 13,
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 (FASB) 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 thirty-six weeks ended September 13, 1997.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
which is effective beginning in 1998. Statement 130 establishes standards for
reporting and display of comprehensive income and its components. Comparative
periods are required to be reclassified to reflect the provisions of the
Statement. The adoption of this Statement will not affect earnings as previously
reported.
In June 1997, the FASB issued Statement No. 131, Disclosures About Segments of
an Enterprise and Related Information. This statement requires disclosure of
selected financial and descriptive information for each operating segment based
on management's internal organizational decision-making structure. Additional
information is required on a company-wide basis for revenues by product or
service, revenues and identifiable assets by geographic location and information
about significant customers. The Company will begin presenting any additional
information as required by the Statement in its financial statements for the
year-ending December 31, 1998.
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.
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Note B - Viking Restructuring
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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.
Note C - Deferred Income Taxes
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Net deferred tax assets were $17 million at September 13, 1997 and $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
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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
-------------------------
Consolidated revenue for the third quarter ended September 13, 1997 decreased
5.5% to $592.5 million from third quarter 1996 revenue of $627.2 million as a
result of the Viking restructuring announced on March 27, 1997. Excluding
Viking, revenue increased 26% for the quarter, from $399.4 million in 1996 to
$502.6 million in 1997. For the first three quarters of 1997 consolidated
revenue of $1.81 billion was slightly below the $1.83 billion realized a year
ago. Revenues excluding Viking for the first three quarters amounted to $1.39
billion for 1997, a 19.5% increase over comparable 1996 revenues of $1.16
billion.
All business units except Viking experienced revenue improvements over third
quarter 1996 levels. RPS, Viking Freight and Roberts Express were positively
impacted by the 12-day work stoppage at United Parcel Service (UPS). Revenue at
RPS, the company's small package carrier, increased to $388.4 million or 27.7%
over third quarter revenue of $304.3 million last year as RPS continued its
trend of double-digit growth. The 12-day impact of the UPS strike amounted to
approximately $21 million in additional revenue.
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Daily volume topped 1.5 million packages during the UPS work stoppage, compared
to pre-strike levels of approximately 1.2 million packages. On-time service
levels fell during and immediately after the UPS strike but have steadily risen
since that time. Package quotas for RPS customers will be maintained to preserve
RPS' on-time service record throughout the traditional peak season. The revenue
increase at RPS also reflects continuing growth in package volume including the
retention of approximately 15% of the incremental business experienced during
the work stoppage. RPS's terminal network continues to operate near capacity in
the aftermath of the new UPS labor agreement, and is expected to be the case
through the end of the year. Third quarter net revenues at Caliber Logistics,
which are included in consolidated revenues, increased 26.7%, while gross
revenues increased 32%. Roberts' Express, the company's expedited carrier,
reported revenue growth of 14.2% over the third quarter last year.
The restructuring of Viking's operations included terminating operations at its
former Coles Express unit in the Northeast and Spartan Express in the Southeast
and Midwest. As a result, the company recorded in 1996 a non-cash $225 million
asset impairment charge consisting of 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.
Assets held for sale as a result of the restructuring, amounting to $33 million,
are included in property and equipment in the accompanying condensed
consolidated balance sheet. Through the third quarter, the company received $33
million from the sale of certain Viking property and equipment (other than from
the sale of Central Freight) and paid $18 million primarily in severance and
related costs associated with the restructuring.
During the third quarter, the company finalized the sale of Viking's
Southwestern Division, which is now operating under the name Central Freight
Lines, Inc. The company 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 did not impact third
quarter earnings.
Results of operations at the former Southwestern Division from the beginning of
the quarter until sale of operations, as well as other non-recurring transition
costs related to the closing of the former Coles and Spartan Divisions, are
included in the consolidated third quarter results. Revenue associated with
these divisions was $5.5 million, expenses were $9.8 million, resulting in $4.3
million of transition costs during the third quarter. For the thirty-six weeks,
revenue was $55.4 million and expenses were $75.8 million, resulting in $20.4 of
transition costs.
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Viking's ongoing operations now provide regional freight service to customers in
12 western states through 43 terminals. Third quarter revenue from Viking's
ongoing operations amounted to $84.4 million. Viking's ongoing operations
reported $78.5 million of operating expenses, resulting in a third quarter
operating profit of $5.8 million, the second full quarter since the unit's
restructuring as a regional carrier. In total, Viking reported operating income
of $1.5 million in the third quarter of 1997 compared to an operating loss of
$38.2 million for the same period last year. For the thirty-six weeks, Viking's
ongoing operations reported revenue of $366.9 million and operating expenses of
$392.7, resulting in an operating loss of $25.8 million.
Without Viking, third quarter operating expenses were $445.7 million in 1997
compared to $360.9 million in the third quarter of 1996, an increase of 23.5%.
This change resulted primarily from higher business volumes at RPS and
Logistics, which reported operating expense increases of 25% and 24.5%,
respectively.
Excluding the restructuring charge and related transition costs, operating
income was $62.7 million for the quarter and $117.3 million year-to-date,
compared to 1996 third quarter operating income of $.2 million and year-to-date
1996 operating income of $19.8 million.
Third quarter operating income without Viking was $56.9 million, an increase of
48% over $38.4 million last year. RPS reported a 52.2% rise in third quarter
operating income to $44.8 million from $29.5 million for the same period last
year. RPS's third quarter margins increased from 9.7% in 1996 to 11.5% in 1997.
The UPS work stoppage increased RPS's operating income by $6 million in the
third quarter. Roberts' operating income grew 30% while continuing to maintain
excellent margins. Logistic's margins have improved over 1996 for both the third
quarter and year-to-date.
For the first three quarters, operating income excluding Viking was $143.2
million, a 36% improvement compared to $105.3 million in the first three
quarters of 1996. Growth in operating income was due primarily to RPS, where
operating income rose 35.7% from $85.4 million in 1996 to $115.8 million in
1997. Year to date margins at RPS improved from 9.55% to 10.87%. Operating
income for the first three quarters at RPS was positively impacted by a $5.3
million change in employee benefits.
Other expense, net includes interest expense of $3.7 million and $14.4 million
for the third quarter of 1997 and first three quarters of 1997, respectively.
Other expense, net year-to-date includes a gain on the sale of investments of
$7.6 million.
The consolidated income tax rate related to ongoing operations was 40.2%
year-to-date. This rate exceeded 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 third quarter was $35.3 million or $0.90 per share. Including the Viking
transition costs, the company's net income for the quarter was $32.4 million or
$0.83 per share, compared to a net loss of $1.97 million or $0.05 per share for
the third quarter of 1996.
Net income for the first three quarters from ongoing operations was $66.8
million or $1.70 per share. First quarter restructuring costs for Viking of
$56.4 million or $1.43 per share and transition expenses of $13.6 million or
$.35 per share reduced year-to-date earnings to a loss of $3.2 million or $.08
per share, compared to earnings of $7.9 million or $.20 per share for the first
three quarters of 1996. Year-to-date net income from ongoing operations was
positively impacted by the gain on sale of investment of $4.6 million after tax
or $0.12 per share, and the one-time change in RPS's employee benefits of $2.8
million after tax or $0.07 per share.
For the three quarters, net cash provided by operating activities of $184.1
million was sufficient to fund net property additions of $68.8 million and
dividends of $18 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 $13 million at the end of the third quarter. 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.
Capital expenditures for 1997 are currently estimated to be approximately $105
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.
As announced on October 6, 1997, Caliber System has entered into a definitive
agreement with Federal Express Corporation. Under the Agreement, FDX
Corporation, a new holding company to be formed as part of the transaction, will
acquire Caliber in a transaction in which Caliber shareholders will receive 0.8
FDX shares for each Caliber share they hold. The transaction, which is subject
to approval by the shareholders of both companies and other customary
conditions, is expected to close in early 1998.
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
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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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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10.1 Amendment No. 1 to Caliber System, Inc. Directors' Deferred
Compensation Plan dated August 8, 1997.
10.2 Caliber System, Inc. Deferred Compensation Plan Effective
October 1, 1997
10.3 Form of Third Amended and Restated Management Retention
Agreement (Tier 1)
10.4 Form of Third Amended and Restated Management Retention
Agreement (Tier 2)
10.5 Form of Third Amended and Restated Management Retention
Agreement (Tier 2A)
10.6 Form of Third Amended and Restated Management Retention
Agreement (Tier 3)
10.7 Form of Amendment to Third Amended and Restated Management
Retention Agreement (Specific to Certain Tier 2 Officers)
27 Financial Data Schedule
(b) Reports on Form 8-K Filed During the Third Quarter of 1997
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On June 25, 1997, a Current Report on Form 8-K was filed by the
registrant to announce improved earnings for the Second Quarter.
On July 11, 1997, a Current Report on Form 8-K was filed by the
registrant to announce the completion of the sale of the operations of
Viking Freight, Inc.'s Southwestern Division.
On July 15, 1997, a Current Report on Form 8-K was filed by the
registrant to report Second Quarter results.
On August 15, 1997, a Current Report on Form 8-K was filed by the
registrant to report the declaration of dividends.
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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.
-------------------------------------
(Registrant)
Date: October 24, 1997 By /s/Louis J. Valerio
----------------- -----------------------------------
Louis J. Valerio
Senior Vice President-Finance and
Chief Financial Officer
Date: October 24, 1997 By /s/Kathryn W. Dindo
------------------ -----------------------------------
Kathryn W. Dindo
Vice President and Controller
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EXHIBIT INDEX
Item Description
- ---- -----------
10.1 Amendment No. 1 to Caliber System, Inc. Directors' Deferred
Compensation Plan dated August 8, 1997.
10.2 Caliber System, Inc. Deferred Compensation Plan Effective October 1,
1997
10.3 Form of Third Amended and Restated Management Retention Agreement
(Tier 1)
10.4 Form of Third Amended and Restated Management Retention Agreement
(Tier 2)
10.5 Form of Third Amended and Restated Management Retention Agreement
(Tier 2A)
10.6 Form of Third Amended and Restated Management Retention Agreement
(Tier 3)
10.7 Form of Amendment to Third Amended and Restated Management Retention
Agreement (Specific to Certain Tier 2 Officers)
27 Financial Data Schedule