<PAGE> 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 7, 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 August
31, 1996 was 39,154,640.
<PAGE> 2
INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED SEPTEMBER 7, 1996
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--September 7,
1996 and December 31, 1995
Condensed Statements of Consolidated Income--Twelve
weeks and thirty-six weeks ended September 7, 1996
and September 9, 1995
Condensed Statements of Consolidated Cash Flows--
Thirty-six weeks ended September 7, 1996 and
September 9, 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 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
September 7, December 31,
1996 1995
---------- ------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 15,497 $ 34,908
Accounts receivable.................................. 357,895 273,124
Prepaid expenses and supplies........................ 71,373 66,630
Deferred income taxes................................ 42,746 27,562
---------- ----------
TOTAL CURRENT ASSETS.............................. 487,511 402,224
Property and equipment............................... 1,633,640 1,474,934
Less allowances for depreciation..................... 677,989 617,587
---------- ----------
TOTAL PROPERTY AND EQUIPMENT...................... 955,651 857,347
Cost in excess of net assets of businesses acquired.. 87,896 89,761
Other assets......................................... 40,136 39,938
---------- ----------
TOTAL OTHER ASSETS................................ 128,032 129,699
---------- ----------
TOTAL ASSETS...................................... $1,571,194 $1,389,270
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................... $ 269,468 $ 219,406
Salaries and wages................................... 71,930 74,790
Short-term debt...................................... 142,100 197,500
Other current liabilities............................ 58,390 63,663
---------- ----------
TOTAL CURRENT LIABILITIES......................... 541,888 555,359
Long-term debt....................................... 200,000 -
Self-insurance accruals.............................. 36,557 39,832
Deferred income taxes................................ 70,438 57,778
---------- ----------
TOTAL LONG-TERM LIABILITIES....................... 306,995 97,610
Common stock - 40,896,414 shares issued.............. 39,898 39,898
Additional capital................................... 50,732 51,322
Earnings reinvested in the business.................. 683,520 696,803
---------- ----------
774,150 788,023
Less cost of common stock in treasury - 1,409,000
shares in 1996 and 1,394,000 shares in 1995......... 51,839 51,722
---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................ 722,311 736,301
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........ $1,571,194 $1,389,270
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE> 4
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (Unaudited)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
Twelve Weeks Ended Thirty-Six Weeks Ended
(Third Quarter) (Three Quarters)
----------------------- ----------------------
Sept. 7, Sept. 9, Sept. 7, Sept. 9,
1996 1995 1996 1995
----------- ----------- ---------- ----------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUE............................. $ 627,226 $ 552,741 $1,825,201 $1,646,989
OPERATING EXPENSES
Salaries, wages and benefits...... 247,157 219,518 718,190 642,360
Purchased transportation.......... 182,775 153,928 530,598 460,921
Operating supplies and expenses... 135,244 93,642 377,574 287,834
Operating taxes and licenses...... 13,083 10,972 38,552 33,526
Insurance and claims.............. 14,549 10,888 39,591 35,414
Provision for depreciation........ 34,194 30,764 100,877 88,694
----------- ----------- ---------- ----------
TOTAL OPERATING EXPENSES........ 627,002 519,712 1,805,382 1,548,749
----------- ----------- ---------- ----------
OPERATING INCOME................ 224 33,029 19,819 98,240
Other (expense) income, net......... (2,965) 2,074 (5,567) 6,232
----------- ----------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES.. (2,741) 35,103 14,252 104,472
Income tax (benefit) provision...... (771) 12,885 6,381 38,367
----------- ----------- ---------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS...................... (1,970) 22,218 7,871 66,105
LOSS FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES. - (19,890) - (59,928)
----------- ----------- ---------- ----------
NET INCOME (LOSS)............... $ (1,970) $ 2,328 $ 7,871 $ 6,177
=========== =========== ========== ==========
EARNINGS (LOSS) PER SHARE
Income (loss) from continuing
operations........................ $ (0.05) $ 0.56 $ 0.20 $ 1.67
Loss from discontinued operations. - (0.50) - (1.51)
----------- ----------- ---------- ----------
NET INCOME (LOSS)............... $ (0.05) $ 0.06 $ 0.20 $ 0.16
=========== =========== ========== ==========
DIVIDENDS DECLARED PER SHARE.... $ 0.18 $ 0.35 $ 0.54 $ 1.05
=========== =========== ========== ==========
AVERAGE SHARES OUTSTANDING...... 39,505 39,470 39,512 39,457
=========== =========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 5
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
Thirty-Six Weeks Ended
(Three Quarters)
------------------------------
Sept. 7, Sept. 9,
1996 1995
---------- ---------
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations.............. $ 7,871 $ 66,105
Adjustments.................................... 68,058 60,575
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.... 75,929 126,680
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............ (203,486) (209,519)
Sales of property and equipment................ 4,652 3,450
Net advances to discontinued operations........ (5,927) (79,400)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES...... (204,761) (285,469)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid................................. (27,777) (41,008)
Dividends received from discontinued operations - 7,500
Increase (decrease) in short-term debt, net.... (55,400) 195,000
Proceeds from issuance of long-term debt....... 200,000 -
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.... 116,823 161,492
CASH FLOWS PROVIDED BY (USED IN)
CONTINUING OPERATIONS...................... (12,009) 2,703
CASH FLOWS USED IN DISCONTINUED OPERATIONS... (7,402) (2,749)
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... (19,411) (46)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR....................................... 34,908 14,780
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF THIRD
QUARTER.................................... $ 15,497 $ 14,734
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 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 thirty-six
weeks ended September 7, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
Third 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.
Note C - Long-term Debt
- -----------------------
In July 1996, the company filed a shelf registration statement to issue up to
$400 million in unsecured debt securities. These securities may be offered as
a separate series in amounts, at prices, and on terms to be determined by
market conditions at the time of sale. Net proceeds from the sale of the
securities may be used for working capital and general corporate purposes.
During the third quarter of 1996, the company issued $200 million of unsecured
notes under this registration statement. The notes mature on August 1, 2006
and bear interest at 7.80%. Net proceeds received from the issuance of these
notes were used to reduce outstanding borrowings on the company's short-term
bank loans which amounts are expected to be available for borrowing from time
to time.
The Indenture contains certain restrictions relative to the occurrence of liens
and leasing activities.
-6-
<PAGE> 7
Note D - Shareholder Rights Plan
- --------------------------------
On August 14, 1996 the Board of Directors approved the adoption of a
shareholder rights plan. Under the plan, the Board declared a dividend of one
right for each outstanding share of company common stock held of record as of
the close of business on August 26, 1996. Each right entitles the holder to
purchase from the company one Common Share at a price of $120 per share,
subject to adjustment. The rights, which expire on August 26, 2006, unless
earlier redeemed, will not be exercisable, and no rights certificate will be
distributed, until ten calendar days following a public announcement that a
person or group has acquired 20% of the company's common stock and as otherwise
set forth in the rights agreement. Subject to certain exceptions, the company
will generally be entitled to redeem the rights at $0.001 per right at any
time.
Item 2. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Consolidated revenue for the third quarter ended September 7, 1996 amounted to
$627.2 million, an increase of $74.5 million or 13.5% over third quarter 1995
revenue of $552.7 million. All operating units experienced revenue
improvements over third quarter 1995 levels. For the first three quarters,
revenue was $1,825 million, an increase of $178 million or 10.8% from $1,647
million for the same period of 1995.
Revenue for the third quarter at RPS, the company's small package carrier,
increased to $304.3 million or 4.4% over the third quarter last year.
Year-to-date revenue for 1996 amounted to $894.4 million, a 2.9% increase over
prior year levels. The increase was primarily attributable to higher package
volume from the growth of its Overnight Groundsm product and, to a lesser
extent, a slight improvement in overall rate levels. However, revenue growth
continues to be adversely affected by an aggressive pricing environment and
economic pressures in the retail sector, which represent over 50% of RPS's
volume.
Revenue at Viking Freight (Viking), the company's emerging superregional
carrier, amounted to $227.9 million for the third quarter, an increase of 19%
over 1995 levels. For the first three quarters, revenue amounted to $665.4
million, a 16.8% increase over the same period in 1995. Revenues increased at
Viking due to volume growth but were impacted by continued discounting within
the industry. Viking is currently pursuing an aggressive strategy to eliminate
unprofitable business and has recently announced a 5.9% rate increase effective
September 16, 1996, that is expected to affect approximately 50% of the
business that is not under contractual rates. Both of these may impact future
revenue growth.
Third quarter revenue for Caliber Logistics was up 53.1% with revenue from
Roberts Express (Roberts), the company's expedited carrier, up 17.5% over the
third quarter 1995. Caliber Logistics gross revenue for the full year is
expected to approximate $470 million with net revenues, which are included in
consolidated revenue, for Logistics and Roberts each expected to approximate
$200 million.
Consolidated operating expenses for the third quarter 1996 increased $107.3
million or 20.6% over comparable 1995 levels, while year-to-date operating
expenses were up $256.6 million or 16.6% over the same period in 1995.
The increase in consolidated operating expenses for the quarter was primarily
due to operating expense increases at Viking of $66.8 million. In addition to
expected increases in costs related to revenue growth, Viking continued to
experience significant expenses related to operating inefficiencies associated
with the consolidation of the company's regional carriers and the one-time
costs that accrue to that reorganization, and to a lesser extent, higher fuel
costs.
-7-
<PAGE> 8
Viking has been unable to efficiently absorb the rapid volume growth,
particularly in the long haul lanes, which has generated additional costs for
training new hires, purchased transportation, equipment rentals, overtime and
generally lower than expected productivity. At the same time, Viking
continues to experience substantial nonrecurring consolidation costs due to
the integration of multiple information systems, re-identification of
equipment, merging of administrative operating systems and the closing of
three regional corporate headquarters.
The consolidation is progressing, with the former Spartan and Coles operations
now resident on the Viking information system. The conversion of the former
Central Freight Lines to the Viking operating system will be completed by
mid-October. The Coles headquarters is closed and Spartan's will be shut down
by year end. Central Freight's corporate offices will be closed during the
beginning of 1997. As a result, administrative staff is being reduced
accordingly. Nonrecurring consolidation costs will continue throughout
the fourth quarter with the integration of the company's former regional
carriers into the "new" Viking expected to be substantially complete by year
end.
At RPS, operating expenses increased 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.
Consolidated operating income for the third quarter and year-to-date declined
$32.8 million and $78.4 million, respectively, from comparable 1995 levels.
Operating income at RPS amounted to $25.6 million for the third quarter,
compared to $37.3 million for 1995. For the first three quarters, RPS's
operating income amounted to $74.2 million, compared to $102.6 million last
year. The decline in operating income at RPS was due to lower than expected
volume growth, a sluggish retail sector, an aggressive pricing environment and
higher fixed costs associated with its continuing expansion and investment in
equipment and technology. RPS has implemented cost reductions, including the
elimination of a number of positions at its headquarters, with cost control
measures continuing for the remainder of the year.
Viking's operating loss for the quarter was $36.1 million, compared to an
operating loss of $5.8 million in third quarter 1995. For the first three
quarters, Viking's operating loss amounted to $79.2 million, compared to $16.1
million last year. In addition to the recent rate increase, Viking is pursuing
an aggressive revenue yield improvement strategy, emphasizing the elimination
of unprofitable business which will allow the company to align tonnage levels
with existing capacity, reduce cost and focus on the more profitable,
primarily regional business.
Roberts continues to maintain excellent margins, while Caliber Logistics met
its profit objective for the quarter.
The quarter and year-to-date results were also positively affected by an
overall reduction in pension expense of $5.8 million and $8.6 million,
respectively, compared with last year. For the full year, the company expects
a pension expense reduction of approximately $11.7 million. The reduction from
last year is primarily due to a higher level of pension fund assets coupled
with an increase in the expected long-term rate of return from 7.75% to 8.75%.
Other (expense) income, net includes interest expense of $3.1 million and $7.1
million for the third quarter of 1996 and first three quarters of 1996,
respectively. The change in other expense, net for the quarter and
year-to-date from comparable 1995 periods, reflects additional net interest
expense of $2.3 million and $5.7 million, respectively, from higher than
average borrowings and the loss of interest income from discontinued
operations, amounting to $2.5 million and $6.6 million, respectively.
-8-
<PAGE> 9
Income taxes were 44.8% of pre-tax income for the first three quarters of 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, partially offset by the
impact of foreign operations.
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 sector and an aggressive pricing environment, RPS is expected to
complete the year with continued single digit revenue growth and lower
year-over-year operating income. At Viking, operating losses are expected to
persist while tactical plans for managing the rapid growth and associated
expenses are being implemented. Operational and administrative expenses are
being challenged and a major study of Viking's terminal and linehaul operations
has been initiated. Consolidation costs are expected to continue for the
remainder of year. Although the consolidated company is expected to be
profitable in the fourth quarter, it will finish the year with 1996 results
from continuing operations significantly below those of 1995.
For the three quarters, net cash provided by operating activities of $75.9
million was not sufficient to fund net property additions of $198.8 million and
dividends of $27.8 million, requiring the company to incur additional outside
borrowings of $144.6 million. The company has a shelf registration for the
issuance of up to $400 million of unsecured debt securities. In August 1996,
$200 million of notes were issued under this registration statement. The
notes bear a fixed interest rate of 7.8% and mature August 1, 2006. Net
proceeds from the sale of the notes were used to reduce borrowings on the
company's short-term financing agreements which amounts are expected to be
available for borrowing from time to time. At the end of the quarter, debt
levels increased from the second quarter by $57.4 million to $342.1 million
leaving the company with $182.9 million available on its short-term financing
agreements. Although debt levels are expected to exceed $400 million by year
end, the company believes it will continue to be able to arrange short and
long-term financing through public and private sources 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 and 1997 are currently projected at
approximately $300 million and $350 million, respectively, although all
spending on capital is being reviewed and challenged. Currently, capital
expenditures in 1996 and 1997 are roughly 40% for technology and highly
automated freight handling equipment, 35% for real estate and 25% for revenue
and support equipment.
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.
-9-
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
(27) Financial Data Schedule
(b) Reports on Form 8-K Filed During the Third Quarter of 1996
----------------------------------------------------------
On August 22, 1996, a Current Report on Form 8-K was filed by the
registrant with the Securities and Exchange Commission to report
adoption by the Board of Directors of a Shareholder Rights Plan and to
file an Agreement, Form of Rights Certificate and Summary of Rights.
A Form 8-K/A was filed on September 12, 1996 to correct a
typographical error in Exhibit 4.2 of the original filing.
On September 24, 1996, a Current Report on From 8-K was filed by the
registrant with the Securities and Exchange Commission to report Third
Quarter results.
-10-
<PAGE> 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: October 11, 1996 By Daniel J. Sullivan
-----------------------------
Daniel J. Sullivan
Chairman, President and
Chief Executive Officer
Date: October 11, 1996 By Kathryn W. Dindo
-----------------------------
Kathryn W. Dindo
Vice President and Controller
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-16-1996
<PERIOD-END> SEP-07-1996
<CASH> 15,497
<SECURITIES> 0
<RECEIVABLES> 357,895
<ALLOWANCES> 21,252
<INVENTORY> 0
<CURRENT-ASSETS> 487,511
<PP&E> 1,633,640
<DEPRECIATION> 677,989
<TOTAL-ASSETS> 1,571,194
<CURRENT-LIABILITIES> 541,888
<BONDS> 200,000
<COMMON> 39,898
0
0
<OTHER-SE> 682,413
<TOTAL-LIABILITY-AND-EQUITY> 1,571,194
<SALES> 0
<TOTAL-REVENUES> 627,226
<CGS> 0
<TOTAL-COSTS> 627,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,741)
<INCOME-TAX> (771)
<INCOME-CONTINUING> (1,970)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,970)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
