<PAGE> 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 March 29, 1997
---------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-10716
CALIBER SYSTEM, INC.
- --------------------------------------------------------------------------------
(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 April
26, 1997 was 38,925,549.
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INDEX
CALIBER SYSTEM, INC.
FORM 10-Q
PERIOD ENDED MARCH 29, 1997
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--March 29, 1997 and
December 31, 1996
Condensed Consolidated Statements of Income--Twelve weeks
ended March 29, 1997 and March 23, 1996
Condensed Consolidated Statements of Cash Flows--Twelve
weeks ended March 29, 1997 and March 23, 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
- ---------------------------
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
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<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
ASSETS MARCH 29, DECEMBER 31,
1997 1996
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(dollars in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 42,973 $ 38,829
Accounts receivable 341,779 365,033
Prepaid expenses and supplies 67,789 72,813
Deferred income taxes 80,699 47,801
---------- ----------
TOTAL CURRENT ASSETS 533,240 524,476
PROPERTY AND EQUIPMENT, NET 841,575 848,319
Cost in excess of net assets of businesses acquired, net of amortization 4,974 5,015
Other assets 48,496 54,357
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TOTAL OTHER ASSETS 53,470 59,372
---------- ----------
TOTAL ASSETS $1,428,285 $1,432,167
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 215,000 $ 230,000
Accounts payable 342,094 262,313
Salaries and wages 65,738 80,259
Other current liabilities 58,773 57,469
---------- ----------
TOTAL CURRENT LIABILITIES 681,605 630,041
LONG-TERM LIABILITIES
Long-term debt 200,000 200,000
Self-insurance accruals 40,969 40,809
Deferred income taxes 24,645 22,670
---------- ----------
TOTAL LONG-TERM LIABILITIES 265,614 263,479
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 51,161 50,735
Retained earnings 447,284 503,496
---------- ----------
538,343 594,129
Less cost of common stock in treasury
(1997 - 1,689,000 shares, 1996 - 1,605,000 shares) 57,277 55,482
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 481,066 538,647
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,428,285 $1,432,167
========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
(FIRST QUARTER)
------------------------
MARCH 29, MARCH 23,
1997 1996
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(dollars in thousands,
except per share data)
<S> <C> <C>
REVENUE $ 641,196 $ 582,074
OPERATING EXPENSES
Salaries, wages and benefits 247,426 230,023
Purchased transportation 189,710 166,491
Operating supplies and expenses 129,158 110,795
Operating taxes and licenses 13,486 12,043
Insurance and claims 17,920 11,194
Provision for depreciation 29,970 33,347
Restructuring charge 85,000 --
--------- ---------
TOTAL OPERATING EXPENSES 712,670 563,893
--------- ---------
OPERATING INCOME (LOSS) (71,474) 18,181
Other expense, net (125) (1,232)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (71,599) 16,949
Income tax (benefit) provision (22,375) 7,328
--------- ---------
NET INCOME (LOSS) $ (49,224) $ 9,621
========= =========
EARNINGS (LOSS) PER SHARE $ (1.25) $ 0.24
========= =========
DIVIDENDS DECLARED PER SHARE $ 0.18 $ 0.18
========= =========
AVERAGE SHARES OUTSTANDING 39,247 39,505
========= =========
See notes to condensed consolidated financial statements.
</TABLE>
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CALIBER SYSTEM, INC.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
(FIRST QUARTER)
-------------------------
MARCH 29, MARCH 23,
1997 1996
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(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations $(49,224) $ 9,621
Restructuring charge 85,000 --
Other adjustments 2,614 (6,601)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,390 3,020
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (25,385) (37,830)
Sales of property and equipment 2,159 3,331
Proceeds from sale of investment 10,993 --
Net advances to discontinued operations -- (14,277)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (12,233) (48,776)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (7,013) (13,671)
Increase (decrease) in short-term debt, net (15,000) 37,900
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (22,013) 24,229
-------- --------
CASH FLOWS PROVIDED BY (USED IN) CONTINUING OPERATIONS 4,144 (21,527)
CASH FLOWS PROVIDED BY DISCONTINUED OPERATIONS -- 932
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,144 (20,595)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR $ 38,829 $ 34,908
-------- --------
CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $ 42,973 $ 14,313
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CALIBER SYSTEM, INC.
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 twelve weeks ended March 29, 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 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 is not expected to change earnings per share as
reported for the quarter ended March 29, 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
- -----------------------------
On March 27, 1997, the Company announced a major restructuring of its Viking
Freight, Inc. subsidiary. Under the plan, Viking will continue to operate in the
12 western states where it has been a leader in the regional less-than-truckload
market for many years. An agreement in principle was reached on April 30, 1997
to sell Viking's southwestern division (formerly Central Freight Lines Inc.).
Operations at Viking's midwestern, eastern and northeastern divisions (formerly
Spartan Express, Inc. and Coles Express, Inc.) ceased on March 27, 1997.
In connection with the restructuring, the Company recorded a non-cash $225
million ($175 million net of tax) or $4.43 per share asset impairment charge in
the fourth quarter of 1996 and an $85 million ($56.4 million net of tax) or
$1.43 per share restructuring charge in the first quarter of 1997.
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Note B - Viking Restructuring (continued)
- -----------------------------------------
The major components of the restructuring charges on a pre-tax basis are as
follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Long-Lived Other
Asset Restructuring
Impairment Costs Total
----------- ----------- ---------
<S> <C> <C> <C>
Asset impairment (non-cash) $ 225,000 $ 27,100 $ 252,100
Future lease costs and other contractual obligations - 32,000 32,000
Employee severance and other benefits - 21,500 21,500
Other exit costs - 4,400 4,400
---------- ---------- ----------
Total $ 225,000 $ 85,000 $ 310,000
========== ========== ==========
</TABLE>
The long-lived asset impairment charge resulted from the Company's assessment of
the ongoing value of property and equipment (primarily real estate and revenue
equipment) used in Viking's operations which was determined to be impaired under
SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. Accordingly, these assets were written-down to fair
value in the Company's 1996 financial statements. Fair value was based on
estimates of appraised values for real estate and quoted prices for equipment.
Expenses for employee severance relate to the elimination of 4,000 employee
positions primarily at operating terminals being closed in the restructuring.
Following is a summary of the long-lived asset values as of December 31, 1996
related to Viking and the adjustments recognized in the 1996 financial
statements to reflect the impairment of these assets.
(dollars in thousands)
<TABLE>
<CAPTION>
Carrying Value Impairment Fair Value
-------------- ---------- -----------
<S> <C> <C> <C>
Property and equipment:
To be held and used $207,000 $ 65,000 $142,000
To be disposed of 188,000 78,000 110,000
Intangible assets 82,000 82,000 -
-------- -------- --------
Total $477,000 $225,000 $252,000
======== ======== ========
</TABLE>
Assets held for sale from the restructuring are included in property and
equipment in the accompanying condensed consolidated balance sheet. The accrued
restructuring costs are included in accounts payable. The Company expects to
complete the sale of the assets to be disposed of ($110,000) and incur
substantially all cash expenses ($57,900) associated with the restructuring
during 1997.
Results of operations associated with the assets held for disposal are included
in Viking's operating results for the first quarter of 1997. Total revenues for
Viking for this period were $201.1 million and total operating loss was $33.1
million, excluding the restructuring charge.
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Note C - Deferred Income Taxes
- ------------------------------
Net deferred tax assets were $56 million at March 29, 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
- --------------------------
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
- --------------------------------------------------------------------
and Results of Operations
-------------------------
Consolidated revenue for the first quarter ended March 29, 1997 amounted to
$641.2 million, an increase of $59.1 million or 10% over first quarter 1996
revenue of $582.1 million. Excluding Viking Freight, the company's restructured
regional carrier in the West, revenues amounted to $440.1 million, an increase
of 19%.
Revenue at RPS, the company's small-package carrier, amounted to $339.1 million
for the first quarter of 1997 as compared to 1996 first quarter revenues of
$287.7 million, an 18% increase. 1997 revenues benefited from three ( 5% ) more
shipping days, mild winter weather and a strong retail environment. Package
volume was significantly higher than last year; however, a continuing,
aggressive pricing environment, lower package weights and a greater percentage
of overnight packages in RPS's mix reduced revenue yields. Rates remain
relatively flat year over year despite the February rate increase. On-time
service at RPS continues to run at record levels and approximates 96%. Growth at
Caliber Logistics contributed significantly to the overall increase in revenue
during the first quarter. First quarter net revenues, which are included in
consolidated revenues, increased 38%, while gross revenues increased 54%.
Roberts Express, the company's expedited carrier, reported revenue growth of 4%
over the first quarter last year.
Viking's first quarter revenue decreased by 5% to $201.1 million in 1997 from
$211.3 million in 1996. 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. Further, the company has signed an agreement in principle to sell the
former Central Freight Lines, which serves customers in the Southwest. As a
result of this 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
include a restructuring charge of $85 million for employee-related costs,
including severance and benefits, costs related to lease terminations, non-cash
asset impairments and other expenses resulting from the restructuring. The
Company expects to complete the sale of the assets to be disposed of ($110,000)
and incur substantially all cash expenses ($57,900) associated with the
restructuring during 1997. Viking now provides regional freight service to
customers in 12 western states through 43 terminals.
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<PAGE> 9
Consolidated expenses for the first quarter were $712.7 million including the
restructuring charge previously discussed. Excluding this charge, operating
expenses were $627.7 million in 1997 compared to $563.9 million last year, an
increase of $63.8 million or 11%. This change resulted primarily from higher
business volumes at RPS and Logistics, which reported operating expense
increases of 16% and 37%, respectively.
Consolidated operating loss for the first quarter was $71.5 million, including
the restructuring charge for Viking; operating income was $13.5 million
excluding this charge. Viking's operating loss without this charge was $33.1
million as compared to $14.0 million experienced last year.
Excluding Viking, operating income was $46.6 million, an increase of $14.4
million over $32.2 million last year. RPS reported a rise in operating income to
$38.7 million from $27.7 million for the same period last year. RPS's results
were positively affected by a $5.3 million one-time change in employee benefits.
Excluding the impact of the change in employee benefits, RPS's margins increased
to 9.8% from 9.6% in 1996 while continuing to be impacted by aggressive
discounting of rates and higher fixed costs from expansion. RPS invested
significantly in network infrastructure by opening 32 new terminals by mid-1996
to complete its expansion to 100% of the U. S. population and extend its
presence in the Overnight Ground(SM) segment. Roberts and Logistics experienced
slightly improved margins over last year.
The change in other expense of $1.1 million consisted primarily of additional
interest expense of $3.6 million (net of additional capitalized interest of $.8
million) over first quarter 1996 levels offset by a gain on the sale of
investment of $5.3 million.
The income tax benefit was 31.3% of the loss before income for the first quarter
1997. The income tax rate excluding the restructuring charge was approximately
46%. This rate exceeded the U.S. federal statutory rate due primarily to state
income taxes and non-deductible operating costs.
The net loss was $49.2 million or $1.25 per share for the first quarter of 1997
as compared to net income of $9.6 million or $.24 per share last year. The
restructuring charge negatively impacted results by $56.4 million or $1.43 per
share while the one-time change in employee benefits and the gain on the sale of
investment amounted to $5.6 million or $.14 per share.
Net cash provided by operating activities of $38.4 million was sufficient to
fund net property additions of $23.2 million and dividends of $7.0 million,
enabling the company to reduce outside borrowings. The company is a 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 amounted to
$215 million at the end of the first quarter with $110 million available for
future borrowings subject to the limitations of the loan covenants. 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 company
assets.
1997 capital expenditures are currently estimated to approximate $140 million of
which 60% is expected to be for technology and highly automated freight handling
equipment, 30% for real estate and 10% for revenue and support equipment. The
company anticipates that through available borrowing and cash flows from
operations, it will be able to fund short-term cash
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<PAGE> 10
requirements from the Viking restructuring of $57,900, 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 regular quarterly dividend from $.18 per share to $.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 and 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 5. 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 First Quarter of 1997
----------------------------------------------------------
On January 24, 1997, a Current Report on Form 8-K was filed by the
registrant to report Year End results.
On February 13, 1997, a Current Report on Form 8-K was filed by the
registrant announcing that the Board of Directors declared a quarterly
dividend. The registrant also announced the scheduling of the Annual
Meeting of Shareholders to be held on May 14, 1997.
On March 27, 1997, a Current Report on Form 8-K was filed by the
registrant announcing a major restructuring of Viking Freight, Inc.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CALIBER SYSTEM, INC.
------------------------------------
(Company)
Date: May 8, 1997 By [Louis J. Valerio]
------------- -----------------------------------
Louis J. Valerio
Senior Vice President-Finance and
Chief Financial Officer
Date: May 8, 1997 By [Kathryn W. Dindo]
------------- -----------------------------------
Kathryn W. Dindo
Vice President and Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<CASH> 42,973
<SECURITIES> 0
<RECEIVABLES> 341,779
<ALLOWANCES> 18,584
<INVENTORY> 0
<CURRENT-ASSETS> 533,240
<PP&E> 1,588,298
<DEPRECIATION> 746,723
<TOTAL-ASSETS> 1,428,285
<CURRENT-LIABILITIES> 681,605
<BONDS> 200,000
<COMMON> 39,898
0
0
<OTHER-SE> 441,168
<TOTAL-LIABILITY-AND-EQUITY> 1,428,285
<SALES> 0
<TOTAL-REVENUES> 641,196
<CGS> 0
<TOTAL-COSTS> 712,670
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (71,599)
<INCOME-TAX> (22,375)
<INCOME-CONTINUING> (49,224)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,224)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
