-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9dMDg7pR3RHIzQFszUqub7rYBLnGzWXIWqULolxcHg49vIAQfYOoD3te6l0a7h/ N9cHm5YRc4+XXScWhjJBJg== 0000023675-07-000056.txt : 20071009 0000023675-07-000056.hdr.sgml : 20071008 20071009170442 ACCESSION NUMBER: 0000023675-07-000056 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070823 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20071009 DATE AS OF CHANGE: 20071009 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Con-way Inc. CENTRAL INDEX KEY: 0000023675 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 941444798 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05046 FILM NUMBER: 071163197 BUSINESS ADDRESS: STREET 1: 2855 CAMPUS DRIVE CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 6504942900 MAIL ADDRESS: STREET 1: 1717 NW 21ST AVE CITY: PORTLAND STATE: OR ZIP: 97209 FORMER COMPANY: FORMER CONFORMED NAME: CNF INC DATE OF NAME CHANGE: 20010510 FORMER COMPANY: FORMER CONFORMED NAME: CNF TRANSPORTATION INC DATE OF NAME CHANGE: 19970509 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC DATE OF NAME CHANGE: 19920703 8-K/A 1 cover.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): August 23, 2007 Con-way Inc. (Exact name of registrant as specified in its charter) Delaware 1-5046 94-1444798 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 2855 Campus Drive, San Mateo, California 94403 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (650) 378-5200 Not Applicable (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: ___ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ___ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ___ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ___ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) This Form 8-K/A, Amendment No. 1, is being filed for the purpose of filing the financial statements and pro forma financial information required by Item 9.01 with respect to the Current Report on Form 8-K filed by the registrant on August 23, 2007 regarding the acquisition of Transportation Resources, Inc. Item 9.01 Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired The audited consolidated balance sheet of Transportation Resources, Inc. at December 31, 2006 and the audited consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 2006 and the related notes to the financial statements, together with the independent auditors' report, are filed as Exhibit 99.1 to this Form 8-K/A and incorporated by reference in this Form 8-K/A. The unaudited consolidated balance sheet of Transportation Resources, Inc. at June 30, 2007 and the unaudited consolidated statements of income and cash flows for the six months ended June 30, 2007 and 2006 and the related notes to the financial statements are filed as Exhibit 99.2 to this Form 8-K/A and incorporated by reference in this Form 8-K/A. (b) Pro Forma Financial Information The unaudited pro forma condensed consolidated balance sheet of the registrant at June 30, 2007, and the unaudited pro forma condensed consolidated statements of income for the year ended December 31, 2006 and the six months ended June 30, 2007 are filed as Exhibit 99.3 to this Form 8- K/A and incorporated by reference in this Form 8-K/A. (d) Exhibits 23.1 Consent of BKD, LLP 99.1 Audited Consolidated Financial Statements of Transportation Resources, Inc. at December 31, 2006 and for the year ended December 31, 2006 99.2 Unaudited Consolidated Financial Statements of Transportation Resources, Inc. at June 30, 2007 and for the six months ended June 30, 2007 and 2006 99.3 Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Registrant at June 30, 2007 and the Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 2006 and the six months ended June 30, 2007 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 hereunto duly authorized. CON-WAY INC. By: /s/ Kevin C. Schick --------------------- Name: Kevin C. Schick Title: Senior Vice President and Chief Financial Officer Dated: October 9,2007 EXHIBIT INDEX 23.1 Consent of BKD, LLP 99.1 Audited Consolidated Financial Statements of Transportation Resources, Inc. at December 31, 2006 and for the year ended December 31, 2006 99.2 Unaudited Consolidated Financial Statements of Transportation Resources, Inc. at June 30, 2007 and for the six months ended June 30, 2007 and 2006 99.3 Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Registrant at June 30, 2007 and the Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended December 31, 2006 and the six months ended June 30, 2007 EX-23 2 ex23.txt Exhibit 23.1 We consent to the inclusion of our report dated March 2, 2007 with respect to our audit of the consolidated financial statements of Transportation Resources, Inc. as of and for the year ended December 31, 2006, included in this Form 8-K/A of Con-way Inc. /s/ BKD, LLP - ------------- BKD, LLP Tulsa, Oklahoma October 5, 2007 EX-99 3 ex991.txt EXHIBIT 99.1 Exhibit 99.1 Transportation Resources, Inc. Accountants' Report and Consolidated Financial Statements December 31, 2006 Transportation Resources, Inc. December 31, 2006 Contents Independent Accountants' Report.................................1 Consolidated Financial Statements Balance Sheet.................................................2 Statement of Income...........................................4 Statement of Shareholders' Equity.............................5 Statement of Cash Flows.......................................6 Notes to Financial Statements.................................7 Independent Accountants' Report Board of Directors Transportation Resources, Inc. Joplin, Missouri We have audited the accompanying consolidated balance sheet of Transportation Resources, Inc., as of December 31, 2006, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transportation Resources, Inc., as of December 31, 2006, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 8, in 2006 the Company changed its method of accounting for Stock Based Compensation through retrospective application to prior year's financial statements. As discussed in Note 9, the Company changed its method of recognizing gains and losses on the sale of assets in 2006. /s/ BKD, LLP Tulsa, Oklahoma March 2, 2007 1 Transportation Resources, Inc. Consolidated Balance Sheet December 31, 2006 Assets Current Assets Cash and cash equivalents $ 4,281,431 Short-term investments - U.S. Treasury bills 917,000 Trade receivables, net of allowance for doubtful accounts of $1,636,018 48,227,963 Other receivables 668,061 Prepaid tires 4,214,328 Other prepaid expenses 7,012,375 Operating supplies, fuel and parts 1,741,544 -------------- Total current assets 67,062,702 -------------- Property and Equipment, at Cost Land 11,957,223 Structures and land improvements 45,209,954 Revenue equipment 394,730,163 Other operating equipment 9,559,782 Furniture, fixtures and data processing equipment 8,201,926 Construction in progress 113,048 -------------- Total property and equipment 469,772,096 Less accumulated depreciation 196,555,478 -------------- Net property and equipment 273,216,618 -------------- Other Assets 1,050,812 -------------- $ 341,330,132 ============== 2 Transportation Resources, Inc. Consolidated Balance Sheet December 31, 2006 Liabilities and Shareholders' Equity Current Liabilities Outstanding checks in excess of bank balance $ 3,342,083 Line of credit 6,440,000 Current maturities of long-term debt 2,049,311 Accounts payable 7,398,557 Accounts payable-interline 7,444,048 Customer credit balances 3,762,510 Salaries and wages payable 4,761,231 Claims and insurance accruals 11,527,742 Other current and accrued liabilities 6,872,139 -------------- Total current liabilities 53,597,621 -------------- Long-term Obligations Long-term debt 1,106,642 Claims and insurance accruals 4,906,101 Stock based awards 19,176,140 Other long-term obligations 170,484 -------------- Total long-term obligations 25,359,367 -------------- Shareholders' Equity Common stock, $0.01 par value; 15,000,000 shares authorized; 6,033,016 shares issued and outstanding 55,656 Additional paid-in capital 152,764,748 Earnings reinvested in the business 109,505,120 Accumulated other comprehensive income 47,620 -------------- Total shareholders' equity 262,373,144 -------------- $ 341,330,132 ============== 3 Transportation Resources, Inc. Consolidated Statement of Income Year Ended December 31, 2006 Operating Revenues $ 427,638,927 -------------- Operating Expenses Salaries, wages and fringe benefits 175,290,931 Fuel and supplies 63,152,713 Depreciation 45,101,633 Equipment rent and purchased transportation 33,050,429 Operating taxes and licenses 29,349,199 Insurance and claims 18,884,910 Communications and utilities 2,946,134 Gain on asset disposition (12,997,675) Other operating expenses 4,518,414 -------------- Total operating expenses 359,296,688 -------------- Operating Income 68,342,239 -------------- Other Income (Expense) Interest income 956,482 Interest expense (405,602) Investment income 4,481 Other (49,621) -------------- Total other income 505,740 -------------- Income Before Income Taxes 68,847,979 -------------- Provision for Income Taxes State income tax 855,780 Foreign income tax 168,592 -------------- Net Income $ 67,823,607 ============== 4 Transportation Resources, Inc. Consolidated Statement of Shareholders' Equity Year Ended December 31, 2006
Earnings Other Additional Reinvested Accumulated Common Paid-in in the Comprehensive Treasury Stock Capital Business Income (Loss) Stock Total -------------- -------------- -------------- -------------- -------------- -------------- Balance, January 1, 2006, as previously reported $ 59,716 $ 158,839,192 $ 57,859,230 $ 78,069 $ (174,358) $ 216,661,849 -------------- -------------- -------------- -------------- -------------- -------------- Retrospective Change in Accounting Principle (Note 8) (4,060) (6,074,444) (1,422,280) -- 174,358 (7,326,426) -------------- -------------- -------------- -------------- -------------- -------------- Balance, January 1, 2006 $ 55,656 $ 152,764,748 $ 56,436,950 $ 78,069 $ -- $ 209,335,423 -------------- -------------- -------------- -------------- -------------- -------------- Net income -- 67,823,607 -- -- 67,823,607 Foreign currency translation -- -- -- (30,449) -- (30,449) -------------- -------------- -------------- -------------- -------------- -------------- Total comprehensive income -- -- 67,823,607 (30,449) -- 67,793,158 Cash distributions -- -- (14,755,437) -- -- (14,755,437) -------------- -------------- -------------- -------------- -------------- -------------- Balance, December 31, 2006 $ 55,656 $ 152,764,748 $ 109,505,120 $ 47,620 $ -- $ 262,373,144 ============== ============== ============== ============== ============== ============== 5
Transportation Resources, Inc. Consolidated Statement of Cash Flows Year Ended December 31, 2006 Operating Activities Net income $ 67,823,607 Items not requiring (providing) cash Depreciation 45,101,633 Gain on disposition of operating property (12,755,215) Non-cash compensation expense 5,334,029 Changes in Accounts receivable 1,305,755 Prepaid expenses (1,889,584) Accounts payable 454,586 Other current and accrued liabilities (1,033,435) Other assets and liabilities (455,230) -------------- Net cash provided by operating activities 103,886,146 -------------- Investing Activities Proceeds from maturities of short-term investments 916,000 Purchases of short-term investments (917,000) Purchases of property and equipment (137,928,355) Proceeds from disposition of operating property 32,688,211 -------------- Net cash used in investing activities (105,241,144) -------------- Financing Activities Net borrowings under line-of-credit agreement 6,440,000 Principal payments on long-term debt (3,788,497) Proceeds from issuance of long-term debt 1,106,642 Outstanding checks in excess of bank balance 3,342,083 Cash distributions (14,755,437) -------------- Net cash used in financing activities (7,655,209) -------------- Decrease in Cash and Cash Equivalents (9,010,207) Cash and Cash Equivalents, Beginning of Year 13,291,638 -------------- Cash and Cash Equivalents, End of Year $ 4,281,431 ============== Supplemental Cash Flows Information Interest paid $ 326,528 Income taxes paid 1,710,682 6 Transportation Resources, Inc. Notes to Consolidated Financial Statements December 31, 2006 Note 1: Significant Accounting Policies Nature of Operations Transportation Resources, Inc. (the Company) is a holding company whose majority-owned subsidiaries and primary business activities are: Subsidiary Business Activity - -------------------------------------------------------------------------------- Contract Freighters, Inc. Truckload carrier Transportation Equipment Leasing, LLC Transportation equipment leasing Transportation Property Leasing, LLC Property leasing Orcas Aircraft Leasing, Inc. Aircraft leasing CFI Custom Freight Management, Inc. Transportation logistics Orcas Logistics, Inc. Transportation logistics The Company and the above subsidiaries operate primarily in the United States of America (U.S.) and Canada. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2006, cash equivalents consisted primarily of money market investment accounts. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents. 7 Accounts Receivable Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for uncollectible accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due 15 days from the invoice date. Accounts outstanding more than 30 days from the invoice date are considered delinquent. Delinquent receivables are written off based on individual credit evaluation and specific circumstances of the customer. The accounts receivable portfolio is well diversified geographically and by industry. Credit is granted to customers and ongoing credit evaluations are performed, thereby eliminating the need for collateral. Historically, credit losses have been minimal. Operating Supplies, Fuel and Parts Operating supplies, fuel and parts are stated at the lower of cost or market (operating supplies and parts on an average cost basis and fuel on the first-in, first-out basis). Tires The cost of tires purchased on new revenue equipment is recorded as a prepaid asset and amortized over the estimated tire life. Replacement tires are expensed as they are removed from inventory and placed on the operating equipment. Property and Equipment Property and equipment are recorded at cost, with such cost depreciated using the straight-line method beginning when property is placed in service. Depreciation is based on the following useful lives: Structures 20 years Trailers 6 years Tractors 5 years Other operating property 3-10 years Prior to 2006, when revenue equipment was traded with either a vendor from whom replacement equipment was acquired or a qualified intermediary and its trade-in value exceeded its book value, the purchase price of the replacement property was reduced by this excess when calculating the depreciable basis of the new property. When revenue equipment was sold and replacement property was not acquired, any gain or loss was recognized. When other properties were sold, any gain or loss was reflected in income. In 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, as discussed in Note 9. 8 Capitalized Software Certain internal and external costs incurred to acquire or create internal use software are capitalized in accordance with Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Capitalized software is included in property and equipment under furniture, fixtures and data processing equipment and is amortized over its useful life when development is complete. Claims and Insurance Accruals Insurance programs for liability (personal injury and property damage), workers' compensation and group health claims are self-insured up to certain retention limits which vary depending upon the year of occurrence. The claims and insurance accruals represent the estimated uninsured portion of pending claims, including adverse development of known claims, legal fees, and incurred but not reported claims. Claims expected to be paid beyond one year of the balance sheet date are classified as long-term. These estimates are based on historical information along with certain assumptions about future events. Changes in assumptions as well as changes in actual experience could cause these estimates to change. Insurance Program Retention Limits Program Retention Limit ----------------------------------------------------------------------------- Liability $1,000,000 per claim Workers' compensation $ 500,000 per claim Group health $ 150,000 per claim/1,000,000 per individual lifetime maximum Fair Values of Financial Instruments The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable, accounts payable, other accrued liabilities and variable interest borrowings approximate their fair values. The fair value of notes payable at December 31, 2006 is estimated to be $2,080,894 using a discounted cash flow analysis, based on the estimated current borrowing rate for similar types of borrowing arrangements. These amounts relate to borrowings with fixed interest rates and principal balances of $2,049,311 in current maturities of long- term debt at December 31, 2006. Income Taxes The shareholders of the Company have elected to be taxed individually on the Company's earnings under the S Corporation provisions of the Internal Revenue Code. Accordingly, federal income taxes are not reflected in the Company's financial statements. The provision for income taxes reflected in these statements is for foreign and certain state income taxes only. 9 Comprehensive Income The Company reports the components of other comprehensive income in the consolidated statement of shareholders' equity. Comprehensive income refers to revenues, expenses, gains and losses that are included in comprehensive income but excluded from net income. At December 31, 2006, other comprehensive income consisted of foreign currency translation adjustments. Revenue Recognition For the truckload carrier subsidiary, operating revenues are recognized at the time the shipment is received from the customer. For transportation logistics subsidiaries, operating revenues are recognized when the services are performed. Related transportation and delivery expenses directly associated with these shipments are recorded at the time the revenue is recognized. Included as a reduction to fuel and supplies expense in 2006 are $85,081,757 in fuel surcharges earned when fuel costs exceeded contractually agreed-upon levels. The fuel surcharges are based on the United States Department of Energy diesel fuel index. Maintenance and Repairs Maintenance and repairs are charged to operations in the period incurred. Note 2: Long-term Debt Notes payable to financial institutions due through 2007, bearing interest at rates ranging from 6.39% to 8.30%, collateralized by revenue equipment having a net book value of $309,670 at December 31, 2006 $ 49,311 Senior secured note payable to an insurance company due June 2007, bearing interest at 9.08%, secured by a First Deed of Trust 2, 000,000 Promissory note payable to financial institution due March 2009, bearing interest at 6.58% 1, 106,642 -------------- 3, 155,953 Less current maturities 2, 049,311 -------------- $ 1, 106,642 ============== 10 Note 3: Line of Credit and Other Short-Term Borrowings A subsidiary, Transportation Equipment Leasing, LLC (TEL), has secured revolving credit facilities with four banks that provide for maximum borrowings of $30,000,000 prior to September 30, 2007, although any borrowings may, at TEL's option, be converted to a two-year term loan on or before September 30, 2007. The credit facilities are secured by assignments of lease proceeds for certain groups of equipment leased by TEL to its major customer, Contract Freighters, Inc. Interest on outstanding borrowings is based on the Daily Reset LIBOR rate (5.35% as of December 31, 2006) plus an increment ranging from 45 to 65 basis points. As of December 31, 2006, there was a total of $6,440,000 outstanding on the four credit facilities with $23,560,000 available for additional advances. Another subsidiary, Contract Freighters, Inc., has an unsecured revolving credit facility with a bank that provides for maximum borrowings or letters of credit issuances in the amount of $25,000,000 prior to November 30, 2007, and $6,000,000 thereafter through December 1, 2008. There were $11,508,368 in undrawn upon letters of credit outstanding as of December 31, 2006. There was capacity for advances or additional letters of credit in the amount of $13,491,632 at December 31, 2006. Interest on outstanding borrowings (none at December 31, 2006) is based on the Daily Reset LIBOR rate plus an increment ranging from 50 to 100 basis points, depending upon a defined financial ratio. This facility contains a conditional security agreement that becomes effective upon the occurrence of certain triggering events as defined in the agreement. The revolving credit facility contains customary covenants which, among other things, require that certain financial ratios are maintained. Note 4: Retirement Plan A 401(k) profit-sharing plan is available to U.S. employees who have completed one year of service. Participants may contribute between 1% and 50% of their compensation to the plan. The Company matches 50% of the participants' contributions up to 7% of individual compensation. Matching contributions were $1,040,410 in 2006. Note 5: Stock Based Awards The Company has a management stock incentive plan under which stock awards may be granted to key employees of the Company and its subsidiaries as designated by the Board of Directors. A maximum of 15% of the total number of issued and outstanding shares of Company stock may be issued pursuant to this plan. Fair value of the stock issued is equal to the net book value per share of the Company as of the end of the calendar month immediately preceding the date of the grant. Provisions of the plan restrict the sale and transfer of shares. Upon any retirement or cessation of employment, the shares must be sold to the Company at net book value as of the preceding month end. 11 There was $2,943,895 of non-cash compensation expense related to the appreciation in book value of the shares outstanding under this plan. Certain recipients of the grants may elect to receive a component of the grant in cash. The book value of the stock awards and cash payments elected under the plan provision were charged against current earnings and totaled $5,914,755. Note 6: General Litigation The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company. Note 7: Subsequent Events On January 9, 2007, the Board of Directors declared a distribution of $2,594,575 to shareholders of record as of that date, paid on January 12, 2007. Note 8: Adoption of New Accounting Standard - Stock-Based Compensation In 2006, the Company adopted the 2004 revision of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, in accordance with the modified retrospective transition method. The modified retrospective transition method allows the Company to adjust financial statements for prior periods to give effect to the fair-value-based method of accounting for stock awards granted, modified or settled in cash in prior years. Because the Company's award program provides stock awards to be settled at net book value, the awards are valued at net book value which approximates fair value. Adoption of SFAS No. 123 required the Company to reduce equity and increase long-term liabilities by $7,326,426 for awards granted prior to January 1, 2006. As of January 1, 2006, previously reported equity was reduced and long-term liabilities were increased by $7,326,426. Previously reported compensation expense for the year ended December 31, 2005, was increased by $147,999. Note 9: Adoption of New Accounting Standard - Exchanges of Nonmonetary Assets In 2006, the Company adopted SFAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. APB Opinion No. 29, Accounting for Nonmonetary Transactions, requires that exchanges of nonmonetary assets be measured and reported on the fair value of the assets exchanged. The opinion provided certain exceptions to that principle for the exchange of similar productive assets. SFAS No. 153 eliminates that exception. Prior to 2006, the Company reduced the carrying value of new tractors and trailers by any gain on trades. Beginning in 2006, gains are reported on the fair value of assets exchanged and resulted in $12,778,811 of gains recognized for the year ended December 31, 2006. 12 Note 10:Future Change in Accounting Principles The Financial Accounting Standards Board recently issued Interpretation No. 48 Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The Company expects to first apply the new statement during fiscal year ending December 31, 2007. The impact of applying the new statement has not yet been determined. The Financial Accounting Standards Board recently issued Statement No. 157 Fair Value Measurements, which requires expanded disclosures about fair value measurements. The Company expects to first apply the new statement during fiscal year ending December 31, 2008, through prospective application. The impact of applying the new statement has not yet been determined. 13 EX-99 4 ex992.txt EXHIBIT 99.2 Exhibit 99.2 Transportation Resources, Inc. Consolidated Balance Sheet June 30, 2007 (Unaudited) Assets Current Assets Cash and cash equivalents $ 13,284,738 Short-term investments - U.S. Treasury bills 898,000 Trade receivables, net of allowance for doubtful accounts of $1,863,469 54,011,700 Other receivables 1,225,078 Prepaid tires 4,440,443 Other prepaid expenses 5,953,450 Operating supplies, fuel and parts 1,968,654 -------------- Total current assets 81,782,063 -------------- Property and Equipment, at Cost Land 11,957,223 Structures and land improvements 45,202,605 Revenue equipment 392,968,587 Other operating equipment 9,557,724 Furniture, fixtures and data processing equipment 7,506,520 Construction in progress 180,396 -------------- Total property and equipment 467,373,055 Less accumulated depreciation 202,941,313 -------------- Net property and equipment 264,431,742 -------------- Other Assets 1,418,736 -------------- $ 347,632,541 ============== Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 9,825,733 Accounts payable - interline 7,421,229 Customer credit balances 3,393,888 Salaries and wages payable 5,886,857 Claims and insurance accruals 12,242,934 Other current and accrued liabilities 8,570,723 -------------- Total current liabilities 47,341,364 -------------- Long-term Obligations Long-term debt 1,100,000 Claims and insurance accruals 5,189,272 Stock based awards 20,302,811 Other long-term obligations 4,777,914 -------------- Total long-term obligations 31,369,997 -------------- Shareholders' Equity Common stock, $0.01 par value; 15,000,000 shares authorized; 6,014,327 shares issued and outstanding 55,656 Additional paid-in capital 152,764,748 Earnings reinvested in the business 116,037,834 Accumulated other comprehensive income 62,942 -------------- Total shareholders' equity 268,921,180 -------------- $ 347,632,541 ============== See Notes to Condensed Consolidated Financial Statements 1 Transportation Resources, Inc. Consolidated Statements of Income Six Months Ended June 30, 2007 and 2006 (Unaudited) 2007 2006 ------------------ ------------------ Operating Revenues $ 218,484,060 $ 210,985,753 ------------------ ------------------ Operating Expenses Salaries, wages and fringe benefits 91,699,266 85,036,840 Fuel and supplies 34,609,166 30,839,839 Depreciation 24,108,796 22,085,600 Equipment rent and purchased transportation 13,421,510 17,991,533 Operating taxes and licenses 16,094,365 14,148,323 Insurance and claims 10,370,723 9,382,455 Communications and utilities 1,572,774 1,435,965 Gains on asset disposition (3,181,857) (7,799,781) Other operating expenses 2,124,603 2,068,502 ------------------ ------------------ Total operating expenses 190,819,346 175,189,276 ------------------ ------------------ Operating Income 27,664,714 35,796,477 ------------------ ------------------ Other Income (Expense) Interest income 348,286 405,600 Interest expense (205,340) (237,880) Other (635,530) (85,792) ------------------ ------------------ Total other income (expense) (492,584) 81,928 ------------------ ------------------ Income Before Income Taxes 27,172,130 35,878,405 ------------------ ------------------ Provision for Income Taxes State income taxes 479,935 548,685 Foreign income taxes 161,984 91,115 ------------------ ------------------ Net Income $ 26,530,211 $ 35,238,605 ================== ================== See Notes to Condensed Consolidated Financial Statements 2 Transportation Resources, Inc. Consolidated Statements of Cash Flows Six Months Ended June 30, 2007 and 2006 (Unaudited) 2007 2006 ---------------- ---------------- Operating Activities Net income $ 26,530,211 $ 35,238,605 Items not requiring (providing) cash Depreciation 24,108,796 22,085,600 Gain on disposition of operating property (2,769,761) (7,783,394) Non-cash compensation expense 1,126,671 1,923,047 Changes in Accounts receivable (6,340,754) (6,021,927) Prepaid expenses 832,810 (2,294,122) Accounts payable 2,427,175 4,939,604 Other current and accrued liabilities 1,307,143 947,907 Other assets and liabilities 1,542,384 877,817 ---------------- ---------------- Net cash provided by operating activities 48,764,675 49,913,137 ---------------- ---------------- Investing Activities Proceeds from maturities of short-term investments 917,000 916,000 Purchases of short-term investments (898,000) (913,000) Purchases of property and equipment (29,592,644) (60,225,330) Proceeds from disposition of operating property 17,039,485 21,449,811 ---------------- ---------------- Net cash used in investing activities (12,534,159) (38,772,519) ---------------- ---------------- Financing Activities Net payments under line of credit agreement (6,440,000) -- Principal payments on long-term debt (2,055,953) (3,152,513) Proceeds from issuance of long-term debt -- 1,056,511 Outstanding checks in excess of bank balance (3,342,083) -- Cash distributions (15,389,173) (12,194,595) ---------------- ---------------- Net cash used in financing activities (27,227,209) (14,290,597) ---------------- ---------------- Increase (Decrease) in Cash and Cash Equivalents 9,003,307 (3,149,979) Cash and Cash Equivalents, Beginning of Period 4,281,431 13,291,638 ---------------- ---------------- Cash and Cash Equivalents, End of Period $ 13,284,738 $ 10,141,659 ================ ================ Supplemental Cash Flows Information Interest paid $ 177,667 $ 223,325 Income taxes paid 146,740 1,301,516 See Notes to Condensed Consolidated Financial Statements 3 Exhibit 99.2 Transportation Resources, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. Principal Accounting Policies Nature of Operations Transportation Resources, Inc. (the Company) is a holding company whose majority-owned subsidiaries and primary business activities are: Subsidiary Business Activity - ------------------------------------------------------------------------------ Contract Freighters, Inc. Truckload carrier Transportation Equipment Leasing, LLC Transportation equipment leasing Transportation Property Leasing, LLC Property leasing Orcas Aircraft Leasing, Inc. Aircraft leasing CFI Custom Freight Management, Inc. Transportation logistics Orcas Logistics, Inc. Transportation logistics The Company and the above subsidiaries operate primarily in the United States of America (U.S.) and Canada. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Basis of Presentation These interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X, and should be read in conjunction with the Company's financial statements for the year ended December 31, 2006. Accordingly, significant accounting policies and other disclosures normally provided have been omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company's financial position as of June 30, 2007, and the Company's results of operations and cash flows for the six-month periods ended June 30, 2007 and 2006. Operating results and cash flows for the six-month periods are not necessarily indicative of the operating results and cash flows that may be expected for the year ending December 31, 2007. New Accounting Standards In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair-value option has been elected will be reported in earnings. The effective date for SFAS 159 is the first fiscal year beginning after November 15, 2007, which for the Company is the first quarter of 2008. The Company is currently evaluating the elective option under SFAS 159, but does not expect that adoption will have a material effect on its financial statements. 4 Reclassification Certain amounts in the prior-period financial statements have been reclassified to conform to the current-period presentation. 2. Comprehensive Income Comprehensive income, which is a measure of all changes in equity except those resulting from investments by owners and distributions to owners, was as follows: (Dollars in thousands) Six Months Ended June 30, ------------------------ 2007 2006 ----------- ----------- Net income $ 26,530 $ 35,239 Other comprehensive income (loss): Foreign currency translation adjustment 63 (68) ----------- ----------- Comprehensive income $ 26,593 $ 35,171 =========== =========== 3. Income Taxes The Company is a Subchapter S Corporation under the Internal Revenue Code, as amended in 1986. Accordingly, the federal income taxes associated with the Company are passed through to its shareholders. However, the Company is subject to certain state, local and foreign income taxes based on the tax regulations in those jurisdictions. In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of SFAS 109" ("FIN 48"), which clarifies the accounting for uncertainty in tax positions. FIN 48 is a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Tax positions shall be recognized in the financial statements only when it is more likely than not that the position will be sustained upon examination by a taxing authority. If the position meets the more-likely-than-not criteria, it should be measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. It requires previously recognized tax positions that no longer meet the more- likely-than-not recognition threshold to be derecognized in the first subsequent financial reporting period in which the threshold is no longer met. The Company adopted the provisions of FIN 48 on January 1, 2007. At the adoption date, the Company recognized a $4.1 million increase in other long- term obligations and an equal decrease in retained earnings, primarily for the gross tax-affected unrecognized tax benefits related to tax positions taken in certain state tax jurisdictions in which the Company operates. The Company's adoption-related liability of $4.1 million included $1.3 million of accrued interest and penalties. Interest and penalties related to state and local income taxes are a component of income tax expense. At June 30, 2007, the Company's estimate of gross tax-affected unrecognized tax benefits increased to $4.6 million. In the next 12 months, the Company does not expect a significant increase or decrease to its estimates of unrecognized tax benefits. The Company files income tax returns in various states. The years from 2003 to 2006 remain subject to examination in the relevant jurisdictions. Where no return has been filed, no statute of limitations applies. Accordingly, if a tax jurisdiction reaches a conclusion that a filing requirement does exist, additional years may be reviewed by the tax authority. 5 4. Subsequent Event On July 13, 2007, the Company entered into an agreement under which Con-way Inc. would acquire the common stock of the Company for an aggregate purchase price of $750 million, subject to adjustment. The boards of directors of both companies approved the transaction, and the transaction was concluded during the third quarter 2007. 6 EX-99 5 ex993.txt EXHIBIT 99.3 Exhibit 99.3 Con-way Inc. Unaudited Pro Forma Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2007 and for the year ended December 31, 2006 On August 23, 2007, under the Agreement and Plan of Merger entered into on July 13, 2007, Con-way Inc. ("Con-way") acquired the common stock of Transportation Resources, Inc. and subsidiaries ("TRI"). Subsidiaries of TRI consist of Contract Freighters, Inc. ("CFI"), a truckload carrier headquartered in Joplin, Missouri, and other affiliated companies. The acquisition of TRI and its subsidiaries is referred to as the "Acquisition." The unaudited pro forma condensed consolidated financial statements are presented in accordance with the rules specified by Article 11 of Securities and Exchange Commission ("SEC") Regulation S-X, promulgated by the SEC to give effect to the Acquisition as if it had occurred on earlier dates using the purchase method of accounting. The unaudited pro forma condensed consolidated balance sheet of Con-way as of June 30, 2007 gives effect to the Acquisition as if it were consummated on June 30, 2007, and the unaudited pro forma condensed consolidated statements of income of Con-way for the six months ended June 30, 2007 and the year ended December 31, 2006 give effect to the Acquisition as if it were consummated on January 1, 2006. The unaudited pro forma condensed consolidated financial statements are for illustrative purposes only, are hypothetical in nature and do not purport to represent what Con-way's consolidated statements of income, balance sheet or other financial information would have been if the Acquisition had occurred as of the dates indicated or what such results will be for any future periods. The unaudited pro forma adjustments are based upon available information and certain assumptions that Con-way believes are reasonable, including estimates related to purchase-method fair-value accounting adjustments, the effect of financing transactions and conforming changes in accounting policies. However, the pro forma condensed consolidated statements of income reflect only pro forma adjustments expected to have a continuing effect on the consolidated results beyond 12 months from the consummation of the Acquisition and do not reflect any changes in operations that may occur, including synergistic benefits that may be realized through the consolidation of the two companies or the costs that may be incurred in integrating their operations. These estimates are preliminary and are based on information currently available and could change significantly. The unaudited pro forma condensed consolidated financial statements and accompanying notes should be read in conjunction with Con-way's historical consolidated financial statements included in Con-way's Annual Report on Form 10-K for the year ended December 31, 2006 and Con-way's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007 and with TRI's historical consolidated financial statements included in Exhibits 99.1 and 99.2 to this Current Report on Form 8-K/A. 1 Con-way Inc. Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2007 (Dollars in millions)
Historical Pro Forma -------------------------------- ---------------------------------- TRI Con-way Adjustments Consolidated --------------- --------------- --------------- --------------- Assets Cash and cash equivalents $ 13.3 $ 345.4 $ (337.0) [a] $ 21.7 Marketable securities 0.9 197.5 -- 198.4 Trade and other accounts receivable 55.2 489.4 (4.6) [b] 544.6 4.6 [c] Deferred income taxes -- 42.9 (4.8) [c] 38.1 Other 12.4 62.2 (4.4) [d] 70.2 --------------- --------------- --------------- --------------- Current assets 81.8 1,137.4 (346.2) 873.0 Property, plant and equipment, net 264.4 1,093.8 4.4 [d] 1,456.4 2.5 [e] 91.3 [f] Deferred charges and other assets 0.7 59.7 3.1 [f] 71.7 4.0 [g] 4.2 [a] Goodwill -- 0.7 460.5 [f] 461.2 Identifiable intangible assets -- -- 15.7 [f] 15.7 Deferred income taxes 0.7 22.6 (23.3)[c] -- --------------- --------------- --------------- --------------- Total assets $ 347.6 $ 2,314.2 $ 216.2 $ 2,878.0 =============== =============== =============== =============== Liabilities and Stockholders' Equity Accounts payable and accrued liabilities $ 35.1 $ 514.9 $ 9.3 [a] $ 553.5 (1.2)[c] (4.6)[b] Self-insurance accruals 12.2 98.1 2.3 [f] 112.6 Current maturities of long-term debt -- 22.7 -- 22.7 --------------- --------------- --------------- --------------- Current liabilities 47.3 635.7 5.8 688.8 Long-term debt and guarantees 1.1 532.4 425.0 [a] 958.5 Self-insurance accruals 5.2 114.2 -- 119.4 Other liabilities and deferred credits 25.1 285.2 (20.3)[g] 290.0 Deferred income taxes -- -- 74.6 [c] 74.6 --------------- --------------- --------------- --------------- Long-term liabilities 31.4 931.8 479.3 1,442.5 --------------- --------------- --------------- --------------- Total Liabilities 78.7 1,567.5 485.1 2,131.3 Preferred equity -- 61.7 -- 61.7 Common equity Common stock - Par -- 38.6 -- 38.6 Common stock - APIC 152.8 561.6 (152.8)[f] 561.6 Retained earnings 116.0 909.1 (116.0)[f] 909.1 Treasury stock -- (724.3) -- (724.3) --------------- --------------- --------------- --------------- Total common equity 268.8 785.0 (268.8) 785.0 Accumulated other comprehensive income (loss) 0.1 (100.0) (0.1)[f] (100.0) --------------- --------------- --------------- --------------- Total Stockholders' Equity 268.9 746.7 (268.9) 746.7 --------------- --------------- --------------- --------------- Total Liabilities and Stockholders' Equity $ 347.6 $ 2,314.2 $ 216.2 $ 2,878.0 =============== =============== =============== =============== See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 2
Con-way Inc. Unaudited Pro Forma Condensed Consolidated Statement of Income for the six months ended June 30, 2007 (Dollars in millions, except share and per share data)
Historical Pro Forma -------------------------------- ----------------------------------- TRI Con-way Adjustments Consolidated --------------- --------------- --------------- --------------- Revenues $ 218.5 $ 2,075.9 $ 41.1 [d] $ 2,317.0 (18.5)[b] Operating expenses 190.8 1,942.6 41.1 [d] 2,159.8 (18.5)[b] 3.6 [f] (1.8)[g] 2.0 [e] --------------- --------------- --------------- --------------- Operating income 27.7 133.3 (3.8) 157.2 Non-operating income (expense) Investment income -- 11.3 (9.2)[a] 2.1 Interest expense (0.2) (17.3) (14.6)[a] (32.1) Miscellaneous, net (0.3) 0.2 -- (0.1) --------------- --------------- --------------- --------------- (0.5) (5.8) (23.8) (30.1) Income from continuing operations before taxes 27.2 127.5 (27.6) 127.1 Tax provision 0.6 47.3 0.2 [c] 48.1 --------------- --------------- --------------- --------------- Income from continuing operations 26.6 80.2 (27.8) 79.0 Preferred stock dividends -- 3.5 -- 3.5 --------------- --------------- --------------- --------------- Net income $ 26.6 $ 76.7 $ (27.8) $ 75.5 =============== =============== =============== =============== Earnings per Share Basic Average shares -- 45,636,617 -- 45,636,617 EPS $ -- $ 1.68 $ -- $ 1.65 =============== =============== =============== =============== Diluted Average shares -- 48,757,823 -- 48,757,823 EPS $ -- $ 1.58 $ -- $ 1.56 =============== =============== =============== =============== See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 3
Con-way Inc. Unaudited Pro Forma Condensed Consolidated Statement of Income for the fiscal year ended December 31, 2006 (Dollars in millions, except share and per share data)
Historical Pro Forma -------------------------------- ----------------------------------- TRI Con-way Adjustments Consolidated --------------- --------------- --------------- --------------- Revenues $ 427.6 $ 4,221.5 $ 85.3 [d] $ 4,700.6 (33.8)[b] Operating expenses 359.3 3,819.7 85.3 [d] 4,238.2 (33.8)[b] 10.3 [f] (3.9)[g] 1.3 [e] --------------- --------------- --------------- --------------- Operating income 68.3 401.8 (7.7) 462.4 Non-operating income (expense) Investment income -- 24.8 (18.3)[a] 6.5 Interest expense (0.4) (34.2) (29.3)[a] (63.9) Miscellaneous, net 0.9 (0.1) -- 0.8 --------------- --------------- --------------- --------------- 0.5 (9.5) (47.6) (56.6) Income from continuing operations before taxes 68.8 392.3 (55.3) 405.8 Tax provision 1.0 120.0 7.1 [c] 128.1 --------------- --------------- --------------- --------------- Income from continuing operations 67.8 272.3 (62.4) 277.7 Preferred stock dividends -- 7.1 -- 7.1 --------------- --------------- --------------- --------------- Net income $ 67.8 $ 265.2 $ (62.4) $ 270.6 =============== =============== =============== =============== Earnings per Share Basic Average shares -- 48,962,382 -- 48,962,382 EPS $ -- $ 5.42 $ -- $ 5.53 =============== =============== =============== =============== Diluted Average shares -- 52,280,341 -- 52,280,341 EPS $ -- $ 5.09 $ -- $ 5.20 =============== =============== =============== =============== See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 4
Con-way Inc. Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements 1. Purchase Price On August 23, 2007, Con-way acquired all of the outstanding common stock of TRI. Under the purchase method of accounting required by SFAS 141, "Business Combinations," the assets and liabilities of TRI will be recorded at their fair value as of the Acquisition date and will be consolidated with those of Con-way. The reported financial statements of Con-way subsequent to the Acquisition will reflect these new values, but will not be restated retroactively to reflect the historical financial information of TRI. In the presentation below, the preliminary allocation of the purchase price is based on the purchase price calculated as of the August 23, 2007 Acquisition closing date and the estimated fair value or carrying amount (which approximates fair value) of assets acquired and liabilities assumed as of the same date. The purchase-price accounting is based on a preliminary calculation of the purchase price, current estimates of the assets acquired and liabilities assumed, and a preliminary evaluation of the effect of conforming TRI's accounting policies to those of Con-way. Accordingly, revisions to the preliminary calculations, estimates, and evaluations may be necessary as these items are finalized. The preliminary purchase-price allocation in the pro forma condensed consolidated balance sheet as of June 30, 2007 is based [1] the purchase price calculated as of the August 23 Acquisition closing date, [2] the fair value of property and equipment, internal-use software and acquired identifiable intangible assets as of the August 23, 2007 Acquisition closing date, and [3] the carrying amount (which approximates fair value) of other tangible assets acquired and liabilities assumed as of June 30, 2007. Based on an the earlier pro forma date of valuation for certain tangible assets acquired and liabilities assumed, the amount of goodwill reported in the pro forma condensed consolidated balance sheet as of June 30, 2007 is different than the amount presented below. Calculation of purchase price (dollars in millions): Cash consideration paid Purchase price $ 750.0 Adjustments for working capital, and for cash and debt acquired 12.0 Direct transaction costs 5.1 ---------- Gross purchase price $ 767.1 Cash acquired (15.4) ---------- Net purchase price $ 751.7 ========== Allocation of purchase price (dollars in millions): Current assets, excluding cash acquired $ 61.9 Non-current assets Property and equipment 362.6 Intangible assets Customer relationships $ 14.0 Trademarks 1.7 Goodwill 460.6 --------- 476.3 Other assets Internal-use software 3.0 Restricted cash 4.0 --------- 7.0 Current liabilities (46.2) Non-current liabilities Deferred taxes (98.2) Other (11.7) ---------- $ 751.7 ========== As required by SFAS 142, "Goodwill and Intangible Assets," intangible assets with an indefinite life are not amortized while intangible assets with lives of definite duration are amortized over their estimated useful lives. Accordingly, goodwill will not be amortized and is not deductible for income-tax purposes, but will be subject to an annual impairment test. Identifiable intangible assets will be amortized on a straight-line basis over the estimated useful lives of the assets, which are 10 years for customer relationships and 2 years for trademarks. 5 In connection with the Acquisition, former shareholders of TRI paid $4.0 million into an escrow account for the purpose of retaining certain key executive officers of TRI. Under the escrow agreement, the key executive officers will receive pro rata payments if they remain employees of TRI over a two-year period ending August 23, 2009. Accordingly, $4.0 million has been allocated to the purchase price as the value of the retention-related restricted cash and an equal liability to the key executive officers will be accrued ratably over the two-year service period. If the key executive officers terminate employment prior to August 23, 2009, any unearned portion of the restricted cash in escrow would be remitted to Con-way. 2. Unaudited Pro Forma Condensed Consolidated Balance Sheet and Income Statement The unaudited pro forma condensed consolidated balance sheet combines the historical consolidated balance sheets of Con-way and TRI as of June 30, 2007, giving effect to the Acquisition as if it occurred on that same date. The unaudited pro forma condensed consolidated statements of income combine the historical consolidated statements of income of Con-way for the year ended December 31, 2006 and the six months ended June 30, 2007 with the historical financial statements of TRI for the same periods, giving effect to the Acquisition as if it occurred on January 1, 2006. The following adjustments have been reflected in the unaudited pro forma condensed consolidated financial statements: [a] Record the effects of debt and cash financing of the purchase price. On August 23, 2007, Con-way entered into an agreement that established a $500.0 million bridge-loan facility. On that date, Con-way borrowed $425.0 million under the bridge-loan facility to fund a portion of the purchase price in its Acquisition of TRI. Under the borrowing, the principal amount of $425.0 million is due in full on August 21, 2008. Subject to market conditions, Con-way intends to refinance the bridge- loan facility with longer-term debt. Accordingly, these pro forma condensed consolidated financial statements include adjustments that reflect assumptions applicable to long-term debt rather than the bridge-loan facility. The pro forma adjustments to the balance sheet are summarized below (dollars in millions). Financing requirements: Gross purchase price, including direct transaction costs $ 767.1 Debt issuance costs 4.2 ---------- $ 771.3 ========== Financing sources: Long-term debt $ 425.0 Accrued liabilities for direct transaction costs and debt-issuance costs 9.3 Cash 337.0 ---------- $ 771.3 ========== The pro forma adjustments to the income statement reflect increases in interest expense and amortization of debt costs and a decrease in investment income from lower average balances of cash-equivalent investments. The annual interest rate on long-term debt is assumed to be 6.75% and a change of 1/8% in the interest rate would result in a $0.5 million change in annual interest expense. The annual interest rate on cash-equivalent investments is assumed to be 5.29% and a change of 1/8% in the interest rate would result in a $0.4 million change in annual investment income. [b] Eliminate the effect of transactions between Con-way and TRI. Pro forma adjustments to the balance sheet eliminate accounts receivable and accounts payable recognized in the historical balance sheets of TRI and Con-way, respectively, while pro forma adjustments to the income statement eliminate revenue and purchased transportation expense recognized in the historical income statements of TRI and Con-way, respectively. 6 [c] Record the effects of income taxes. The pro forma adjustments to the balance sheet include the recognition of current and deferred income tax assets and liabilities attributable to the tax effect of pro forma adjustments, including primarily adjustments to record the estimated fair value of property and equipment and definite-lived intangible assets. The pro forma adjustments to the income statement include [1] an increase in the historical tax expense of TRI as if it were treated as a "C" corporation rather than a "Subchapter S" corporation, and [2] the tax effect of pro forma adjustments. The pro forma adjustments reflect the estimated consolidated effective tax rate of 31.6% in the fiscal year ended December 31, 2006 and 37.9% in the six months ended June 30, 2007. [d] Reclassify TRI amounts to conform to Con-way's method of presentation. Con-way's historical balance sheet presents the cost of new tires on tractors as a component of property and equipment while TRI's historical balance sheet presents such costs as prepaid tire expense. Con-way's historical income statements present fuel surcharges as revenue while TRI's historical income statements present such amounts as a reduction in operating expenses. [e] Conform TRI's accounting policies to conform to those applied by Con- way. In Con-way's historical income statements, the cost of new tires on tractors is amortized over the estimated useful lives of the new equipment, while in TRI's historical income statements, the cost of new tires on tractors is amortized over 12 to 15 months. In Con-way's historical income statements, gains on the sale of revenue equipment are based on the net book value of the equipment, without any adjustment for earlier trade-in activity, as was the case for TRI, as described below. In TRI's historical income statements, prior to TRI's adoption of SFAS 153, "Exchanges on Nonmonetary Assets," as more fully discussed in Exhibit 99.1, the purchase price of replacement property was reduced by an amount equal to the trade-in value in excess of the net book value of replaced equipment. Accordingly, the pro forma consolidated condensed income statements includes pro forma adjustments to reduce the amount of gains recognized from the sale of lower-basis property. [f] Record the purchase of TRI, including [1] the balance-sheet and income- statement effect of purchase-method accounting adjustments to TRI's property and equipment, goodwill, identifiable intangible assets, and self-insurance reserves, and [2] the elimination of TRI's historical equity accounts. [g] Eliminate the effect of TRI's share-based compensation plans, which terminate upon change in control, and include the effect of a retention arrangement for key executive officers, as described above in Note 1, "Purchase Price." The pro forma balance sheet primarily reflects the elimination of a $20.3 million share-based compensation liability reported in TRI's historical balance sheet, and the recognition of a $4.0 million asset related to the retention arrangement. The pro forma adjustments to the income statement include a net decline in operating expense resulting from the elimination of $5.9 million of annual share-based compensation expense and additional annual expense of $2.0 million related to the retention arrangement. 7 -----END PRIVACY-ENHANCED MESSAGE-----