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