Conway Inc 10-Q 2010
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
COMMISSION FILE NUMBER 1-5046
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 94-1444798
2855 Campus Drive, Suite 300, San Mateo, California 94403
Telephone Number (650) 378-5200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Number of shares of Common Stock, $0.625 par value,
outstanding as of October 31, 2010: 54,764,036
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principal Accounting Policies
Con-way Inc. and its consolidated subsidiaries (“Con-way”) provide transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail customers. Con-way’s business units operate in regional and transcontinental less-than-truckload and full-truckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage and trailer manufacturing. As more fully discussed in Note 4, “Segment Reporting,” for financial reporting purposes, Con-way is divided into four reporting segments: Freight, Logistics, Truckload and Other.
Basis of Presentation
These interim financial statements 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 Con-way’s 2009 Annual Report on Form 10-K. 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 Con-way’s financial condition, results of operations and cash flows for the periods presented. Results for the interim periods presented are not necessarily indicative of annual results.
Property, Plant and Equipment
Con-way periodically evaluates whether changes to estimated useful lives or salvage values are necessary to ensure that these estimates accurately reflect the economic use of the assets.
In Con-way’s periodic evaluation conducted in the first quarter of 2010, the estimated useful lives for revenue equipment were extended in response to planned capital expenditure levels. As a result of the revised estimates, in January 2010, Con-way Freight extended the estimated useful life for most of its tractors to 10 years from 8 years and extended the estimated useful life for its trailers to 14 years from 13 years. Also effective in January 2010, Con-way Truckload extended the estimated useful life for its tractors to 6 years from 4 years, and decreased the associated estimated salvage values.
In June 2010, the Con-way board of directors approved an accelerated fleet replacement program for Con-way Truckload that is expected to replace nearly the entire tractor fleet by 2012 and change the estimated useful lives of tractors to 4 years based on the planned replacement cycles. The change transitions the current 6-year life to a 4-year life by 2012 and also impacts associated estimated salvage values depending on when the units are scheduled to be replaced.
As a result of these combined changes, net loss applicable to common shareholders in the third quarter of 2010 declined by $0.6 million ($0.01 per diluted share), while net income available to common shareholders in the first nine months increased by $2.9 million ($0.06 per diluted share).
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Earnings (Loss) per Share (“EPS”)
Basic EPS is computed by dividing reported earnings (loss) by the weighted-average common shares outstanding. Diluted EPS is calculated as follows:
In the computation of diluted EPS, only potential common shares that are dilutive are included. Potential common shares are dilutive if they reduce earnings per share or increase loss per share. Stock options, nonvested stock and convertible preferred stock are not included in the computation if the result is antidilutive, such as when a loss applicable to common shareholders is reported.
New Accounting Standards
In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, “Multi-Deliverable Revenue Arrangements- a consensus of the FASB Emerging Issues Task Force.” ASU 2009-13 was codified in the “Revenue Recognition” topic of the FASB Accounting Standards Codification, which details the requirements that must be met for an entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how the arrangement consideration should be allocated among separate units of accounting. One of the current requirements is that there be objective and reliable evidence of the standalone selling price of the undelivered items, which must be supported by either vendor-specific objective evidence (“VSOE”) or third-party evidence. ASU 2009-13 modifies the current GAAP by amending the objective and reliable evidence threshold to allow use of estimated selling price when VSOE does not exist. Under ASU 2009-13, deliverables would be expected to meet the separation criteria more frequently. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. Con-way will apply the guidance prospectively to revenue arrangements entered into or materially modified on or after January 1, 2011. Con-way does not expect the adoption of ASU 2009-13 to have a material effect on its financial statements.
Certain amounts in the prior-period financial statements have been reclassified to conform to the current-period presentation.
2. Goodwill and Intangible Assets
Goodwill is recorded as the excess of an acquired entity’s purchase price over the amounts assigned to assets acquired (including separately recognized intangible assets) and liabilities assumed. Goodwill is not amortized but is assessed for impairment on an annual basis in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The assessment requires the comparison of the fair value of a reporting unit to the carrying value of its net assets, including allocated goodwill. If the carrying value of the reporting unit exceeds its fair value, Con-way must then compare the implied fair value of the reporting-unit goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting-unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
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The following table shows the changes in the carrying amounts of goodwill attributable to each applicable segment:
As a result of continued operating losses and lower-than-forecasted operating results at the Chic Logistics reporting unit, Con-way evaluated the goodwill associated with Chic Logistics during the third quarter of 2010. Con-way determined that the goodwill related to Chic Logistics was impaired and, as a result, Menlo Worldwide Logistics recognized a $16.4 million impairment charge to reduce the carrying amount of the goodwill to zero. The impairment was primarily due to a decrease in projected operating income in future years. For the valuation of Chic Logistics, Con-way utilized a discounted cash flow model.
In 2009, Con-way evaluated its goodwill for impairment prior to its annual measurement date due primarily to deteriorating truckload market conditions, lower profit projections for Con-way Truckload and a decline in Con-way’s market capitalization during the first quarter of 2009. In the first quarter of 2009, Con-way determined that the goodwill associated with Con-way Truckload was impaired and, as a result, Con-way Truckload recognized a $134.8 million impairment charge to reduce the carrying amount of the goodwill to its implied fair value. The impairment charge was primarily due to lower projected revenues and operating income in future years and a discount rate that reflected the adverse economic and market conditions at the measurement date.
For the valuation of Con-way Truckload, Con-way applied two equally weighted methods: public-company multiples and a discounted cash flow model. The key assumptions used in the discounted cash flow model were cash flow projections involving forecasted revenues and expenses, capital expenditures, working capital changes, the discount rate and the terminal growth rate applied to projected future cash flows. The discount rate was equal to the estimated weighted-average cost of capital for the reporting unit from a market-participant perspective. The terminal growth rate was based on inflation assumptions adjusted for factors that may impact future growth such as industry-specific expectations.
The fair value of intangible assets is amortized on a straight-line basis over the estimated useful life. In the third quarter and first nine months of 2010, amortization expense related to intangible assets was $0.8 million and $2.5 million, respectively, compared to $1.1 million and $3.3 million in the same respective periods of 2009. Intangible assets consisted of the following:
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In the first quarter of 2010, Con-way evaluated the fair value of Chic Logistics’ customer-relationship intangible asset due to lower projected revenues from customers comprising the customer-relationship intangible asset. As a result, Menlo Worldwide Logistics recognized a $2.8 million impairment loss and reduced the carrying amount of the intangible asset to zero.
Estimated amortization expense for the next five years is presented in the following table:
3. Restructuring Activities
During the periods presented, Con-way incurred expenses in connection with a number of restructuring activities. Con-way reported the employee-separation costs in salaries, wages and employee benefits, the contract-termination costs in other operating expenses and facility costs primarily in rents and leases in the statements of consolidated operations. Con-way recognized restructuring charges of $2.4 million and $3.8 million in the third quarter and first nine months of 2010, respectively, and expects to recognize $4.2 million of additional expense through 2011. In the first nine months of 2009, Con-way recognized $0.5 million of expense reductions, as more fully discussed below. Con-way’s remaining liability for amounts expensed but not yet paid was $4.4 million at September 30, 2010. The remaining liability relates to operating lease commitments that are expected to be payable over several years and employee-separation costs that are expected to be paid through 2011.
In 2009, as part of an ongoing effort to reduce costs and improve capabilities, Con-way initiated a project to outsource a significant portion of its information-technology infrastructure function and a small portion of its administrative and accounting functions. The outsourcing initiative was completed in the third quarter of 2010.
The following table summarizes the effect of the outsourcing initiative:
In the first nine months of 2010, Con-way allocated corporate outsourcing charges of $1.8 million and $0.5 million to the Freight and Logistics segments, respectively.
Consolidation of Executive Offices
In the third quarter of 2010, in an effort to more closely align corporate functions and better support the business, Con-way initiated a project to consolidate its executive offices located in San Mateo, California and Ann Arbor, Michigan. As a result, the office in San Mateo will be closed and the office in Ann Arbor will serve as Con-way’s principal executive office. Con-way expects the consolidation to be substantially completed by the end of the second quarter of 2011.
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The following table summarizes the effect of the initiative:
In connection with the consolidation of its executive offices, Con-way, in the third quarter of 2010, allocated restructuring charges of $1.2 million, $0.2 million and $0.2 million to the Freight, Logistics and Truckload segments, respectively.
In August 2007, Con-way Freight implemented an operational restructuring to combine its three regional operating companies into one centralized operation and, in November 2008, completed a major network re-engineering. In the first nine months of 2009, Con-way recognized $0.5 million of expense reductions due primarily to a decline in estimated lease liabilities. The remaining lease liability was $2.3 million at September 30, 2010.
4. Segment Reporting
Con-way discloses segment information in the manner in which the business units are organized for making operating decisions, assessing performance and allocating resources. For the periods presented, Con-way is divided into the following four reporting segments:
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Management evaluates segment performance primarily based on revenue and operating income (loss). Accordingly, investment income, interest expense, and other non-operating items are not reported in segment results. Corporate expenses are generally allocated based on measurable services provided to each segment, or for general corporate expenses, based on segment revenue. Inter-segment revenue and related operating income (loss) have been eliminated to reconcile to consolidated revenue and operating income (loss). Transactions between segments are generally based on negotiated prices.
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5. Fair-Value Measurements
Assets and liabilities reported at fair value are classified in one of the following three levels within the fair-value hierarchy:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The following table summarizes the valuation of financial instruments within the fair-value hierarchy:
Cash equivalents consist of short-term interest-bearing instruments (primarily commercial paper, certificates of deposit and money-market funds) with maturities of three months or less at the date of purchase. Current marketable securities consist of variable-rate demand notes.
Money-market funds reflect their published net asset value and are classified as Level 1 instruments within the fair-value hierarchy. Commercial paper, certificates of deposit and variable-rate demand notes are generally valued using published interest rates for instruments with similar terms and maturities, and accordingly, are classified as Level 2 instruments within the fair-value hierarchy. At September 30, 2010, the average remaining maturity of the cash equivalents was less than one month. Based on their short maturities, the carrying amount of the cash equivalents approximates their fair value.
Con-way’s other marketable security consists of one auction-rate security, which was valued with an income approach that utilized a discounted cash flow model. The following table summarizes the change in fair values of Con-way’s auction-rate security, which was valued using Level 3 inputs:
Due primarily to changes in interest-rate benchmarks, the fair value of Con-way’s auction-rate security increased in the first nine months of 2010. Con-way has recorded a cumulative life-to-date $0.4 million decline in the carrying value of the auction-rate security with an equal and offsetting unrealized loss in accumulated other comprehensive loss in shareholders’ equity. Con-way has evaluated the unrealized loss and concluded that the decline in fair value is not other-than-temporary.
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6. Employee Benefit Plans
In the periods presented, employees of Con-way and its subsidiaries in the U.S. were covered under several retirement benefit plans, including defined benefit pension plans, defined contribution retirement plans, a postretirement medical plan and a long-term disability plan. See Note 12, “Employee Benefit Plans,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2009 Annual Report on Form 10-K for additional information concerning its employee benefit plans. See “Cost-Reduction Actions” below for a discussion of employee benefits changes that were effective in April 2009.
Defined Benefit Pension Plans
The following table summarizes the components of net periodic benefit expense for Con-way’s domestic defined benefit pension plans:
Con-way has made $93.8 million in contributions to its Qualified Pension Plans in 2010, including $1.2 million contributed in October 2010. Con-way does not anticipate making any further contributions to the plans in 2010.
Defined Contribution Retirement Plans
Con-way’s defined contribution retirement plans consist mostly of the primary defined contribution retirement plan (the “Primary DC Plan”).
Con-way’s expense under the Primary DC Plan was $9.1 million and $28.3 million in the third quarter and first nine months of 2010, respectively, compared to $8.5 million and $36.4 million in the same periods of 2009. At September 30, 2010 and December 31, 2009, Con-way had recognized accrued liabilities of $11.4 million and $10.5 million, respectively, for its contributions related to the Primary DC Plan. In 2009, Con-way’s contributions to the Primary DC Plan included allocations of Con-way preferred stock and contributions of cash and Con-way common stock. In 2010, Con-way’s contributions were made with Con-way common stock. In the first nine months of 2010 and 2009, Con-way used 826,504 shares and 610,176 shares, respectively, of repurchased common stock (also referred to as treasury stock) to fund $27.4 million and $18.7 million, respectively, of contributions to the Primary DC Plan.
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Postretirement Medical Plan
The following table summarizes the components of net periodic benefit expense for the postretirement medical plan:
In March 2010, the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, was signed into law. Certain provisions of this legislation eliminated future tax deductions for expenditures reimbursed under the Medicare Part D retiree drug subsidy program. Elimination of this tax deduction resulted in a $2.3 million income-tax charge in the first quarter of 2010. Any effect from other provisions of the legislation will be included in the determination of the benefit obligation at the actuarial plan measurement date on December 31, 2010.
Long-term Disability Plan
Con-way’s expense associated with the long-term disability plan was $3.2 million and $10.3 million in the third quarter and first nine months of 2010, respectively, compared to $2.5 million and $8.0 million in the same respective periods of 2009. In Con-way’s consolidated balance sheets, the long-term and current portions of the long-term disability plan obligation are reported in employee benefits and accrued liabilities, respectively. At September 30, 2010, the long-term and current portions of the obligation were $25.5 million and $11.4 million, respectively, and at December 31, 2009, were $28.2 million and $11.4 million, respectively.
In response to economic conditions, in March 2009 Con-way announced several measures to reduce costs and conserve cash, as detailed below. The measures announced in March 2009 substantially consisted of the suspension or curtailment of employee benefits and a reduction in salaries and wages. As described below, Con-way in the first half of 2010 restored a portion of the wage and salary reductions and reinstated the compensated-absences benefits.
Salaries and Wages
Effective in March 2009, the salaries and wages of certain employees were reduced by 5%, including corporate and shared-services employees and those at the Con-way Freight and Road Systems business units. Effective in January 2010, Con-way restored one-half of the salary and wage reductions.
Effective in April 2009, a compensated-absences benefit was suspended at Con-way Freight. During the period of suspension, no compensated-absences benefits were earned for current-year service; however, employees could use previously vested benefits. Also, effective in March 2009, Menlo Worldwide Logistics reduced its compensated-absences benefit by 25%. Effective in April 2010, Con-way Freight and Menlo Worldwide Logistics reinstated their compensated-absences benefits.
Defined Contribution Plan
Effective in April 2009, employer contributions to Con-way’s Primary DC Plan were suspended or limited. The matching and transition contributions were suspended and the basic contribution was limited to no more than 3% of an employee’s eligible compensation.
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7. Shareholders’ Equity
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:
Common Stock Offering
In May 2010, Con-way sold 4,300,000 shares of repurchased common stock in an underwritten public offering at a price of $35.00 per share. The net proceeds from the offering were $143.3 million after deducting the underwriting discount and direct costs. The $42.8 million difference between the net proceeds and the $186.1 million historical cost of the repurchased common stock was recorded as a reduction to retained earnings in common shareholders’ equity.
8. Share-Based Compensation
Under terms of its share-based compensation plans, Con-way grants various types of share-based compensation awards to employees and directors. The plans provide for awards in the form of stock options, nonvested stock (also known as restricted stock), performance-share plan units and stock appreciation rights. See Note 13, “Share-Based Compensation,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2009 Annual Report on Form 10-K for additional information concerning its share-based compensation awards.
In the first quarter of 2010, Con-way awarded 694,033 cash-settled stock-appreciation rights (“SARs”) to eligible employees. The SARs were granted at the stock price on the grant date and have a three-year graded-vesting term. The awards provide for accelerated vesting if the employee ceases employment due to retirement, death, disability, or a change in control (as defined in the SAR agreement). The SARs are liability-classified awards and, as a result, Con-way re-measures the fair value of the awards each reporting period until the awards are settled. During the vesting period, compensation cost is recognized based on the proportionate amount of service rendered to date. Con-way will recognize any changes in fair value after the vesting period as compensation cost in the current period. The ultimate expense recognized for the SARs is equal to the intrinsic value at settlement. The following expense was recognized for share-based compensation:
As the result of executive severances in the third quarter of 2010, Con-way modified the terms of outstanding awards for four executives. The modifications resulted in the immediate vesting of certain awards and, as a result, Con-way recognized $1.1 million of expense.
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9. Income Taxes
Con-way recognized a tax provision of $6.7 million in the third quarter of 2010 and $11.5 million in the same quarter of 2009. In the first nine months, Con-way recognized a tax provision of $14.3 million in 2010 and $14.4 million in 2009. The effective tax rates in 2010 and 2009 reflect the effect of non-deductible goodwill impairment charges in the third quarter of 2010 and the first quarter of 2009, respectively. Excluding the effect of the non-deductible goodwill impairment charges and various discrete tax adjustments, the third-quarter effective tax rate increased to 42.6% in 2010 from 37.0% in 2009, while the year-to-date effective rate increased to 42.6% from 37.4% due primarily to a prior-year benefit associated with a now-expired fuel-related tax credit.
Other accounts receivable in the consolidated balance sheets include income tax receivables of $33.2 million and $2.7 million at September 30, 2010 and December 31, 2009, respectively. In October 2010, Con-way received $28.1 million of federal income tax refunds, which reduced by an equal amount Con-way’s income tax receivable reported at September 30, 2010.
Uncertain Tax Positions
In the normal course of business, Con-way is subject to examination by taxing authorities throughout the world. As a result of these examinations, Con-way maintains ongoing discussions and negotiations relating to tax matters with the taxing authorities in these various jurisdictions. The years subject to examination include 2005 to 2009 for federal income taxes. The Internal Revenue Service ("IRS") has issued a Revenue Agent's Report for tax years 2005 through 2007 proposing certain adjustments, one of which relates primarily to the treatment of certain payments to retirees and former employees of Menlo Worldwide Forwarding, Inc. and its subsidiaries and Menlo Worldwide Expedite!, Inc. (collectively “MWF”) by Con-way after the sale of MWF to United Parcel Service, Inc. in 2004. Con-way disagrees with this proposed adjustment and has contested it through the IRS administrative appeals process. Con-way has conducted meetings with the IRS Appeals Division in 2010. If Con-way is unable to settle the matter through the IRS appeals process, Con-way will take the matter to litigation. Con-way anticipates the appeals process and litigation could take an extended period of time to resolve. Although the timing of income tax audit resolutions and negotiations with taxing authorities are highly uncertain, Con-way does not anticipate a significant change to the total amount of unrecognized income tax benefits within the next 12 months. Con-way believes that it has provided adequate reserves related to all matters contained in tax periods open to examination. However, should Con-way experience an unfavorable outcome in this matter, it could have a material impact on its financial position, results of operations and cash flows.
10. Commitments and Contingencies
In connection with its outsourcing initiative, Con-way entered into agreements with third-party service providers in the first quarter of 2010. Payments to the third-party providers are estimated to be $257 million between 2010 and 2016, when the agreements are expected to expire.
Menlo Worldwide, LLC (“MW”) has asserted claims against the sellers of Chic Holdings alleging inaccurate books and records, misstatement of revenue, and other similar matters related to the pre-sale financial performance of the Chic businesses and is pursuing all legal and equitable remedies available to MW. There currently exists a $9 million hold-back in escrow against which MW may apply any award for breach of warranty under the purchase agreement. The ultimate outcome of this matter is uncertain and any resulting award will not be recognized until received.
In February 2002, a lawsuit was filed against Emery Worldwide Airlines, Inc. (“EWA”) in the District Court for the Southern District of Ohio, alleging violations of the Worker Adjustment and Retraining Notification Act (the “WARN Act”) in connection with employee layoffs and ultimate terminations due to the August 2001 grounding of EWA’s airline operations and the shutdown of the airline operations in December 2001. The court subsequently certified the lawsuit as a class action on behalf of affected employees laid off between August 11 and August 15, 2001. The WARN Act generally requires employers to give 60-days notice, or 60-days pay and benefits in lieu of notice, of any shutdown of operations or mass layoff at a site of employment. The estimated range for potential loss on this matter is zero to approximately $11 million, including accrued interest. The lawsuit was tried in early January 2009, and on September 28, 2009, the court issued its decision in favor of EWA. Plaintiffs have appealed the judgment.
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Con-way is a defendant in various other lawsuits incidental to its businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material effect on Con-way’s financial condition, results of operations or cash flows.
11. Leases and Long-term Debt
In April 2010, Con-way acquired $35.1 million of tractors for Freight under a capital-lease agreement in which Con-way guarantees the residual value of the tractors at the end of the lease term. Including the stated amount of the residual-value guarantee, the minimum lease payments during the five-year term of the lease are expected to be $39.5 million. Con-way’s lease obligations as of December 31, 2009 are summarized in Note 9, “Leases,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2009 Annual Report on Form 10-K.
In May 2010, Con-way repaid the $200 million outstanding under its 8 7/8% Notes Due 2010. See Note 8, “Debt and Other Financing Arrangements,” of Item 8, “Financial Statements and Supplementary Data,” in Con-way’s 2009 Annual Report on Form 10-K for additional information concerning Con-way’s debt instruments.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (referred to as “Management’s Discussion and Analysis”) is intended to assist in a historical and prospective understanding of Con-way’s financial condition, results of operations and cash flows, including a discussion and analysis of the following:
Overview of Business
Con-way provides transportation, logistics and supply-chain management services for a wide range of manufacturing, industrial and retail customers. Con-way’s business units operate in regional and transcontinental less-than-truckload and full-truckload freight transportation, contract logistics and supply-chain management, multimodal freight brokerage and trailer manufacturing. For financial reporting purposes, Con-way is divided into four reporting segments:
Con-way’s primary business-unit results generally depend on the number, weight and distance of shipments transported, the prices received on those shipments or services and the mix of services provided to customers, as well as the fixed and variable costs incurred by Con-way in providing the services and the ability to manage those costs under changing circumstances. Con-way’s primary business units are affected by the timing and degree of fluctuations in fuel prices and their ability to recover incremental fuel costs through fuel-surcharge programs and/or cost-recovery mechanisms, as more fully discussed in Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Fuel.”