Exhibit 13
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenues for 1999 increased 6.3% over 1998 on
total and less-than-truckload (LTL) tonnage increases of
0.9% and 1.4%, respectively. Total and LTL shipments
increased 3.9% and 4.0%, respectively. During 1999, the
Company's growth benefited from a 37% increase in its
PrimeTime business and continued expansion of its two-day
service offering. The Company also received incremental
business from existing customers following the mid-year
shutdown of two major LTL carriers. Revenue per
hundredweight increased 3.6% for the year due to rate
increases and the effects of a fuel surcharge implemented
in July in response to higher fuel costs. Revenues for 1998
decreased 2.6% from 1997 on total and LTL tonnage decreases
of 8.7% and 6.6%, respectively. Yield management programs
and shippers diverting freight due to the perceived threat
of a work stoppage early in 1998 contributed to the lower
tonnage levels. The decline in tonnage was partially offset
by a 6.4% increase in net revenue per hundredweight, due to
improved freight mix and general rate increases.
Salaries, wages and benefits increased 4.9% in
1999 due to increased business levels and a Teamster wage
and benefit increase on April 1. As noted above, the Company
received incremental business from the mid-year shutdown of
two major LTL carriers. Unfortunately, a high proportion of
this incremental business consisted of light and bulky
shipments inadequately priced to recoup incremental handling
costs. These increased expenses were partially offset by
reduced incentive compensation. In 1998 salaries, wages and
benefits decreased 4.2% from 1997 primarily due to lower
business volumes and continued benefits of workers'
compensation cost containment programs. The Company also
benefited in 1998 by paying a signing bonus on signature of
a new five-year National Master Freight Agreement, in lieu
of a first-year wage increase, a significant savings over
historical contractual wage increases.1998 and 1997 reflect
$14.4 million and $14.3 million non-cash charges,
respectively, for the issuance of common stock under the
Company's restricted stock plan.
Operating expenses increased 15.9% in 1999 due to
increased business levels and the change in freight mix, as
noted above, in addition to several other factors. The
average fuel cost per gallon increased 25% over 1998. In
response to this increase, the Company implemented a fuel
surcharge as permitted under the Company's rules tariff.
The Company was also impacted by higher than anticipated
initial and on-going costs associated with transitioning
information systems from its former parent to a third party;
start-up costs associated with the continued expansion of
the Company's 2-day service; and increased costs related to
the Company's Year 2000 project, including software
amortization related to the replacement of certain financial
systems. Lease expense for revenue equipment increased $6.1
million in 1999 as the Company continued to make significant
fleet replacements. During the fourth quarter, the Company
wrote-off $3.0 million related to a disappointing software
package implementation and was also adversely impacted from
the shedding of inadequately priced freight. Operating
expenses increased 1.0% in 1998 over 1997, despite lower
business volumes, due primarily to expenses related to the
Company's Year 2000 project and a 9.0% increase in repair
and maintenance expense on the Company's aging fleet. These
increases were partially offset by lower fuel costs per
gallon and a higher proportion of freight transported via
rail.
Purchased transportation increased 15.2% in 1999 due to
increased business levels, increased use of owner-operators
for truckload operations, costs associated with the
Company's growing PrimeTime service and increased rail
costs. The Company continued to maximize the use of lower-
cost rail services where possible. Purchased transportation
increased 8.6% in 1998 over 1997, despite lower business
levels, due to the same factors noted above.
Operating taxes and licenses increased 13.6% in 1999
due to increased business levels and increased property
taxes on terminal properties. Operating taxes and licenses
decreased 16.2% in 1998 from 1997 due to lower business
volumes, increased use of rail services and reductions of
property tax assessments.
Claims and insurance increased 21.3% over 1998 due to
increased business levels, higher than anticipated cargo
claims and higher-cost vehicular accidents during the fourth
quarter. In 1998 claims and insurance decreased 12.5%.
Depreciation increased 7.1% in 1999 over 1998 due to
increased capital expenditures in 1999 for the replacement
of older revenue equipment. Depreciation decreased 7.2% in
1998 from 1997 due primarily to a higher proportion of fully
depreciated equipment.
Operating income in 1999 decreased $44.2 million to
$7.9 million, based upon the above factors, with the
operating ratio deteriorating to 99.7% from 97.7% in 1998.
The Company's Canadian subsidiaries contributed $11.3
million of operating income in 1999. Operating income
increased $6.8 million in 1998 to $52.1 million, with the
Canadian subsidiaries contributing $10.5 million. The
Company's operating ratio improved to 97.7% in 1998 from
98.0% in 1997.
Other expense, net increased $1.6 million in 1999 over
1998 due primarily to a $2.3 million decrease in investment
income on the Company's short-term investments. Short-term
investments decreased as funds were used for capital
expenditures and share repurchases. The decrease in invest-
ment income was partially offset by a $1.1 million gain on
sale of a non-operating property. Other expense, net
decreased $3.0 million in 1998 from 1997 due to increased
investment income on the Company's short-term investments.
The Company's effective income tax rates differ from
the statutory Federal rate due primarily to foreign and
state taxes and non-deductible items.
RISK FACTORS
DECLINING MARKET SHARE: The Company is faced with a steady
erosion of its traditional "greater than 1,500 miles" length
of haul market due to trends such as the "regionalization"
of freight due to just-in-time inventory practices,
distributed warehousing and other changes in business
processes. Also contributing to this decline are new longer
length-of-haul service offerings by regional and parcel
carriers. To enjoy continued growth, the Company must
continue to invest in its infrastructure to become more
competitive in shorter length- of-haul lanes and develop
services tailored to customer needs.
PRICE STABILITY: Continuing pricing discipline among
competitors and reduced industry capacity have contributed
to relative price stability over the last three years. A
decline in economic growth and/or competitive action through
price discounting may significantly impact the Company's
performance through a reduction in revenue per hundredweight
with minimal reduction in cost.
CYCLICALITY AND SEASONALITY: The LTL industry is affected
by the state of the overall economy and seasonal
fluctuations, which affect the amount of freight to be
transported. Freight shipments, operating costs and earnings
are also affected adversely by inclement weather conditions.
The months of September, October and November of each year
usually have the highest business levels while the first
quarter has the lowest.
MARKET RISK: The Company is subject to market risks related
to changes in interest rates and foreign currency exchange
rates, primarily the Canadian dollar and Mexican peso.
Management believes that the impact on the Company's
financial position, results of operations and cash flows
from fluctuations in interest rates and foreign currency
exchange rates would not be material. Consequently,
management does not currently use derivative instruments to
manage these risks; however, it may do so in the future.
In 2000, management will continue to expand its
expedited service offerings and invest in its new 2-day
service offering. This includes consolidating some terminals
and expanding others to expedite freight through the system,
reducing handling and related costs. Additionally, the
Company is committed to improving its freight profile
through yield management programs designed to seek
appropriate compensation for the freight it handles. As a
result, the Company may experience a reduction in business
levels. As shipment volumes stabilize, management will
resize its freight flow infrastructure to expected business
levels. In the short term, the Company expects the
continuing infrastructure costs to adversely impact profits.
As discussed in Footnote 9 in the Company's
Consolidated Financial Statements, the Company is party to a
tax-sharing agreement with its former parent. Given the
uncertainties surrounding the amount and timing of any
obligations of the Company under the tax-sharing agreement,
there can be no assurance that the amount or timing of any
liability of the Company to the former parent will not have
a material adverse effect on the Company's results of
operations or financial position.
As discussed in Footnote 8 in the Company's 1999
Consolidated Financial Statements, the Company has a
restricted stock plan. As of December 31, 1999, there were
1,107,000 shares for which the stock price had not achieved
the pre-determined increases required for vesting.
Compensation expense will be recognized for those shares
once the stock price meets the required levels.
YEAR 2000
The Company successfully completed the conversion of its
internal systems for Year 2000 compliance. Costs to modify
operational and financial systems and applications in 1999
were $4.9 million, and include payroll and payroll related
costs as well as the costs of external consultants. Total
life-to-date costs of modifying operational and financial
systems and applications for Year 2000 compliance were $11.1
million. In certain cases, management opted to replace
rather than modify certain of its financial systems and
applications. Costs associated with the replacement of those
systems and applications have been capitalized. As of
December 31, 1999, $41.2 million has been capitalized and
includes the costs of hardware, software, and payroll costs,
as well as the costs of external consultants. Given the
possibility that not all Year 2000 problems would appear on
January 1, the Company is continuing to monitor its internal
systems, as well as its ability to transact with major
customers and suppliers. However, the Company does not
expect that the impact of any subsequent Year 2000
disruptions will have a material adverse effect on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had $49.1 million in
cash and cash equivalents. Net cash flow from operations for
the year ended December 31, 1999 was $21.5 million compared
with $73.8 million in the prior year. The decrease was due
in large part to lower net income and an increase in
accounts receivable. The increase in accounts receivable
reflects a temporary increase in days sales outstanding due
primarily to a fourth quarter change to a delayed invoicing
process to improve billing accuracy and customer
satisfaction. Capital expenditures in 1999 were $67.3
million compared with $31.3 million last year, as the
Company made expenditures to replace older revenue equipment
and upgrade terminal properties. Management expects capital
expenditures to be approximately $80-$100 million in 2000,
primarily for the purchase of revenue equipment, continued
upgrades to terminal properties and technology enhancements.
It is anticipated that those expenditures will be funded
with cash from operations, supplemented by financing
arrangements.
During 1999, the Company repurchased 1,407,725 shares
of its common stock for $12.6 million. This completed a $25
million stock repurchase program approved by the Board of
Directors in 1998. On December 14, 1999, the Board of
Directors authorized the repurchase of an additional $20
million of common stock, of which $19.8 million remains
available.
On October 12, 1999, the Company entered into a new,
multi-year $175 million unsecured credit facility with
several banks to provide for working capital and letter of
credit needs. Borrowings under the agreement bear interest
at LIBOR plus a margin. As of December 31, 1999, the Company
had no short-term borrowings and $66 million of letters of
credit outstanding. The continued availability of funds
under this credit facility will require that the Company
comply with certain financial covenants, the most
restrictive of which requires the Company to maintain a
minimum tangible net worth. The Company is in compliance as
of December 31, 1999 and expects to be in compliance with
these covenants in 2000.
Also in October, the Company entered into a lease
agreement covering 2,700 of the Company's trucks and
tractors. The lease agreement requires that the Company
comply with certain financial covenants, the most
restrictive of which requires the Company to maintain a
minimum tangible net worth. The Company is in compliance
as of December 31, 1999 and expects to be in compliance with
these covenants in 2000.
During the year, the Company completed operating lease
agreements for 767 new tractors and 285 new trailers.
Incremental lease payments are expected to be $6.8 million
annually through 2005. These new units are replacements for
older equipment.
As discussed in Footnote 9 in the Company's
Consolidated Financial Statements, the Company is party to a
tax-sharing agreement with its former parent. Given the
uncertainties surrounding the amount and timing of any
obligations of the Company under the tax-sharing agreement,
there can be no assurance that the amount or timing of any
liability of the Company to the former parent will not have
a material adverse effect on the Company's results of
operations or financial position.
As of December 31, 1999, the Company's ratio of long-
term debt to total capital was 5.5% compared with 5.4% as of
December 31, 1998. The current ratio was 1.2 to 1 and 1.3 to
1 as of December 31, 1999 and 1998, respectively.
INFLATION
As discussed above, the Company experienced a
25% increase in the average fuel cost per gallon in 1999.
The Company's rules tariff implements a fuel surcharge when
the average cost per gallon of on-highway diesel fuel
exceeds $1.10, as determined from the Energy Information
Administration of the Department of Energy's publication of
weekly retail on-highway diesel prices. This provision of
the rules tariff became effective in July. However, there
can be no assurance that the Company will be able to
maintain this surcharge or successfully implement such
surcharges in response to increased fuel costs in the
future.
OTHER
On January 24, 2000, the Board of Directors
elected Director G. Robert Evans vice chairman of the Board
and interim chief executive officer. He replaces W. Roger
Curry who retired after 31 years of service to the Company.
The Company has received notices from the Environmental
Protection Agency and others that it has been identified as
a potentially responsible party (PRP) under the
Comprehensive Environmental Response Compensation and
Liability Act (CERCLA) or other Federal and state
environmental statutes at various Superfund sites. Under
CERCLA, PRP's are jointly and severally liable for all site
remediation and expenses. Based upon cost studies performed
by independent third parties, the Company believes its
obligations with respect to such sites would not have a
material adverse effect on its financial condition or
results of operations.
Certain statements included or incorporated by
reference herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to a number of
risks and uncertainties. Any such forward-looking statements
included or incorporated by reference herein should not be
relied upon as predictions of future events. Certain such
forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates," or
"anticipates" or the negative thereof or other variations
thereof or comparable terminology, or by discussions of
strategy, plans or intentions. Such forward-looking
statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and they may be
incapable of being realized. In that regard, the following
factors, among others, and in addition to matters discussed
elsewhere herein and in documents incorporated by reference
herein, could cause actual results and other matters to
differ materially from those in such forward-looking
statements: changes in general business and economic
conditions; increases in domestic and international
competition and pricing pressure; increases in fuel prices;
uncertainty regarding the Company's ability to improve
results of operations; labor matters, including shortages of
drivers and increases in labor costs; changes in
governmental regulation; and environmental and tax matters.
As a result of the foregoing, no assurance can be given as
to future results of operations or financial condition.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
1999 1998
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 49,050 $ 123,081
Trade accounts receivable, net of
allowances (Note 2) 343,198 292,463
Other accounts receivable 6,524 9,195
Operating supplies, at lower of
average cost or market 9,268 7,561
Prepaid expenses 41,405 40,335
Deferred income taxes (Notes 2 and 6) 21,567 6,806
Total Current Assets 471,012 479,441
Property, Plant and Equipment, at cost (Note 2)
Land 82,701 78,218
Buildings and improvements 354,012 343,492
Revenue equipment 545,129 562,624
Other equipment and leasehold improvements 139,408 123,404
1,121,250 1,107,738
Accumulated depreciation and amortization (752,298) (746,966)
368,952 360,772
Other Assets
Deposits and other assets (Note 2) 57,712 32,199
Deferred income taxes (Notes 2 and 6) 18,596 17,978
76,308 50,177
Total Assets $ 916,272 $ 890,390
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 98,701 $ 84,861
Accrued liabilities (Note 3) 202,287 187,528
Accrued claims costs (Note 2) 78,584 72,942
Federal and other income taxes (Note 6) 16,883 14,173
Total Current Liabilities 396,455 359,504
Long-Term Liabilities
Long-term debt (Note 4) 15,100 15,100
Accrued claims costs (Note 2) 97,839 103,574
Employee benefits (Note 7) 121,783 117,236
Other liabilities 26,533 28,258
Total Liabilities 657,710 623,672
Shareholders' Equity
Preferred stock, $.01 par value; authorized
5,000,000 shares; issued none - -
Common stock, $.01 par value; authorized
50,000,000 shares; issued 23,133,848
and 23,066,905 shares, respectively 231 231
Additional paid-in capital 77,406 77,303
Accumulated other comprehensive loss (10,087) (11,565)
Retained earnings 207,632 204,919
Treasury stock, at cost (1,863,691 and 477,686
shares, respectively) (16,620) (4,170)
Total Shareholders' Equity 258,562 266,718
Total Liabilities and Shareholders' Equity $ 916,272 $ 890,390
The accompanying notes are an integral part of these statements.
<CAPION>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Years Ended December 31,
(Dollars in thousands except per share data)
1999 1998 1997
REVENUES $ 2,379,000 $ 2,238,423 $ 2,299,075
COSTS AND EXPENSES
Salaries, wages and benefits 1,516,978 1,445,899 1,509,665
Operating expenses 425,580 367,098 363,615
Purchased transportation 238,944 207,388 191,041
Operating taxes and licenses 69,382 61,090 72,882
Claims and insurance 67,685 55,804 63,741
Depreciation 52,556 49,080 52,872
2,371,125 2,186,359 2,253,816
OPERATING INCOME 7,875 52,064 45,259
OTHER INCOME (EXPENSE)
Investment income 2,688 4,957 1,894
Interest expense (4,160) (4,012) (3,213)
Miscellaneous, net (375) (1,192) (1,958)
(1,847) (247) (3,277)
Income before income taxes 6,028 51,817 41,982
Income taxes (Note 6) 3,315 25,471 21,623
NET INCOME $ 2,713 $ 26,346 $ 20,359
Basic average shares outstanding (Note 2) 22,349,997 22,634,362 22,066,212
Diluted average shares outstanding (Note 2) 22,556,275 23,510,752 22,755,714
Basic Earnings per Share: (Note 2) $ 0.12 $ 1.16 $ 0.92
Diluted Earnings per Share: (Note 2) $ 0.12 $ 1.12 $ 0.89
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended December 31,
(Dollars in thousands)
1999 1998 1997
Cash and Cash Equivalents, Beginning
of Year $ 123,081 $ 107,721 $ 48,679
Cash Flows from Operating Activities
Net income 2,713 26,346 20,359
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 58,363 50,918 54,679
Increase (decrease) in deferred income taxes (Note 6) (15,379) 3,498 16,522
(Gains) losses from property disposals, net (4,286) 94 (914)
Issuance of common stock under restricted stock and
safety award plans (Note 8) 289 14,449 14,297
Changes in assets and liabilities:
Receivables (48,064) 19,243 (32,152)
Accounts payable 13,840 1,734 (4,384)
Accrued liabilities 14,759 (25,116) 25,377
Accrued claims costs (93) (17,680) (11,784)
Income taxes 2,710 6,467 3,623
Employee benefits 4,547 2,016 1,908
Other (7,886) (8,127) (10,161)
Net Cash Provided by Operating Activities 21,513 73,842 77,370
Cash Flows from Investing Activities
Capital expenditures (67,273) (31,271) (22,674)
Software expenditures (27,938) (17,574) -
Proceeds from sales of property 12,308 2,918 4,591
Net Cash Used by Investing Activities (82,903) (45,927) (18,083)
Cash Flows from Financing Activities
Purchase of treasury stock (12,641) (12,555) (245)
Net Cash Used by Financing Activities (12,641) (12,555) (245)
Increase (Decrease) in Cash and Cash Equivalents (74,031) 15,360 59,042
Cash and Cash Equivalents, End of Year $ 49,050 $ 123,081 $ 107,721
Supplemental Disclosure
Cash paid for income taxes $ 14,469 $ 15,104 $ 6,399
Cash paid for interest $ 904 $ 775 $ 1,389
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Additional
Number of Paid- in
Shares Amount Capital
Balance, December 31, 1996 22,025,323 $ 220 $ 57,174
Comprehensive income (loss) (Note 2)
Net income - - -
Foreign currency translation adjustment - - -
Total comprehensive income
Issuance of common stock under restricted
stock plan (Note 8) 1,013,114 10 14,287
Purchase of 18,151 treasury shares - - -
Balance, December 31, 1997 23,038,437 230 71,461
Comprehensive income (loss) (Note 2)
Net income - - -
Foreign currency translation adjustment - - -
Total comprehensive income
Purchase of 1,448,174 treasury shares - - -
Issuance of common stock under restricted
stock plan (Note 8) 28,468 1 23
Issuance of 988,639 treasury shares under
restricted stock plan (Note 8) - - 5,819
Balance, December 31, 1998 23,066,905 231 77,303
Comprehensive income (Note 2)
Net income - - -
Foreign currency translation adjustment - - -
Total comprehensive income
Purchase of 1,407,725 treasury shares - - -
Issuance of 21,720 treasury shares under
restricted stock
and safety award plans (Note 8) - - 98
Issuance of common stock under restricted
stock plan (Note 8) 66,943 - 5
Balance, December 31, 1999 23,133,848 $ 231 $ 77,406
Accumulated
Other
Comprehensive Retained Treasury
Income (Loss) Earnings Stock, at cost Total
Balance, December 31, 1996 $ (4,910) $ 158,214 $ - $ 210,698
Comprehensive income (loss) (Note 2)
Net income - 20,359 - 20,359
Foreign currency translation adjustment (1,662) - - (1,662)
Total comprehensive income 18,697
Issuance of common stock under restricted
stock plan (Note 8) - - - 14,297
Purchase of 18,151 treasury shares - - (245) (245)
Balance, December 31, 1997 (6,572) 178,573 (245) 243,447
Comprehensive income (loss) (Note 2)
Net income - 26,346 - 26,346
Foreign currency translation adjustment (4,993) - - (4,993)
Total comprehensive income 21,353
Purchase of 1,448,174 treasury shares - - (12,555) (12,555)
Issuance of common stock under restricted
stock plan (Note 8) - - - 24
Issuance of 988,639 treasury shares under
restricted stock plan (Note 8) - - 8,630 14,449
Balance, December 31, 1998 (11,565) 204,919 (4,170) 266,718
Comprehensive income (Note 2)
Net income - 2,713 - 2,713
Foreign currency translation adjustment 1,478 - - 1,478
Total comprehensive income 4,191
Purchase of 1,407,725 treasury shares - - (12,641) (12,641)
Issuance of 21,720 treasury shares under
restricted stock
and safety award plans (Note 8) - - 191 289
Issuance of common stock under restricted
stock plan (Note 8) - - - 5
Balance, December 31, 1999 $ (10,087) $ 207,632 $ (16,620) $ 258,562
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION
Consolidated Financial Statements and Basis of
Presentation:The accompanying consolidated financial
statements include the accounts of Consolidated Freightways
Corporation and its wholly owned subsidiaries (the Company).
The Company, incorporated in the state of Delaware, consists
of Consolidated Freightways Corporation of Delaware, a
nationwide motor carrier, and its Canadian operations,
including Canadian Freightways Ltd., Epic Express, Milne &
Craighead, Canadian Sufferance Warehouses, Blackfoot
Logistics, and other related businesses; Redwood Systems,
Inc., a third party logistics provider; and the Leland James
Service Corporation, an administrative service provider. The
Company primarily provides less-than-truckload
transportation and supply chain management services
throughout the United States and Canada, as well as in
Mexico through a joint venture, and international freight
services between the United States and more than 80
countries.
2 PRINCIPAL ACCOUNTING POLICIES
Recognition of Revenues: Transportation freight charges are
recognized as revenue when freight is received for shipment.
The estimated costs of performing the total transportation
services are then accrued. This revenue recognition method
does not result in a material difference from in-transit or
completed service methods of recognition.
Cash and Cash Equivalents: The Company considers highly
liquid investments with an original maturity of three months
or less to be cash equivalents.
Trade Accounts Receivable, Net: Trade accounts
receivable are net of allowances of $12,794,000 and
$11,413,000 as of December 31, 1999 and 1998, respectively.
Property, Plant and Equipment: Property, plant and
equipment are depreciated on a straight-line basis over
their estimated useful lives, which are generally 25 years
for buildings and improvements, 6 to 10 years for tractor
and trailer equipment and 3 to 10 years for most other
equipment. Leasehold improvements are amortized over the
shorter of the terms of the respective leases or the useful
lives of the assets.
Expenditures for equipment maintenance and repairs
are charged to operating expenses as incurred; betterments
are capitalized. Gains or losses on sales of equipment and
operating properties are recorded in operating expenses.
Software Costs: The Company capitalizes the costs of
purchased and internally developed software in accordance
with American Institute of Certified Public Accountants
Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use."
Prior to adoption of this statement in January 1998, the
Company capitalized only the costs of purchased software
while costs of internally developed software were expensed.
Deposits and Other Assets on the Consolidated Balance Sheets
includes $38,850,000 and $18,000,000 of purchased and
internally developed software costs as of December 31, 1999
and 1998, respectively. These costs are being amortized over
5 years.
Income Taxes: The Company follows the liability method
of accounting for income taxes.
Accrued Claims Costs: The Company provides for the
uninsured costs of medical, casualty, liability, vehicular,
cargo and workers' compensation claims. Such costs are
estimated each year based on historical claims and unfiled
claims relating to operations conducted through December 31.
The actual costs may vary from estimates based upon trends
of losses for filed claims and claims estimated to be
incurred. The long-term portion of accrued claims costs
relates primarily to workers' compensation claims which are
payable over several years.
Translation of Foreign Currency: Local currencies are
generally considered to be the functional currencies outside
the United States. The Company translates the assets and
liabilities of its foreign operations at the exchange rate
in effect at the balance sheet date. Income and expenses are
translated using the average exchange rate for the period.
The resulting translation adjustments are reflected in the
Statements of Consolidated Shareholders' Equity.
Transactional gains and losses are included in results of
operations.
Interest Expense: The interest expense presented in the
Statements of Consolidated Income is related to industrial
revenue bonds, as discussed in Footnote 4, "Debt", and long-
term tax liabilities.
Earnings per Share: Basic earnings per share are
calculated using only the weighted average shares
outstanding for the period. Diluted earnings per share
include the dilutive effect of restricted stock and stock
options. See Footnote 8, "Stock Compensation Plans."
The following chart reconciles basic to diluted
earnings per share for the years ended December 31, 1999,
1998 and 1997:
(Dollars in thousands except per share amounts)
Weighted Earnings
Net Average Per
Years Ended Income Shares Share
December 31, 1999
Basic $ 2,713 22,349,997 $ 0.12
Dilutive effect of restricted
stock and stock options - 206,278 -
Diluted $ 2,713 22,556,275 $ 0.12
December 31, 1998
Basic $26,346 22,634,362 $ 1.16
Dilutive effect of restricted
stock - 876,390 (0.04)
Diluted $26,346 23,510,752 $ 1.12
December 31, 1997
Basic $20,359 22,066,212 $ 0.92
Dilutive effect of restricted
stock - 689,502 (0.03)
Diluted $20,359 22,755,714 $ 0.89
Comprehensive Income: Comprehensive income includes all
changes in equity during a period except those resulting
from investments by and distributions to owners. Comprehen-
sive income (loss) for the years ended December 31, 1999,
1998 and 1997 is presented in the Statements of Consolidated
Shareholders' Equity.
Estimates: Management makes estimates and assumptions
when preparing the financial statements in conformity with
generally accepted accounting principles. These estimates
and assumptions affect the amounts reported in the accom-
panying financial statements and notes thereto. Actual
results could differ from those estimates.
Recent Accounting Pronouncements: The Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 (SFAS 133)."
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," requires that an organization recognize all
derivatives as either assets or liabilities on the balance
sheet at fair value and establishes the timing of
recognition of the gain/loss based upon the derivatives'
intended use. Based upon SFAS No. 137, the Company will
adopt the provisions of SFAS 133 in the quarter ended March
31, 2001. Management does not expect that adoption of this
standard will have a material effect on the Company's
financial position or results of operations.
Reclassification: Certain amounts in prior years'
financial statements have been reclassified to conform to
the current year presentation.
3 ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31:
(Dollars in thousands)
1999 1998
Accrued payroll and benefits $ 89,568 $ 88,173
Other accrued liabilities 67,245 54,184
Accrued union health and welfare 23,952 21,857
Accrued taxes other than income taxes 19,776 14,045
Accrued incentive bonus 1,746 9,269
Total accrued liabilities $202,287 $187,528
4 DEBT
Long-term debt consisted of $15,100,000 of industrial
revenue bonds with rates between 5.15% and 5.25% as of
December 31, 1999. Annual maturities and sinking fund
requirements of long-term debt as of December 31, 1999 are
as follows: $0 in 2000; $0 in 2001; $0 in 2002; $1,000,000
in 2003 and $14,100,000 in 2004.
The Company has a multi-year $175 million unsecured
credit facility with several banks to provide for working
capital and letter of credit needs. Borrowings under the
agreement bear interest at LIBOR plus a margin. As of
December 31, 1999, the Company had no short-term borrowings
and $66 million of letters of credit outstanding. The
continued availability of funds under this credit facility
will require that the Company comply with certain financial
covenants, the most restrictive of which requires the
Company to maintain a minimum tangible net worth. The
Company is in compliance as of December 31, 1999 and expects
to be in compliance with these covenants in 2000.
Based on interest rates currently available to the
Company for debt with similar terms and maturities, the fair
value of long-term debt was equivalent to book value as of
December 31, 1999 and 1998.
5 LEASES
The Company is obligated under various non-cancelable leases
that expire at various dates through 2013. Future minimum
lease payments under all leases with initial or remaining
non-cancelable lease terms in excess of one year as of
December 31, 1999, are $22,826,000 in 2000, $19,697,000 in
2001, $16,619,000 in 2002, $15,098,000 in 2003, $14,667,000
in 2004, and $7,120,000 thereafter.
A lease agreement covering 2,700 of the Company's
trucks and tractors requires that the Company comply with
certain financial covenants, the most restrictive of which
requires the Company to maintain a minimum tangible net
worth. The Company is in compliance as of December 31, 1999
and expects to be in compliance with these covenants in
2000.
Rental expense for operating leases is comprised of the
following:
(Dollars in thousands)
1999 1998 1997
Minimum rentals $48,065 $37,953 $38,558
Less sublease rentals (2,707) (1,809) (2,102)
Net rental expense $45,358 $36,144 $36,456
6 INCOME TAXES
The components of pretax income and income taxes are
as follows:
(Dollars in thousands)
1999 1998 1997
Pretax income (loss)
U.S. corporations $ (7,201) $38,115 $31,296
Foreign corporations 13,229 13,702 10,686
Total pretax income $ 6,028 $51,817 $41,982
Income taxes (benefits)
Current
U.S. Federal $ 7,297 $14,244 $ (296)
State and local 6,024 2,025 88
Foreign 5,373 5,704 5,309
18,694 21,973 5,101
Deferred
U.S. Federal (10,705) 2,615 14,526
State and local (5,478) 660 1,884
Foreign 804 223 112
(15,379) 3,498 16,522
Total income taxes $ 3,315 $25,471 $21,623
Deferred tax assets and liabilities in the Consolidated
Balance Sheets are classified based on the related asset or
liability creating the deferred tax. Deferred taxes not
related to a specific asset or liability are classified
based on the estimated period of reversal. Although
realization is not assured, management believes it more
likely than not that all deferred tax assets will be
realized.
The components of deferred tax assets and liabilities
in the Consolidated Balance Sheets as of December 31 relate
to the following:
(Dollars in thousands)
1999 1998
Deferred taxes-current
Assets
Reserves for accrued claims costs $ 25,107 $ 19,740
Other reserves not currently deductible 13,470 7,358
Liabilities
Unearned revenue, net (10,134) (8,871)
Employee benefits (6,876) (11,421)
Total deferred taxes - current 21,567 6,806
Deferred taxes-non current
Assets
Reserves for accrued claims costs 33,156 39,865
Employee benefits 29,898 27,469
Retiree health benefits 24,146 24,016
Liabilities
Depreciation (52,797) (57,899)
Tax benefits from leasing transactions (11,913) (12,383)
Other (3,894) (3,090)
Total deferred taxes - non current 18,596 17,978
Net deferred taxes $ 40,163 $ 24,784
Income taxes varied from the amounts calculated by applying
the U.S. statutory income tax rate to the pretax income as
set forth in the following reconciliation:
1999 1998 1997
U.S. statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal income tax benefit 4.0 3.8 4.7
Foreign taxes in excess
of U.S. statutory rate 16.8 2.2 4.0
Non-deductible operating
expenses 91.8 3.5 3.8
Fuel tax credits (4.2) (0.4) (0.6)
Foreign tax credits (83.7) - (0.2)
Other, net (4.7) 5.1 4.8
Effective income tax rate 55.0% 49.2% 51.5%
The cumulative undistributed earnings of the Company's
foreign subsidiaries, totaling $64 million as of December
31, 1999, have been reinvested indefinitely in the
respective foreign subsidiaries. Therefore, no provision has
been made for any U.S. tax applicable to foreign
subsidiaries' undistributed earnings. Taxes paid to foreign
jurisdictions on distributed foreign earnings may be used,
in whole or in part, as credits against U.S. tax. During
1999, the company repatriated $5 million in previously
undistributed earnings from its foreign subsidiaries
resulting in a one-time foreign tax credit of $5 million.
7 EMPLOYEE BENEFIT PLANS
The Company maintains a non-contributory defined benefit
pension plan (the Pension Plan) covering the Company's non-
contractual employees in the United States. The Company's
annual pension provision and contributions are based on an
independent actuarial computation. The Company's funding
policy is to contribute the minimum required tax-deductible
contribution for the year. However, it may increase its
contribution above the minimum if appropriate to its tax and
cash position and the Pension Plan's funded status. Benefits
under the Pension Plan are based on a career average final
five-year pay formula. Approximately 93% of the Pension Plan
assets are invested in publicly traded stocks and bonds. The
remainder is invested in temporary cash investments and real
estate funds.
The following information sets forth the Company's
pension liabilities included in Employee Benefits in the
Consolidated Balance Sheets as of December 31:
(Dollars in thousands) 1999 1998
Change in Benefit Obligation
Benefit obligation at beginning of year $277,083 $243,869
Service cost 8,418 7,252
Interest cost 20,291 18,661
Benefit payments (11,456) (10,424)
Actuarial (gain) loss (23,262) 17,725
Benefit obligation at end of year $271,074 $277,083
Change in Fair Value of Plan Assets
Fair value of plan assets
at beginning of year $268,398 $244,286
Actual return on plan assets 51,139 34,536
Benefit payments (11,456) (10,424)
Fair value of plan assets at end of year $308,081 $268,398
Funded Status of the Plan
Funded status at end of year $ 37,007 $ (8,685)
Unrecognized net actuarial gain (90,923) (41,738)
Unrecognized prior service cost 5,942 6,999
Unrecognized net transition asset (4,414) (5,518)
Accrued Pension Plan Liability $ (52,388)$ (48,942)
Weighted-average assumptions as of December 31:
1999 1998
Discount rate 8.0% 7.0%
Expected return on plan assets 9.5% 9.5%
Rate of compensation increase 5.5% 4.5%
Net pension cost includes the following:
(Dollars in thousands)
1999 1998 1997
Components of net pension cost
Service cost $ 8,418 $ 7,252 $ 5,975
Interest cost 20,291 18,661 17,172
Expected return
on plan assets (24,963) (22,758) (20,196)
Amortization of:
Transition asset (1,104) (1,103) (1,104)
Prior service cost 1,057 1,057 1,057
Actuarial gain (253) (1,799) (2,484)
Total net pension cost $ 3,446 $ 1,310 $ 420
The Company's Pension Plan includes a program to provide
additional benefits for compensation excluded from the basic
Pension Plan. The annual provision for this plan is based
upon independent actuarial computations using assumptions
consistent with the Pension Plan. As of December 31, 1999
and 1998, the liability was $1,901,000 and $1,492,000. The
pension cost was $421,000, $315,000 and $175,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Approximately 82% of the Company's domestic employees
are covered by union-sponsored, collectively bargained,
multi-employer pension plans. The Company contributed and
charged to expense $131,470,000 in 1999, $123,882,000
in 1998 and $126,606,000 in 1997 for such plans. Those
contributions were made in accordance with negotiated labor
contracts and generally were based on time worked.
The Company maintains a retiree health plan that
provides benefits to non-contractual employees at least 55
years of age with 10 years or more of service. The retiree
health plan limits benefits for participants who were not
eligible to retire before January 1, 1993, to a defined
dollar amount based on age and years of service and does not
provide employer-subsidized retiree health care benefits for
employees hired on or after January 1, 1993.
The following information sets forth the Company's
total postretirement benefit liabilities included in
Employee Benefits in the Consolidated Balance Sheets as of
December 31:
(Dollars in thousands)
1999 1998
Change in Benefit Obligation
Benefit obligation at beginning of year $ 59,883 $ 46,776
Service cost 548 434
Interest cost 4,221 4,121
Benefit payments (3,515) (3,882)
Actuarial (gain) loss (3,611) 12,434
Benefit obligation at end of year $ 57,526 $ 59,883
Change in Fair Value of Plan Assets
Fair value of plan assets
at beginning of year $ - $ -
Company contributions 3,515 3,882
Benefit payments (3,515) (3,882)
Fair value of plan assets at end of year $ - $ -
Funded Status of the Plan
Funded status at end of year $(57,526) $(59,883)
Unrecognized net actuarial gain (8,863) (5,252)
Unrecognized prior service credit (264) (308)
Accrued Postretirement Benefit Liability $(66,653) $(65,443)
Weighted-average assumptions as of December 31:
1999 1998
Discount rate 8.0% 7.0%
For measurement purposes, a 6.5% annual increase in the per
capita cost of covered health care benefits was assumed for
2000 decreasing by 0.5% per year to the ultimate rate of
5.5% in 2002 and after.
Net post-retirement cost includes the following:
(Dollars in thousands)
1999 1998 1997
Components of net benefit cost
Service cost $ 548 $ 434 $ 409
Interest cost 4,221 4,121 3,472
Amortization of:
Prior service credit (44) (44) (43)
Actuarial gain - (167) (980)
Total net benefit cost $4,725 $4,344 $2,858
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plan. A
one-percentage point change in the assumed health care cost
trend rates would have the following effects:
1% 1%
(Dollars in thousands) Increase Decrease
Effect on total of service and interest
cost components $ 178 $ (184)
Effect on the post-retirement benefit obligation $2,356 $(2,427)
The Company's non-contractual employees in the United States
are eligible to participate in the Company's Stock and
Savings Plan. This is a 401(k) plan that allows employees to
make contributions that the Company matches with common
stock up to 50% of the first three percent of a
participant's basic compensation. The Company's
contribution, which is charged as an expense, totaled
$2,460,000 in 1999, $2,088,000 in 1998, and $1,993,000 in
1997.
The Company has adopted various plans relating to the
achievement of specific goals to provide incentive bonuses
for designated employees. Total incentive bonuses earned by
the participants were $2,282,000, $21,493,000 and
$25,690,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
8 STOCK COMPENSATION PLANS
The Company has various stock incentive plans (the Plans)
under which shares of restricted stock and stock options
have been awarded to regular, full-time employees and non-
employee directors. In 1999, 141,000 shares of restricted
stock were granted at $14.0625 per share; in 1998, 78,874
shares were granted at $12.20 per share; and in 1997,
1,057,027 shares were granted at $15.31 per share.
The restricted stock awards vest over time and are
contingent on the Company's average stock price achieving
pre-determined increases over the grant price for 10
consecutive trading days. All restricted stock awards
entitle the participant credit for any dividends.
Compensation expense is recognized based upon the stock
price when the minimum stock price is achieved. In December
1999, 1998 and 1997, the Company recognized non-cash charges
of $228,000, $14,449,000 and $14,297,000, respectively, as
restrictions on previously granted shares lapsed. As of
December 31, 1999, there were 1,107,000 shares for which the
stock price had not achieved the pre-determined increases
required for vesting. Compensation expense will be
recognized for those shares once the stock price meets the
required levels.
In May 1999, the Company granted 716,400 stock options
to designated employees at $14.0625 per share. Additionally,
200,000 stock options were granted to non-employee directors
at $13.00 per share. The grant prices are equal to the
closing stock prices on the dates of the grants. The options
vest ratably over 48 months, beginning in January 2000 and
expire in May 2004.
As of December 31, 1999 there were approximately
1,280,600 shares remaining reserved for granting of stock
options and restricted stock under the Plans.
The Company also has a Safety Award Plan under which it
awards shares of common stock to designated employees who
achieve certain operational safety goals. During the year
ended December 31, 1999, the Company issued 8,120 treasury
shares and recognized a non-cash charge of $60,900. As of
December 31, 1999, 141,880 shares remained in this plan.
The Company accounts for stock compensation under
Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees." In 1995, the FASB issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which
encourages companies to measure stock compensation based
upon the fair value method. Had the fair value method been
applied, pro forma net loss for the year ended December 31,
1999 would have been $683,000 or $0.03 per basic and diluted
share. Pro forma net income for the year ended December 31,
1998 would have been $29.8 million or $1.32 per basic share
and $1.27 per diluted share. Pro forma net income for the
year ended December 31, 1997 would have been $16.6 million
or $0.75 per basic share and $0.73 per diluted share. The
weighted average grant date fair value of the options
granted in 1999 using the Black-Scholes option pricing model
was $7.84 per share. The following assumptions were used to
calculate the stock option values: risk-free interest rate,
5.5%; expected life, 5 years; expected volatility, 60%; and
expected dividend yield, 0%.
9 CONTINGENCIES
The Company and its subsidiaries are involved in various
lawsuits incidental to their businesses. It is the opinion
of management that the ultimate outcome of these actions
will not have a material adverse effect on the Company's
financial position or results of operations.
The Company's former parent, CNF Inc., is engaged in
disputes with the Internal Revenue Service over the amount
and timing of certain tax deductions reported by the former
parent in tax years prior to the spin-off of the Company.
These disputes arise from tax positions first taken by the
former parent in the mid-1980's. The former parent, which is
contesting the IRS's positions, has made certain advance
payments to the IRS which would be applied against any
ultimate liability.
Under a tax sharing agreement entered into by the
former parent and the Company at the time of the spin-off,
the Company may be obligated to reimburse the former parent
for a portion of any additional taxes and interest which
relate to the Company's business prior to the spin-off. The
amount and timing of such payments, if any, is dependent on
the ultimate resolution of the former parent's disputes with
the IRS and the determination of the nature and extent of
the Company's obligations under the tax sharing arrangement.
The Company has established certain reserves both at the
time of and subsequent to the spin-off with respect to the
foregoing. There can be no assurance that the amount or
timing of any liability of the Company to the former parent
will not have a material adverse effect on the Company's
results of operations or financial position.
The Company has received notices from the Environmental
Protection Agency (EPA) and others that it has been
identified as a potentially responsible party (PRP) under
the Comprehensive Environmental Response Compensation and
Liability Act (CERCLA) or other Federal and state
environmental statutes at various Superfund sites. Under
CERCLA, PRP's are jointly and severally liable for all site
remediation and expenses. Based upon cost studies performed
by independent third parties, the Company believes its
obligations with respect to such sites would not have a
material adverse effect on its financial position or results
of operations.
10 SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment primarily
providing less-than-truckload transportation and supply
chain management services throughout the United States and
Canada, as well as in Mexico through a joint venture, and
international freight services between the United States and
more than 80 countries. The following information sets forth
revenues and property, plant and equipment by geographic
location. Revenues are attributed to geographic location
based upon the location of the customer. No one customer
provides 10% or more of total revenues.
Geographic Information
(Dollars in thousands) 1999 1998 1997
Revenues
United States $2,248,773 $2,117,415 $2,173,588
Canada 130,227 121,008 125,487
Total $2,379,000 $2,238,423 $2,299,075
Property, Plant and Equipment
United States $ 332,999 $ 332,912 $ 359,961
Canada 35,953 27,860 23,026
Total $ 368,952 $ 360,772 $ 382,987
11 RELATED PARTY TRANSACTIONS
The Company was a subsidiary of CNF Inc, through December 2,
1996. As part of the spin-off, the Company received
information systems, communications and certain
administrative services under a transition services
agreement that expired on December 2, 1999. The Company paid
for services on an arm's length negotiated basis. For the
years ended December 31, 1999, 1998 and 1997, the Company
was charged $7,804,000, $21,100,000 and $22,649,000 for
services under the agreement. During 1999, the Company
assumed responsibility for most of the administrative
services and completed transitioning of information systems
and communications services from the former parent to a
third party. The Company continues to receive certain
administrative services from the former parent.
The Company is also party to an agreement with its
former parent that provides for the allocation of taxes and
certain liabilities arising from periods prior to the spin-
off. See Footnote 9, "Contingencies."
As of December 31, 1999, the Company has pledged $7.5
million of real properties and $11 million of letters of
credit to its former parent for uninsured workers'
compensation and employer's liability claims incurred prior
to the spin-off and guaranteed by the former parent. The
pledged collateral is reduced over time as the Company's
pending claims are resolved.
Management Report on Responsibility for Financial Reporting
The management of Consolidated
Freightways Corporation has prepared the accompanying
financial statements and is responsible for their integrity.
The statements were prepared in accordance with generally
accepted accounting principles, after giving consideration
to materiality, and are based on management's best estimates
and judgments. The other financial information in the annual
report is consistent with the financial statements.
Management has established and maintains a system of
internal control. Limitations exist in any control structure
based on the recognition that the cost of such system should
not exceed the benefits derived. Management believes its
control system provides reasonable assurance as to the
integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition,
and the prevention and detection of fraudulent financial
reporting. The system of internal control is documented by
written policies and procedures that are communicated to
employees. The Company's independent public accountants test
the adequacy and effectiveness of the internal controls.
The Board of Directors, through its audit committee
consisting of three independent directors, is responsible
for engaging the independent accountants and assuring that
management fulfills its responsibilities in the preparation
of the financial statements. The Company's financial
statements have been audited by Arthur Andersen LLP,
independent public accountants. Arthur Andersen LLP has
access to the audit committee without the presence of
management to discuss internal accounting controls, auditing
and financial reporting matters.
/s/G. Robert Evans
G. Robert Evans
Vice Chairman and Chief Executive Officer
/s/Sunil Bhardwaj
Sunil Bhardwaj
Senior Vice President and
Chief Financial Officer
/s/Robert E. Wrightson
Robert E. Wrightson
Senior Vice President and Controller
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Consolidated
Freightways Corporation:
We have audited the accompanying consolidated balance sheets
of Consolidated Freightways Corporation (a Delaware
corporation) and subsidiaries as of December 31, 1999 and
1998, and the related statements of consolidated income,
cash flows and shareholders' equity for each of the three
years in the period ended December 31, 1999. 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 audits in accordance with generally
accepted auditing standards. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Consolidated Freightways Corporation
and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Portland, Oregon
January 26, 2000
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
Quarterly Financial Data
(Unaudited)
(Dollars in thousands except per share data)
March 31 June 30 September 30 December 31
1999 - Quarter Ended
Revenues $558,208 $589,781 $625,547 $605,464
Operating income (loss) 13,192 4,962 9,723 (20,002)
Income (loss) before
income taxes (benefits) 12,619 4,686 9,364 (20,641)
Income taxes (benefits) 5,868 2,179 4,634 (9,366)
Net income (loss) 6,751 2,507 4,730 (11,275)
Basic earnings (loss)
per share 0.30 0.11 0.21 (0.52)
Diluted earnings (loss)
per share 0.30 0.11 0.21 (0.52)
Market price range $11.50-$18.44 $10.25-$15.00 $9.00-$12.50 $6.75-$10.63
March 31 June 30 September 30 December 31
1998 - Quarter Ended
Revenues $545,648 $551,841 $571,231 $569,703
Operating income 14,800 15,506 17,397 4,361 (a)
Income before income taxes 14,319 15,557 17,566 4,375
Income taxes 7,302 8,084 8,335 1,750
Net income 7,017 7,473 9,231 2,625
Basic earnings per share 0.30 0.32 0.41 0.12
Diluted earnings
per share 0.29 0.31 0.41 0.11
Market price range $13.00-$18.50 $12.88-$19.75 $7.63-$14.00 $7.50-$18.38
<FN>
(a) Includes $14.4 million non-cash charge for the issuance of common stock under the Company's
restricted stock plan.
CAPTION>
Five Year Financial Summary
Consolidated Freightways Corporation
And Subsidiaries
Years Ended December 31
(Dollars in thousands except per share data)
(Unaudited)
1999 1998 1997 1996 1995
SUMMARY OF OPERATIONS
Revenues $ 2,379,000 $ 2,238,423 $ 2,299,075 $ 2,146,172 $ 2,106,529
Operating income (loss) 7,875 52,064(a) 45,259(b) (73,066)(c) (42,786)(d)
Depreciation and amortization 58,363 50,918 54,679 64,565 63,902
Investment income 2,688 4,957 1,894 263 756
Interest expense 4,160 4,012 3,213 843 918
Income (loss) before income taxes
(benefits) 6,028 51,817 41,982 (77,777) (43,798)
Income taxes (benefits) 3,315 25,471 21,623 (22,201) (13,889)
Net income (loss) 2,713 26,346 20,359 (55,576) (29,909)
Cash from operations 21,513 73,842 77,370 2,545 41,772
PER SHARE
Basic earnings (loss) 0.12 1.16 0.92 (2.52) (1.36)
Diluted earnings (loss) 0.12 1.12 0.89 (2.52) (1.36)
Shareholders' equity 12.16 11.81 10.58 9.57 11.76
FINANCIAL POSITION
Cash and cash equivalents 49,050 123,081 107,721 48,679 26,558
Property, plant and equipment, net 368,952 360,772 382,987 416,688 501,311
Total assets 916,272 890,390 897,796 857,087 866,698
Capital expenditures 67,273 31,271 22,674 48,203 111,962
Long-term debt 15,100 15,100 15,100 15,100 15,100
Shareholders' equity 258,562 266,718 243,447 210,698 259,108
RATIOS AND STATISTICS
Current ratio 1.2 to 1 1.3 to 1 1.3 to 1 1.1 to 1 1.0 to 1
Net income (loss) as % of revenues 0.1% 1.2% 0.9% (2.6)% (1.4)%
Effective income tax rate 55.0% 49.2% 51.5% (28.5)% (31.7)%
Long-term debt as % of
total capitalization 5.5% 5.4% 5.8% 6.7% 5.5%
Return on average invested capital 3.6% 26.2% 24.9% (27.8)% (17.1)%
Return on average shareholders'
equity 1.1% 13.9% 12.9% (21.2)% (12.7)%
Average shares outstanding 22,349,997 22,634,362 22,066,212 22,025,323 22,025,323
Market price range $6.75-$18.44 $7.50-$19.75 $7.00-$18.50 $6.00-$9.125 n/a
Number of shareholders 31,800 34,350 31,650 13,500 n/a
Number of employees 22,100 21,000 21,600 20,300 20,200
<FN>
(a) Includes $14.4 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(b) Includes $14.3 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(c) Includes $15.0 million non-cash charge for the increase in workers' compensation reserve.
(d) Includes approximately $26 million of costs related to reconfiguration of freight flow system.