UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
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 1-12149
CONSOLIDATED FREIGHTWAYS CORPORATION
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 77-0425334
175 Linfield Drive, Menlo Park, CA 94025
Telephone Number (650) 326-1700
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 .
Number of shares of Common Stock, $.01 par value,
outstanding as of April 30, 2000: 21,464,671
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended March 31, 2000
____________________________________________________________________________
____________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Statements of Consolidated Operations -
Three Months Ended March 31, 2000 and 1999 5
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 87,682 $ 49,050
Trade accounts receivable, net of allowances 326,738 343,198
Other receivables 5,513 6,524
Operating supplies, at lower of average
cost or market 8,784 9,268
Prepaid expenses 51,338 41,405
Deferred income taxes 20,287 21,567
Total Current Assets 500,342 471,012
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 82,766 82,701
Buildings and improvements 354,481 354,012
Revenue equipment 536,645 545,129
Other equipment and leasehold improvements 141,784 139,408
1,115,676 1,121,250
Accumulated depreciation and amortization (755,246) (752,298)
360,430 368,952
OTHER ASSETS
Deposits and other assets 57,102 57,712
Deferred income taxes 21,337 18,596
78,439 76,308
TOTAL ASSETS $ 939,211 $ 916,272
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 86,368 $ 98,701
Accrued liabilities 220,489 202,287
Accrued claims costs 80,353 78,584
Federal and other income taxes 13,402 16,883
Short-term borrowings 20,000 -
Total Current Liabilities 420,612 396,455
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 96,948 97,839
Employee benefits 122,863 121,783
Other liabilities and deferred credits 27,377 26,533
Total Liabilities 682,900 657,710
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 shares 231 231
Additional paid-in capital 77,224 77,406
Accumulated other comprehensive loss (10,094) (10,087)
Retained earnings 204,653 207,632
Treasury stock, at cost (1,760,855 and 1,863,691
shares, respectively) (15,703) (16,620)
Total Shareholders' Equity 256,311 258,562
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 939,211 $ 916,272
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended
March 31,
2000 1999
REVENUES $ 593,629 $ 558,208
COSTS AND EXPENSES
Salaries, wages and benefits 379,660 358,400
Operating expenses 115,815 91,580
Purchased transportation 49,125 51,772
Operating taxes and licenses 18,468 17,042
Claims and insurance 18,059 13,898
Depreciation 13,741 12,324
594,868 545,016
OPERATING INCOME (LOSS) (1,239) 13,192
OTHER INCOME (EXPENSE)
Investment income 353 818
Interest expense (1,087) (1,032)
Miscellaneous, net (4,106) (359)
(4,840) (573)
Income (loss) before income taxes (benefits) (6,079) 12,619
Income taxes (benefits) (3,100) 5,868
NET INCOME (LOSS) $(2,979) $6,751
Basic average shares outstanding 21,350,812 22,607,703
Diluted average shares outstanding 21,350,812 22,607,703
Basic Earnings (Loss) per Share: $(0.14) $ 0.30
Diluted Earnings (Loss) per Share: $(0.14) $ 0.30
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
2000 1999
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 49,050 $ 123,081
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (2,979) 6,751
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 15,255 13,350
Decrease in deferred income taxes (1,461) (1,189)
Gains from property disposals, net (297) (38)
Issuance of common stock under stock
compensation plans 735 230
Changes in assets and liabilities:
Receivables 17,471 (10,435)
Prepaid expenses (9,933) (4,204)
Accounts payable (12,333) 5,600
Accrued liabilities 18,202 14,633
Accrued claims costs 878 (278)
Income taxes (3,481) 4,077
Employee benefits 1,080 2,149
Other 2,829 (9,067)
Net Cash Provided by Operating Activities 25,966 21,579
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,436) (16,624)
Software expenditures (2,879) (8,771)
Proceeds from sales of property 981 894
Net Cash Used by Investing Activities (7,334) (24,501)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 20,000 --
Net Cash Provided by Financing Activities 20,000 --
Increase (decrease) in Cash and Cash Equivalents 38,632 (2,922)
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 87,682 $ 120,159
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of
Consolidated Freightways Corporation and subsidiaries (the Company)
have been prepared by the Company, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management,
the consolidated financial statements include all normal recurring
adjustments necessary to present fairly the information required to
be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States have
been condensed or omitted from these statements pursuant to such
rules and regulations and, accordingly, should be read in conjunction
with the consolidated financial statements included in the Company's
1999 Annual Report to Shareholders.
There were no significant changes in the Company's commitments
and contingencies as previously described in the 1999 Annual Report
to Shareholders and related annual report to the Securities and
Exchange Commission on Form 10-K, except as discussed in Footnote 6
below, regarding settlement of tax liabilities.
2. 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)
Three Months Ended
March 31,
2000 1999
Revenues
United States $557,903 $529,421
Canada 35,726 28,787
Total $593,629 $558,208
Geographic Information (continued)
As of
March 31,
2000 1999
Property, Plant and Equipment
United States $323,826 $334,916
Canada 36,604 30,288
Total $360,430 $365,204
3. Stock Compensation
As of March 31, 2000, there were 1,240,000 granted but unissued
restricted common shares remaining from grants made under the
Company's various stock incentive plans. The shares vest over time
and are contingent upon the Company's average stock price achieving
pre-determined increases over the grant prices for 10 consecutive
trading days. Compensation expense is recognized based upon the
stock price when the minimum stock price is achieved. As of March
31, 2000, the stock price was below the pre-determined levels
required for vesting.
4. Comprehensive Income
Comprehensive income (loss) for the three months ended March 31,
2000 and 1999 is as follows:
(Dollars in thousands)
Three
Months Ended
March 31,
2000 1999
Net Income (Loss) $(2,979) $6,751
Other Comprehensive Income (Loss):
Foreign currency translation
adjustments (7) 482
Comprehensive Income (Loss) $(2,986) $7,233
5. Debt
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 March 31, 2000, the Company had $20
million of 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 March 31, 2000 and expects to be in compliance with these
covenants for the remainder of the year.
6. 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 Transportation Inc., continues
to dispute certain tax issues with the Internal Revenue Service
relating to the taxable years prior to the spin-off of the Company.
The issues arise from tax positions first taken by the former parent
in the mid-1980's.
Under a tax sharing agreement entered into between CNF
Transportation Inc. and the Company at the time of the spin-off, the
Company is obligated to reimburse the former parent for its share of
any additional taxes and interest that relate to the Company's
business prior to the spin-off. Although the former parent's
resolution with the Internal Revenue Service is still pending, the
Company has reached an agreement in principle on a tax settlement
amount that appropriately reflects its liability under the tax
sharing agreement as of March 31, 2000. As a result, the Company
recorded a $4.0 million charge for the settlement in the quarter
ended March 31, 2000.
In May, the Company contemplates that a formal tax settlement
agreement will be executed between the parties. The agreement will
call for a full settlement of the tax sharing liability, except for
certain enumerated open tax items that are anticipated to be resolved
within the next 24 to 30 months. The settlement entails a current
cash payment of $16.7 million, transfer of approximately $1 million
of real property, and the grant of promissory notes in an aggregate
amount of $40.2 million payable over a four year period. As of March
31, 2000, the Company believes that it has accrued the necessary
reserves to adequately provide for its entire liability to CNF
Transportation Inc. under the tax sharing agreement.
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.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenues for the three months ended March 31, 2000 increased
6.3% over the same period last year to $593.6 million despite lower
tonnage. Tonnage decreased 1.6% from the prior year reflecting a
higher proportion of lighter weight freight in the system, yield
management programs as well as continued competition. Shipments
increased 3.3%; however, the average weight per shipment decreased
4.8%. The tonnage decrease was offset by a 7.6% increase in revenue
per hundredweight due to rate increases, a fuel surcharge and the
change in freight profile.
Salaries, wages and benefits increased 5.9% due primarily to
a contractual wage and benefit increase and $4.3 million of severance
pay due to an administrative reorganization. The Company was also
impacted by lower P&D and crossdock efficiencies due to a higher
proportion of lighter weight freight in the system.
Operating expenses increased 26.5% over the prior year period
due primarily to increased fuel costs. The average fuel cost per
gallon, excluding tax, increased to $0.88 from $0.41. The Company
has a fuel surcharge in place to offset the impact of the increased
fuel costs. Higher information systems costs and revenue equipment
lease expense, as well as a lower proportion of freight transported
via rail also impacted the quarter. The quarter was also impacted by
infrastructure costs as management continues to adjust the mix of
customer freight and resize the freight flow system to expected
business levels.
Purchased transportation decreased 5.1% due to a decrease in the
use of rail transportation. Rail miles as a percentage of inter-city
miles decreased to 22.8% from 26.5% due to concerns about service
levels subsequent to a recent rail line merger.
Operating taxes and licenses increased 8.4% due to lower rail
usage and increased licensing costs due to a larger fleet size.
Claims and insurance increased 29.9% due to higher than
anticipated cargo claims and higher-cost vehicular accidents.
Depreciation increased 11.5% due to increased capital
expenditures in 1999.
The above resulted in an operating loss of $1.2 million for the
quarter compared with $13.2 million of operating income in the same
period last year. The operating ratio deteriorated to 100.2 from
97.6.
Other expense, net increased $4.3 million reflecting a $4.0
million charge for settlement of a tax liability with CNF
Transportation Inc., its former parent. Additionally, investment
income on the Company's short-term investments decreased as funds
were used for capital expenditure purposes.
The Company's effective income tax rates differ from the
statutory Federal rate due primarily to foreign and state taxes and
non-deductible items.
Management is working to improve the freight mix by shedding
less profitable freight as well as seeking appropriate compensation
for the freight handled. These actions are expected to adversely
impact business levels in the short term. An April 1st wage and
benefit increase averaging 3.4% will add approximately $21 million of
expense in the remainder of 2000. Management will continue to resize
the freight flow infrastructure as business levels stabilize. This
includes consolidating some terminals and expanding others to
expedite freight through the system, reducing handling and related
costs. Additionally, management will continue to invest in its 2nd
day service offering in an effort to become more competitive in the
shorter length-of-haul lanes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had $87.7 million in cash and
cash equivalents. Net cash flow provided by operations for the three
months ended March 31, 2000 was $26.0 million compared with $21.6
million in the same period last year. The increase was due primarily
to improved collections of accounts receivable. Management expects
cash flow from operations for 2000 will be sufficient for working
capital requirements.
Net cash flows used by investing activities was $7.3 million
compared with $24.5 million in the same period last year. The prior
year period reflects a higher level of revenue equipment purchases as
the Company continued upgrading its fleet, as well as costs to
replace certain operational and financial software systems for Year
2000 compliance. Management expects capital and software
expenditures to be approximately $72 million for the remainder of the
year, primarily for upgrades to terminal properties, technology
enhancements and the purchase of revenue equipment. It is anticipated
that those expenditures will be funded with existing cash balances
and cash from operations, supplemented by financing arrangements.
Net cash provided by financing activities of $20 million
reflects borrowings under the Company's credit facility in
anticipation of settlement of its tax liability with CNF
Transportation Inc., as discussed in Footnote 6.
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 March 31, 2000, the Company had $20
million of 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 March 31, 2000 and expects to be in compliance with these
covenants for the remainder of the year.
As discussed in Footnote 6, the Company is party to a tax
sharing agreement with its former parent. In May, the Company
contemplates that a formal tax settlement agreement will be executed
between the parties. The agreement will call for a full settlement
of the tax sharing liability, except for certain enumerated open tax
items that are anticipated to be resolved within the next 24 to 30
months. The settlement entails a current cash payment of $16.7
million, transfer of approximately $1 million of real property, and
the grant of promissory notes in an aggregate amount of $40.2 million
payable over a four year period. As of March 31, 2000, the Company
believes that it has accrued the necessary reserves to adequately
provide for its entire liability to CNF Transportation Inc. under the
tax sharing agreement.
OTHER
On May 8, 2000, the Board of Directors elected Patrick H. Blake
president and chief executive officer of the Company and chief
executive officer of CF, the Company's long-haul subsidiary. He
replaces Vice Chairman of the Board G. Robert Evans, who served as
interim CEO after the retirement of W. Roger Curry in January. Mr.
Blake previously served as executive vice president of operations and
chief operating officer of the Company and president and chief
operating officer of CF. The Board elected Thomas A. Paulsen to
replace Mr. Blake as president and chief operating officer of CF. He
previously served as senior vice president of operations.
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.
ITEM 3. Quantitative and Qualitative Disclosures About 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.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously disclosed, 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. 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.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Settlement Agreement and Mutual Release of Claims
between Consolidated Freightways Corporation and
W. Roger Curry dated April 14, 2000.
(10.2) Consolidated Freightways Corporation Senior Executive
Incentive Plan for 2000.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company (Registrant) has duly caused this Form 10-Q
Quarterly Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Consolidated Freightways Corporation
(Registrant)
May 12, 2000 /s/Sunil Bhardwaj
Sunil Bhardwaj
Senior Vice President and
Chief Financial Officer
May 12, 2000 /s/Robert E. Wrightson
Robert E. Wrightson
Senior Vice President and
Controller