Exhibit 13
Consolidated Freightways Corporation
and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Comparison of 2000 and 1999
Revenues for the year ended December 31, 2000 decreased 1.1%
compared to 1999 due to an 8.1% decrease in tonnage levels.
Continued refinement of the Company's freight profile, a higher
proportion of lighter weight freight in the system as well as a
slow down in the economy in the fourth quarter accounted for the
decrease in tonnage. Shipments decreased 4.1% and the average
weight per shipment decreased 4.2%. The tonnage decrease was
offset by an 8.0% increase in net revenue per hundredweight due to
rate increases, a fuel surcharge and a change in freight profile.
Revenues were also impacted by the shutdown of Redwood Truckload,
the Company's owner-operator truckload subsidiary, in the first
quarter.
Salaries, wages and benefits decreased 1.3% in 2000 due primarily
to lower tonnage levels. However, an April contractual wage and
benefit increase, lower use of rail services and $4.0 million of
severance pay due to an administrative reorganization impacted the
year. Additionally, the lower freight levels had an adverse impact
on pick-up and delivery and dock efficiencies.
Operating expenses increased 6.2% in 2000, despite lower tonnage,
due primarily to continued higher fuel costs and the change in
freight mix. The average fuel cost per gallon increased 63.8% in
2000. The Company has a revenue fuel surcharge in place to offset
the impact of the increased fuel costs as permitted under the
Company's rules tariff. Continued higher information systems
costs, revenue equipment lease expense and software amortization,
as well as lower use of rail services also impacted the year. The
Company benefited from approximately $17.7 million of gains on
sales of terminal real estate properties in 2000, as part of
management's plan to reconfigure the freight flow system to
improve efficiencies. This compares with $3.4 million of gains in
1999.
Purchased transportation decreased 13.0% in 2000 due to lower use
of rail. Rail miles as a percentage of inter-city miles decreased
to 24.4% from 27.4% in 1999 due to lower tonnage. The decrease
also reflects lower use of owner-operators due to the shutdown of
Redwood Truckload.
Operating taxes and licenses increased marginally in 2000 as the
impact of lower tonnage was offset by higher licensing costs due
to changes in the fleet. Claims and insurance expense increased
12.5% in 2000, despite lower tonnage, due to continued higher cost
vehicular accidents and higher cargo claims.
Depreciation decreased 1.1% as a higher proportion of the fleet
became fully depreciated.
Operating income decreased $9.8 million in 2000 to a loss of $1.9
million. The operating ratio deteriorated to 100.1% from 99.7%.
The Company's Canadian operations contributed $12.7 million of
operating income in 2000 compared to $11.3 million in 1999.
Other expense, net increased $6.5 million in 2000 primarily due to
a $4.0 million charge for settlement of a tax liability with CNF,
the former parent, interest expense on tax obligations payable to
CNF and lower investment income on the Company's short-term
investments. The Company earned lower investment income in 2000 as
short-term investments were used for working capital, capital
expenditures and share repurchases.
The Company's effective income tax rates differ from the statutory
federal rate due primarily to foreign and state taxes and non-
deductible items.
Comparison of 1999 and 1998
Revenues for the year ended December 31, 1999 increased 6.3%
compared to 1998 due to a 0.9% tonnage increase, a 3.6% increase
in net revenue per hundredweight and increased revenues from
Redwood Truckload. Net revenue per hundredweight increased due to
rate increases and the implementation of a fuel surcharge in July
1999. Shipments increased 3.9% while the average weight per
shipment decreased 2.9%. During 1999, the Company benefited from
increased 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.
Salaries, wages and benefits increased 4.9% in 1999 due to
increased tonnage levels and an April contractual wage and benefit
increase. As noted above, the Company received incremental
business from the shutdown of two major LTL carriers in mid-1999.
Unfortunately, a high proportion of this incremental business
consisted of light and bulky shipments, which adversely impacted
pick- up and delivery and dock efficiencies. These increased
expenses were partially offset by reduced incentive compensation.
1998 includes a $14.4 million non-cash charge for the issuance of
common stock under the Company's restricted stock plan.
Operating expenses increased 15.9% in 1999 primarily due to
increased tonnage levels, a 25% increase in the average fuel cost
per gallon and the change in freight mix. The Company was also
impacted by higher information systems costs, start-up costs
associated with the continued expansion of the Company's two-day
service, costs related to the Company's Year 2000 project,
increased revenue equipment lease expense and a $3.0 million
charge for the write-off of a disappointing software package
implementation. The Company benefited from $3.4 million of gains
on sales of terminal real estate properties in 1999. There were no
gains on sales of terminal real estate properties in 1998.
Purchased transportation increased 15.2% in 1999 due to increased
tonnage levels, increased use of owner-operators for truckload
operations, costs associated with the Company's growing PrimeTime
service and increased rail costs per mile. Rail miles as a
percentage of inter-city miles decreased to 27.4% from 28.0% in
1998.
Operating taxes and licenses increased 13.6% in 1999 due to
increased tonnage levels and increased property taxes on terminal
properties.
Claims and insurance expense increased 21.3% in 1999 due to
increased tonnage levels, higher cost vehicular accidents and
higher than anticipated cargo claims.
Depreciation increased 7.1% in 1999 due to increased capital
expenditures in 1999 for the replacement of older revenue
equipment.
Operating income in 1999 decreased $44.2 million from 1998 to $7.9
million with the operating ratio deteriorating to 99.7% from
97.7%. The Company's Canadian subsidiaries contributed $11.3
million in 1999 compared with $10.5 million in 1998.
Other expense, net increased $1.6 million in 1999 due primarily to
a $2.3 million decrease in investment income, which was partially
offset by a $1.1 million gain on sale of a non-operating property.
The Company earned lower investment income in 1999 as short-term
investments were used for capital expenditures.
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 decline of its
market share in the "greater than 1,500 miles" length-of-haul due
to market 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 longer length-of-haul service offerings by regional
and parcel carriers. To grow, the Company must continue to invest
in its infrastructure to become more competitive and efficient in
shorter length-of-haul lanes; improve efficiencies in its core
longer length-of-haul lanes, and develop services tailored to
customer needs.
Economic Growth: The less-than-truckload industry (LTL) is
affected by the state of the overall economy, which affects the
amount of freight to be transported. A decline in general economic
growth may significantly impact the Company's performance through
a reduction in revenues with minimal reduction in cost.
Price Stability: Continuing pricing discipline amongst competitors
and reduced industry capacity has contributed to relative price
stability over the last several years. Competitive action through
price discounting may significantly impact the Company's
performance through a reduction in revenue with minimal reduction
in cost.
Cyclicality and Seasonality: The months of September, October and
November of each year usually have the highest business levels
while the first quarter has the lowest. The LTL industry is
affected by seasonal fluctuations, which affect the amount of
freight to be transported. Freight shipments and operating results
are also affected adversely by inclement weather conditions.
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.
Inflation: As discussed above, the Company continued to experience
significant increases in the average fuel cost per gallon in 2000.
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 1999. 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.
Outlook
During the fourth quarter of 2000, management began implementing
an aggressive, strategic marketing plan emphasizing the strengths
of the Company's long haul infrastructure. Part of this plan
includes emphasizing higher quality, more profitable weight
brackets, specifically 300 to 15,000 lbs., in the greater than 500
mile length of haul. Management will also continue with its
efforts to grow in the two day lanes. To improve margins,
management is implementing several aggressive, systematic process
improvement programs aimed at increasing efficiencies in pick-up
and delivery and dock operations, increasing load factor and
reducing claims expense. The cost savings should help offset an
April 1, 2001 wage and benefit increase averaging 3.4% which will
add approximately $24 to $27 million of expense in 2001.
Management currently expects to return to profitability in the
third quarter of 2001. However, until tonnage levels improve,
continuing infrastructure costs will adversely impact profits. As
part of an administrative reorganization to reduce costs, the
Company is consolidating its corporate headquarters and
administrative offices to a single facility in Vancouver, WA. The
proceeds from the eventual sales of its Menlo Park, CA and
Portland, OR facilities will be reinvested back into high priority
real estate and capital investments that will provide long-term
value to the Company.
As discussed in Footnote 9 in the Company's Consolidated Financial
Statements, there are approximately 1,160,000 shares granted under
the Company's restricted stock plan that had not achieved the pre-
determined increases in stock price required for vesting as of
December 31. Compensation expense will be recognized for those
shares once the stock price meets the required levels.
Liquidity and Capital Resources
As of December 31, 2000, the Company had $46.5 million in cash and
cash equivalents. Net cash provided by operating activities for
2000 was $21.1 million compared with $21.5 million in 1999. It is
anticipated that existing cash balances, cash flow from operations
and available borrowings under the Company's financing
arrangements will be sufficient for working capital requirements
in 2001.
Net cash used by investing activities was $22.7 million compared
with $82.9 million in the same period last year. The decrease
reflects lower capital and software expenditures and higher
proceeds from sales of real estate terminal properties. The
decrease in capital expenditures reflects management's decision to
scale expenditures back in line with business levels. Software
expenditures decreased as the prior year includes costs to replace
certain operational and financial software systems for Year 2000
compliance. Management expects capital and software expenditures
to be approximately $80.0 million in 2001, 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. Additionally,
as part of an administrative reorganization, the Company is
consolidating its corporate headquarters and administrative
offices to a single facility in Vancouver, WA. The proceeds from
the eventual sales of its Menlo Park, CA and Portland, OR
facilities will be reinvested back into high
priority real estate and capital investments that will provide
long-term value to the Company.
Net cash used by financing activities of $1.0 million reflects
repayment of short-term borrowings assumed in the purchase of
FirstAir, Inc. and repurchases of common stock. Management
repurchased 60,000 shares during 2000 and is authorized to
repurchase an additional $19.5 million of common stock.
On September 27, 2000, the Company's unsecured credit facility was
amended, the primary effect of which was a reduction in the total
facility from $175.0 million to $155.0 million. Borrowings under
the agreement bear interest at LIBOR plus a margin (0.625% as of
December 31, 2000). As of December 31, 2000, the Company had no
short-term borrowings and $96.9 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 was
in compliance with all covenants as of December 31, 2000. Due to
continued lower business levels in the first quarter of 2001, the
Company may violate the tangible net worth covenant of its credit
agreement at March 31st. The Company also has an operating lease
agreement with the same lender covering 2,700 trucks and tractors,
which is subject to the same covenant. The Company has received a
commitment from a new lender for a $200 million credit facility
securitized with accounts receivable. The new agreement will
provide for short-term borrowings and letter of credit needs.
Approximately $140 million of the facility will be used to repay
short-term borrowings and support letters of credit under the
existing credit agreement as well as to purchase the 2,700 trucks
and tractors under lease. It is anticipated that the new facility
will be in place by March 30, 2001. If the Company is unable to
complete this transaction, the Company will, if required, seek
covenant relief in the form of credit and lease agreement
amendments and/or waivers, though there can be no assurance that
the current lenders will grant them. However, the Company believes
there are a number of other viable financing options available to
the Company.
During the year, the Company completed operating lease agreements
for approximately 930 trailers. Incremental lease payments are
expected to be approximately $2.2 million annually through 2007.
These new units are replacements for older equipment.
As discussed in Footnote 10 "Contingencies," in the Company's
Consolidated Financial Statements, the Company has executed a tax
settlement agreement with CNF that calls for a full settlement of
the tax sharing liability with CNF, except for certain enumerated
open tax items that are anticipated to be resolved within the next
18 to 24 months. The settlement entailed an immediate cash payment
of $16.7 million, transfer of approximately $1 million of real
property, and the acknowledgement of tax obligations in the amount
of $40.2 million. Of this amount, $20.0 million remains
outstanding as of December 31, 2000, and is payable on May 15,
2004, bearing interest at 6.8% payable annually. As of December
31, 2000, the Company believes that it has accrued the necessary
reserves to adequately provide for its entire liability to CNF
under the tax sharing agreement.
As of December 31, 2000, the Company's ratio of long-term debt to
total capital was 5.6% compared with 5.5% as of December 31, 1999.
The current ratio was 1.3 to 1 and 1.2 to 1 as of December 31,
2000 and 1999, respectively.
Other
On May 8, 2000, the Board of Directors elected Patrick H. Blake
president, chief executive officer and a director of the Company
and chairman 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 fill Mr. Blake's previous positions as
president and chief operating officer of CF and chief operating
officer of the Company. He previously served as senior vice
president of operations.
On July 5, 2000, the Board of Directors elected Robert E.
Wrightson executive vice president and chief financial officer of
the Company. He replaces Sunil Bhardwaj, who served as chief
financial officer and treasurer before leaving the company. Mr.
Wrightson previously served as senior vice president and
controller of the Company. On August 15, 2000, James R. Tener was
promoted to vice president and controller, having previously
served as director of financial accounting. Also on August 15,
Kerry K. Morgan was promoted to vice president and treasurer,
having previously served as director of treasury and planning. 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 the
advice of local environmental attorneys and cost studies performed
by environmental engineers hired by the EPA (or other Federal or
state agencies), 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.
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: general economic conditions; general business
conditions of customers served and other shifts in market demand;
increases in domestic and international competition; pricing
pressures, rate levels and capacity in the motor-freight industry;
future operating costs such as employee wages and benefits, fuel
prices and workers compensation and self-insurance claims;
shortages of drivers; weather; environmental and tax matters;
changes in governmental regulation; technology costs; legal
claims; timing and amount of capital expenditures; and successful
execution of operating plans, customer service initiatives,
marketing plans, process and operational improvements and cost
reduction efforts described above. 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)
2000 1999
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 46,523 $ 49,050
Trade accounts receivable, net (Note 2) 327,919 343,198
Other accounts receivable 14,978 6,524
Operating supplies, at lower of average cost
or market 8,419 9,268
Prepaid expenses 41,286 41,405
Deferred income taxes (Notes 2 and 7) 70,610 21,567
Total Current Assets 509,735 471,012
Property, Plant and Equipment, at cost (Note 2)
Land 81,697 82,701
Buildings and improvements 350,137 354,012
Revenue equipment 518,086 545,129
Other equipment and leasehold improvements 149,123 139,408
1,099,043 1,121,250
Accumulated depreciation and amortization (750,249) (752,298)
348,794 368,952
Other Assets
Deposits and other assets (Note 2) 68,153 57,712
Deferred income taxes (Notes 2 and 7) - 18,596
68,153 76,308
Total Assets $ 926,682 $ 916,272
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
2000 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 97,741 $ 98,701
Accrued liabilities (Note 4) 211,043 202,287
Accrued claims costs (Note 2) 86,674 78,584
Federal and other income taxes (Note 7) - 16,883
Total Current Liabilities 395,458 396,455
Long-Term Liabilities
Long-term debt (Note 5) 15,100 15,100
Accrued claims costs (Note 2) 99,074 97,839
Employee benefits (Note 8) 120,317 121,783
Deferred income taxes (Notes 2 and 7) 6,282 -
Other liabilities 38,267 26,533
Total Liabilities 674,498 657,710
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 75,767 77,406
Accumulated other comprehensive loss (11,293) (10,087)
Retained earnings 200,067 207,632
Treasury stock, at cost (1,436,712 and 1,863,691 shares,
respectively) (12,588) (16,620)
Total Shareholders' Equity 252,184 258,562
Total Liabilities and Shareholders' Equity $926,682 $916,272
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
Years Ended December 31,
(Dollars in thousands except per share data)
2000 1999 1998
REVENUES $ 2,352,368 $ 2,379,000 $ 2,238,423
COSTS AND EXPENSES
Salaries, wages and benefits 1,496,663 1,516,978 1,445,899
Operating expenses 451,882 425,580 367,098
Purchased transportation 207,788 238,944 207,388
Operating taxes and licenses 69,825 69,382 61,090
Claims and insurance 76,176 67,685 55,804
Depreciation 51,961 52,556 49,080
2,354,295 2,371,125 2,186,359
OPERATING INCOME (LOSS) (1,927) 7,875 52,064
OTHER INCOME (EXPENSE)
Investment income 1,490 2,688 4,957
Interest expense (4,883) (4,160) (4,012)
Miscellaneous, net (4,904) (375) (1,192)
(8,297) (1,847) (247)
Income (loss) before income taxes (benefits) (10,224) 6,028 51,817
Income taxes (benefits) (Note 7) (2,659) 3,315 25,471
NET INCOME (LOSS) $ (7,565) $ 2,713 $ 26,346
Basic average shares outstanding (Note 2) 21,492,130 22,349,997 22,634,362
Diluted average shares outstanding (Note 2) 21,492,130 22,556,275 23,510,752
Basic Earnings (Loss) per Share: (Note 2) $ (0.35) $ 0.12 $ 1.16
Diluted Earnings (Loss) per Share: (Note 2) $ (0.35) $ 0.12 $ 1.12
<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)
2000 1999 1998
Cash and Cash Equivalents, Beginning
of Year $ 49,050 $ 123,081 $ 107,721
Cash Flows from Operating Activities
Net income (loss) (7,565) 2,713 26,346
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 59,152 58,363 50,918
Increase (decrease) in deferred income taxes (Note 7) (21,690) (15,379) 3,498
(Gains) losses from property disposals, net (17,514) (4,286) 94
Issuance of common stock under stock and
benefit plans (Notes 8 and 9) 2,660 289 14,449
Changes in assets and liabilities:
Receivables 8,478 (48,064) 19,243
Accounts payable (3,733) 13,840 1,734
Accrued liabilities 8,156 14,759 (25,116)
Accrued claims costs 9,294 (93) (17,680)
Income taxes (16,883) 2,710 6,467
Employee benefits (1,466) 4,547 2,016
Other 2,244 (7,886) (8,127)
Net Cash Provided by Operating Activities 21,133 21,513 73,842
Cash Flows from Investing Activities
Capital expenditures (42,348) (67,273) (31,271)
Software expenditures (5,963) (27,938) (17,574)
Proceeds from sales of property 26,785 12,308 2,918
Acquisition of FirstAir Inc., net of cash acquired (Note 3) (1,176) - -
Net Cash Used by Investing Activities (22,702) (82,903) (45,927)
Cash Flows from Financing Activities
Net repayment of short-term borrowings (691) - -
Purchase of treasury stock (267) (12,641) (12,555)
Net Cash Used by Financing Activities (958) (12,641) (12,555)
Increase (Decrease) in Cash and Cash Equivalents (2,527) (74,031) 15,360
Cash and Cash Equivalents, End of Year $ 46,523 $ 49,050 $ 123,081
Supplemental Disclosure
Cash paid for income taxes $ 19,731 $ 14,469 $ 15,104
Cash paid for interest $ 1,606 $ 2,349 $ 1,327
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands)
Accumulated
Common Stock Additional Other
Number of Paid-in Comprehensive Retained Treasury
Shares Amount Capital Income (Loss) Earnings Stock, at cost Total
Balance, December 31, 1997 23,038,437 $ 230 $ 71,461 $ (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 employee
stock plans (Note 9) 28,468 1 23 - - - 24
Issuance of 988,639 treasury shares under
employee stock plans (Note 9) - - 5,819 - - 8,630 14,449
Balance, December 31, 1998 23,066,905 231 77,303 (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
employee stock plans (Note 9) - - 98 - - 191 289
Issuance of common stock under employee
stock plans (Note 9) 66,943 - 5 - - - 5
Balance, December 31, 1999 23,133,848 231 77,406 (10,087) 207,632 (16,620) 258,562
Comprehensive income (loss) (Note 2)
Net loss - - - - (7,565) - (7,565)
Foreign currency translation adjustment - - - (1,206) - - (1,206)
Total comprehensive loss (8,771)
Purchase of 60,000 treasury shares - - - - - (267) (267)
Issuance of 69,045 treasury shares under
employee stock plans (Note 9) - - (359) - - 609 250
Issuance of 390,707 treasury shares under
employee benefit plan (Note 8) - - (1,185) - - 3,450 2,265
Issuance of 27,227 treasury shares for
payment of non-employee director fees - - (95) - - 240 145
Balance, December 31, 2000 23,133,848 $ 231 $ 75,767 $ (11,293) $ 200,067 $ (12,588) $ 252,184
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Consolidated Freightways Corporation (the Company) primarily
provides less-than-truckload transportation, air freight
forwarding 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 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; CF AirFreight
Corporation, a non-asset based provider of domestic and
international air freight forwarding and full and less-than-
container load ocean freight transportation; and Redwood
Systems, Inc., a non-asset based supply chain management
services provider.
2. Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated
financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
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 $12,887,000 and $13,340,000 as of
December 31, 2000 and 1999, respectively.
Property, Plant and Equipment, at cost: 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."
Deposits and Other Assets on the Consolidated Balance
Sheets includes $39,284,000 and $38,850,000 of purchased and
internally developed software costs as of December 31, 2000
and 1999, respectively. These costs are being amortized over
5 years.
Goodwill: Goodwill, which represents the costs in excess of
net assets of businesses acquired, is capitalized and
amortized on a straight-line basis over 20 to 40 years.
Goodwill, net of accumulated amortization, was $3,893,000
and $1,905,000 as of December 31, 2000 and 1999,
respectively, and is included in Deposits and Other Assets
on the Consolidated Balance Sheets.
Impairment of Long-Lived Assets: The Company reviews its
long-lived assets, including identifiable intangibles, for
impairment when events or changes in circumstances indicate
that the carrying value of such assets may not be
recoverable. The Company compares the carrying value of the
asset with the asset's expected future undiscounted cash
flows. If the carrying value of the asset exceeds the
expected future cash flows, an impairment exists which is
measured by the excess of the carrying value over the fair
value of the asset. No impairment losses were recognized in
2000, 1999 or 1998.
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.
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 the in-transit
or completed service methods of recognition.
Interest Expense: The interest expense presented in the
Statements of Consolidated Operations is related to
industrial revenue bonds, as discussed in Footnote 5, "Long-
Term Debt," and long-term tax liabilities, as discussed in
Footnote 7, "Income Taxes."
Earnings (Loss) per Share: Basic earnings (loss) per share
is calculated using only the weighted average shares
outstanding for the period. Diluted earnings (loss) per
share includes the dilutive effect of restricted stock and
stock options. See Footnote 9, "Stock Compensation Plans."
The year ended December 31, 2000 does not include 6,165
potentially dilutive securities in the computation of fully
diluted earnings per share because to do so would be anti-
dilutive.
The following chart reconciles basic to diluted earnings
(loss) per share for the years ended December 31, 2000, 1999
and 1998:
(Dollars in thousands except per share amounts)
Net Weighted Earnings
Income Average (Loss) Per
Years Ended (Loss) Shares Share
December 31, 2000
Basic $ (7,565) 21,492,130 $(0.35)
Dilutive effect of
restricted stock and
stock options - - -
Diluted $ (7,565) 21,492,130 $(0.35)
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
Comprehensive Income: Comprehensive income (loss) includes
all changes in equity during a period except those resulting
from investments by and distributions to owners. Comprehensive
income (loss) for the years ended December 31, 2000, 1999 and
1998 is presented in the Statements of Consolidated Shareholders
Equity.
Estimates: Management makes estimates and assumptions when
preparing the financial statements in conformity with
accounting principles generally accepted in the United
States. These estimates and assumptions affect the amounts
reported in the accompanying 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. Acquisition
On June 2, 2000, CF AirFreight Corporation, a wholly owned
subsidiary of the Company, acquired substantially all of the
assets and liabilities of privately held FirstAir, Inc., a
non-asset based provider of domestic and international air
freight forwarding and full and less-than-container load
ocean freight transportation. The purchase price was $1.2
million in cash and assumption of certain liabilities. The
acquisition has been accounted for under the purchase method
of accounting, and accordingly, the purchase price has been
allocated to assets purchased and liabilities assumed based
upon the fair values at the date of acquisition. The excess
of the purchase price over the fair values of the assets
acquired and liabilities assumed was approximately $2.3
million, which is being amortized on a straight line basis
over 20 years. The purchase agreement also provides for a
contingent payment to the former owner if revenues exceed
certain targeted levels before May 31, 2003. The contingent
payment shall not exceed $2.5 million. A payment, if any,
will be recorded as additional purchase price. The operating
results of FirstAir have been included in the Company's
consolidated financial statements since the date of
acquisition. Operating results prior to acquisition would
have had an immaterial effect on the Company's results of
operations.
4. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
(Dollars in thousands)
2000 1999
Accrued payroll and benefits $ 90,459 $ 89,568
Other accrued liabilities 68,194 62,714
Accrued union health and welfare 23,845 23,952
Accrued taxes other than income taxes 18,991 19,776
Accrued interest 9,554 6,277
Total accrued liabilities $211,043 $202,287
5. Long-Term 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, 2000. Annual maturities and sinking fund
requirements of this debt as of December 31, 2000 are as
follows: $0 in 2001; $0 in 2002; $1,000,000 in 2003 and
$14,100,000 in 2004.
The Company has a multi-year $155 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 (0.625% as of December
31, 2000). As of December 31, 2000, the Company had no short-
term borrowings and $96.9 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 was in compliance with all covenants as
of December 31, 2000. Due to continued lower business levels
in the first quarter of 2001, the Company may violate the
tangible net worth covenant of its credit agreement at March
31st. The Company also has an operating lease agreement with
the same lender covering 2,700 trucks and tractors, which is
subject to the same covenant. The Company has received a
commitment from a new lender for a $200 million credit
facility securitized with accounts receivable. The new
agreement will provide for short-term borrowings and letter
of credit needs. Approximately $140 million of the facility
will be used to repay short-term borrowings and support
letters of credit under the existing credit agreement as
well as to purchase the 2,700 trucks and tractors under
lease. It is anticipated that the new facility will be in
place by March 30, 2001. If the Company is unable to
complete this transaction, the Company will, if required,
seek covenant relief in the form of credit and lease
agreement amendments and/or waivers, though there can be no
assurance that the current lenders will grant them. However,
the Company believes there are a number of other viable
financing options available.
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, 2000 and 1999.
6. 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, 2000, are $23,097,000 in 2001, $20,478,000 in
2002, $18,599,000 in 2003, $17,664,000 in 2004, $8,704,000
in 2005, and $1,910,000 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 was in compliance with all covenants as of December
31, 2000. Please see Footnote 5 "Long-Term Debt" for a
discussion of issues regarding compliance with the tangible
net worth covenant as of March 31, 2001.
Rental expense for operating leases is comprised of the
following:
(Dollars in thousands)
2000 1999 1998
Minimum rentals $50,950 $48,065 $37,953
Less sublease rentals (2,209) (2,707) (1,809)
Net rental expense $48,741 $45,358 $36,144
7. Income Taxes
The components of pretax income (loss) and income taxes
(benefits) are as follows:
(Dollars in thousands)
2000 1999 1998
Pretax income (loss)
U.S. corporations $(22,926) $ (7,201) $38,115
Foreign corporations 12,702 13,229 13,702
Total pretax income (loss) $(10,224) $ 6,028 $51,817
Income taxes (benefits)
Current
U.S. Federal $(18,615) $ 7,297 $14,244
State and local (1,530) 6,024 2,025
Foreign 5,494 5,373 5,704
(14,651) 18,694 21,973
Deferred
U.S. Federal 10,229 (10,705) 2,615
State and local 1,181 (5,478) 660
Foreign 582 804 223
11,992 (15,379) 3,498
Total income taxes (benefits) $ (2,659) $ 3,315 $25,471
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)
2000 1999
Deferred taxes - current
Assets
Reserves for accrued claims costs $ 32,904 $ 25,107
Employee benefits 23,261 22,671
Other reserves not currently deductible 29,209 13,470
Liabilities
Unearned revenue, net (10,550) (10,134)
Employee benefits (4,214) (29,547)
Total deferred taxes - current 70,610 21,567
Deferred taxes - non current
Assets
Reserves for accrued claims costs 15,531 33,156
Employee benefits 28,233 29,898
Retiree health benefits 25,646 24,146
Liabilities
Depreciation (58,443) (52,797)
Tax benefits from leasing transactions (10,520) (11,913)
Other (6,729) (3,894)
Total deferred taxes - non current (6,282) 18,596
Net deferred taxes $ 64,328 $ 40,163
Income taxes (benefits) varied from the amounts calculated
by applying the U.S. statutory income tax rate to the pretax
income (loss) as set forth in the following reconciliation:
2000 1999 1998
U.S. statutory tax rate (35.0)% 35.0% 35.0%
State income taxes, net of
federal income tax benefit (7.6) 4.0 3.8
Foreign taxes in excess
of U.S. statutory rate 15.5 16.8 2.2
Non-deductible operating expenses 31.6 91.8 3.5
Fuel tax credits (2.1) (4.2) (0.4)
Foreign tax credits (21.5) (83.7) -
Other, net (6.9) (4.7) 5.1
Effective income tax (benefit) rate (26.0)% 55.0% 49.2%
The cumulative undistributed earnings of the Company's
foreign subsidiaries, totaling $68 million as of December
31, 2000, which if distributed may be subject to withholding
tax, 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 the U.S. tax. The amount of
withholding tax that would be payable on remittance of the
undistributed earnings would approximate $3.4 million.
During 2000, the company repatriated $2.5 million in
previously undistributed earnings from its foreign
subsidiaries resulting in a one-time foreign tax
credit of $2.2 million.
The Company's former parent, CNF 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 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. The Company has executed a
tax settlement agreement that calls 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 18 to 24 months. The settlement entailed an immediate
cash payment of $16.7 million, transfer of approximately $1
million of real property, and the acknowledgement of tax
obligations in the amount of $40.2 million. Of this amount,
$20.0 million remains outstanding as of December 31, 2000,
and is payable on May 15, 2004, bearing interest at 6.8%
payable annually. The net effect of the settlement payments
to CNF on the Company s deferred taxes was approximately
$33.7 million. The settlement primarily affected current
Employee Benefits and current Other Reserves. As of December
31, 2000, the Company believes that it has accrued the
necessary reserves to adequately provide for its entire
liability to CNF under the tax sharing agreement.
8. 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 94% 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)
2000 1999
Change in Benefit Obligation
Benefit obligation at beginning
of year $271,074 $277,083
Service cost 7,856 8,418
Interest cost 22,880 20,291
Benefit payments (13,499) (11,456)
Actuarial (gain) loss 18,246 (23,262)
Benefit obligation at end of year $306,557 $271,074
Change in Fair Value of Plan Assets
Fair value of plan assets
at beginning of year $308,081 $268,398
Actual return on plan assets (827) 51,139
Benefit payments (13,499) (11,456)
Fair value of plan assets at end
of year $293,755 $308,081
(Dollars in thousands)
2000 1999
Funded Status of the Plan
Funded status at end of year $ (12,802) $ 37,007
Unrecognized net actuarial gain (39,228) (90,923)
Unrecognized prior service cost 4,885 5,942
Unrecognized net transition asset (3,311) (4,414)
Accrued Pension Plan Liability $ (50,456) $ (52,388)
Weighted-average assumptions as of December 31:
2000 1999
Discount rate 7.75% 8.0%
Expected return on plan assets 9.5 % 9.5%
Rate of compensation increase 5.0 % 5.5%
Net pension cost (benefits) includes the following:
(Dollars in thousands)
2000 1999 1998
Components of net pension cost (benefits)
Service cost $ 7,856 $ 8,418 $ 7,252
Interest cost 22,880 20,291 18,661
Expected return on plan assets (28,700) (24,963) (22,758)
Amortization of:
Transition asset (1,104) (1,104) (1,103)
Prior service cost 1,057 1,057 1,057
Actuarial gain (3,921) (253) (1,799)
Total net pension cost (benefits) $ (1,932) $ 3,446 $ 1,310
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, 2000
and 1999, the liability was $3,024,000 and $1,901,000,
respectively. The pension cost was $1,319,000, $421,000 and
$315,000 for the years ended December 31, 2000, 1999 and
1998, respectively.
Approximately 81% of the Company's domestic employees are
covered by union-sponsored, collectively bargained, multi-
employer pension plans. The Company contributed and charged
to expense $137,087,000 in 2000, $131,470,000 in 1999 and
$123,882,000 in 1998 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 ten 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
post-retirement benefit liabilities included in Employee
Benefits in the Consolidated Balance Sheets as of December
31:
(Dollars in thousands)
2000 1999
Change in Benefit Obligation
Benefit obligation at beginning
of year $ 57,526 $ 59,883
Service cost 471 548
Interest cost 4,214 4,221
Benefit payments (4,145) (3,515)
Actuarial gain (2,091) (3,611)
Benefit obligation at end of year $ 55,975 $ 57,526
(Dollars in thousands)
2000 1999
Change in Fair Value of Plan Assets
Fair value of plan assets
at beginning of year $ - $ -
Company contributions 4,145 3,515
Benefit payments (4,145) (3,515)
Fair value of plan assets at
end of year $ - $ -
Funded Status of the Plan
Funded status at end of year $(55,975) $(57,526)
Unrecognized net actuarial gain (10,429) (8,863)
Unrecognized prior service credit (221) (264)
Accrued Postretirement Benefit Liability $(66,625) $(66,653)
Weighted-average assumptions as of December 31:
2000 1999
Discount rate 7.75% 8.0%
For measurement purposes, a 6.0% annual increase in the per
capita cost of covered health care benefits was assumed for
2001, 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)
2000 1999 1998
Components of net benefit cost
Service cost $ 471 $ 548 $ 434
Interest cost 4,214 4,221 4,121
Amortization of:
Prior service credit (44) (44) (44)
Actuarial gain (524) - (167)
Total net benefit cost $4,117 $4,725 $4,344
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 $ 169 $(173)
Effect on the postretirement benefit obligation $2,121 $(2,165)
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
$2,265,000 in 2000, $2,460,000 in 1999, and $2,088,000 in
1998. In 2000, the Company's match was made with 390,707
treasury shares.
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 $1,548,000, $2,282,000 and $21,493,000
for the years ended December 31, 2000, 1999 and 1998,
respectively.
9. 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.
During 2000, the Company granted 15,000 shares of restricted
stock at $7.0625 per share; in 1999, 141,000 shares were
granted at $14.0625 per share; and in 1998, 78,874 shares
were granted at $12.20. 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 required stock price is achieved. As
of December 31, 2000, there were approximately 1,160,000
shares for which the stock price had not reached the pre-
determined increases required for vesting. Compensation
expense will be recognized for those shares if the stock
price meets the required levels.
The following is a summary of stock option data:
Wtd. Avg
Number of Exercise
Options Price
Outstanding at December 31, 1998 - $ -
Granted 916,400 13.83
Exercised - -
Forfeited - -
Outstanding at December 31, 1999 916,400 $ 13.83
Granted 1,328,600 4.81
Exercised - -
Forfeited (198,872) 12.83
Outstanding at December 31, 2000 2,046,128 $ 8.07
The following is a summary of stock options outstanding and
exercisable at December 31, 2000:
OUTSTANDING OPTIONS
Wtd.Avg Wtd. Avg
Range of Number of Remaining Exercise
Exercise Prices Options Life (Years) Price
$ 4.72-$7.0625 1,302,300 6.3 $ 4.81
$13.00-$14.0625 743,828 3.5 $13.78
2,046,128
EXERCISABLE OPTIONS
Wtd. Avg
Range of Number of Exercise
Exercise Prices Options Price
$ 4.72-$7.0625 406,950 $ 5.01
$13.00-$14.0625 263,753 $13.86
670,703
Stock options granted in 2000 vest twenty-five percent on
each of the following dates: July 15, 2000; May 16, 2001;
May 16, 2002; and May 16, 2003 and expire on May 16, 2007.
Stock options granted in 1999 vest ratably over 48 months
beginning in January 2000 and expire on May 12, 2004. The
grant prices are equal to the closing stock prices on the
dates of the grants. No stock options were granted in 1998.
As of December 31, 2000 there were 216,100 shares remaining
reserved for granting of restricted stock and stock options
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 years
ended December 31, 2000 and 1999, the Company issued 69,045
and 8,120 treasury shares, respectively. As of December 31,
2000, 72,835 shares remained in this plan.
For the years ended December 31, 2000, 1999 and 1998, the
Company recognized non-cash charges of $250,000, $289,000,
and $14,449,000, respectively, under its stock compensation
plans.
The Company accounts for stock compensation under Accounting
Principles Board Opinion No. 25 Accounting for Stock Issued
to Employees. Had the Company applied SFAS No. 123, "
Accounting for Stock-Based Compensation, pro forma net loss
for the year ended December 31, 2000 would have been
$10,127,000 or $0.47 per basic and diluted share. 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. The weighted average grant date fair
value of the options granted in 2000 and 1999 using the
Black-Sholes option pricing model was $2.71 and $7.84 per
share, respectively. The following assumptions were used
to calculate the stock option values: risk-free interest
rate, 6.3%; expected life, 5 years; expected volatility,
60%; and expected dividend yield, 0%.
10. 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 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 the advice of local
environmental attorneys and cost studies performed by
environmental engineers hired by the EPA (or other Federal
and state agencies), 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.
As of December 31, 2000, the Company has pledged $6 million
of letters of credit to CNF for uninsured workers'
compensation and employer' s liability claims incurred prior
to the spin-off and guaranteed by CNF. The pledged
collateral is reduced over time as the Company' s pending
claims are resolved.
11. Segment and Geographic Information
The Company primarily provides less-than-truckload
transportation, air freight forwarding 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 Company does not present segment
disclosures because the air freight forwarding, supply chain
management and international freight service offerings do
not meet the quantitative thresholds of Statement of
Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information." 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)
2000 1999 1998
Revenues
United States $2,206,468 $2,248,773 $2,117,415
Canada 145,900 130,227 121,008
Total $2,352,368 $2,379,000 $2,238,423
Property, Plant and Equipment
United States $ 312,349 $ 332,999 $ 332,912
Canada 36,445 35,953 27,860
Total $ 348,794 $ 368,952 $ 360,772
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 accounting principals generally accepted in the United
States, 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/Patrick H. Blake
Patrick H. Blake
President and Chief Executive Officer
/s/Robert E. Wrightson
Robert E. Wrightson
Executive Vice President
and Chief Financial Officer
/s/James R. Tener
James R. Tener
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, 2000 and 1999, and the related
statements of consolidated operations, cash flows and
shareholders' equity for each of the three years in the period
ended December 31, 2000. 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 auditing
standards generally accepted in the United States. 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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years
in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Portland, Oregon
January 25, 2001
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
Quarterly Financial Data
(Unaudited)
(Dollars in thousands except per share data)
March 31 June 30 September 30 December 31
2000 - Quarter Ended
Revenues $593,629 $586,101 $592,902 $579,736
Operating income (loss) (1,239) 2,129 5,594 (8,411)
Income (loss) before income taxes
(benefits) (6,079) 1,322 4,565 (10,032)
Income taxes (benefits) (3,100) 1,215 3,244 (4,018)
Net income (loss) (2,979) 107 1,321 (6,014)
Basic earnings (loss) per share (0.14) - 0.06 (0.28)
Diluted earnings (loss) per share (0.14) - 0.06 (0.28)
Market price range $5.31-$8.25 $4.00-$7.00 $4.19-$5.31 $3.25-$5.13
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
Five Year Financial Summary
Consolidated Freightways Corporation
And Subsidiaries
Years Ended December 31
(Dollars in thousands except per share data)
(Unaudited)
2000 1999 1998 1997 1996
SUMMARY OF OPERATIONS
Revenues $ 2,352,368 $ 2,379,000 $ 2,238,423 $ 2,299,075 $ 2,146,172
Operating income (loss) (1,927) 7,875 52,064(a) 45,259(b) (73,066)(c)
Depreciation and amortization 59,152 58,363 50,918 54,679 64,565
Investment income 1,490 2,688 4,957 1,894 263
Interest expense 4,883 4,160 4,012 3,213 843
Income (loss) before income taxes
(benefits) (10,224) 6,028 51,817 41,982 (77,777)
Income taxes (benefits) (2,659) 3,315 25,471 21,623 (22,201)
Net income (loss) (7,565) 2,713 26,346 20,359 (55,576)
Cash from operations 21,133 21,513 73,842 77,370 2,545
PER SHARE
Basic earnings (loss) (0.35) 0.12 1.16 0.92 (2.52)
Diluted earnings (loss) (0.35) 0.12 1.12 0.89 (2.52)
Shareholders' equity 11.62 12.16 11.81 10.58 9.57
FINANCIAL POSITION
Cash and cash equivalents 46,523 49,050 123,081 107,721 48,679
Property, plant and equipment, net 348,794 368,952 360,772 382,987 416,688
Total assets 926,682 916,272 890,390 897,796 857,087
Capital expenditures 42,348 67,273 31,271 22,674 48,203
Long-term debt 15,100 15,100 15,100 15,100 15,100
Shareholders' equity 252,184 258,562 266,718 243,447 210,698
RATIOS AND STATISTICS
Current ratio 1.3 to 1 1.2 to 1 1.3 to 1 1.3 to 1 1.1 to 1
Net income (loss) as % of revenues (0.3)% 0.1% 1.2% 0.9% (2.6)%
Effective income tax (benefit) rate (26.0)% 55.0% 49.2% 51.5% (28.5)%
Long-term debt as % of
total capitalization 5.6% 5.5% 5.4% 5.8% 6.7%
Return on average invested capital (1.9)% 3.6% 26.2% 24.9% (27.8)%
Return on average shareholders' equity (3.0)% 1.1% 13.9% 12.9% (21.2)%
Average shares outstanding 21,492,130 22,349,997 22,634,362 22,066,212 22,025,323
Market price range $3.25-$8.25 $6.75-$18.44 $7.50-$19.75 $7.00-$18.50 $6.00-$9.125
Number of shareholders 32,500 31,800 34,350 31,650 13,500
Number of employees 21,100 22,100 21,000 21,600 20,300
<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.
EXHIBIT 21
CONSOLIDATED FREIGHTWAYS CORPORATION
SUBSIDIARIES OF THE COMPANY
December 31, 2000
The subsidiaries of the Company were:
State or
Percent of Province or
Stock Owned Country of
Subsidiaries by Company Incorporation
Consolidated Freightways
Corporation of Delaware 100 Delaware
Canadian Freightways, Limited 100 Alberta,Canada
Milne & Craighead, Inc. 100 Alberta,Canada
Canadian Freightways Eastern Limited 100 Ontario,Canada
United Terminals Ltd. 100 B.C., Canada
Blackfoot Logistics Ltd. 100 B.C., Canada
Transport CFQI, Inc., d.b.a.
Epic Express and Universal Contract
Logistics 100 Quebec, Canada
Click Express Inc. 100 Alberta,Canada
Interport Sufferance Warehouses 100 Ontario,Canada
Panorama Mainland Ltd. 100 Alberta,Canada
724567 Alberta Ltd. 100 Alberta,Canada
724569 Alberta Ltd. d.b.a. Evergreen
Logistics 100 Alberta,Canada
Consolidadora De Fletes Mexico S.A. de C.V. 99 Mexico, D.F.
Transportes CF Dominican Republic 34 Dominican Republic
Transportes CF Guatemala S.A. 99.9 Guatemala
Transportes CF Costa Rica S.A. 100 Costa Rica
Leland James Service Corporation 100 Delaware
Redwood Systems, Inc. 100 Delaware
Redwood Systems Logistics de Mexico 100 Mexico -Jalisco
Redwood Systems Services de Mexico 100 Mexico -Jalisco
CF AirFreight Corporation 100 Delaware
CF Risk Management Services 100 Bermuda
Grupo Consolidated Freightways S.A. de C.V. 100 Mexico, D.F.
CF Alfri-Loder, S. de R.L. de C.V. 50 Mexico - Nuevo Leon
Transportes CF Alfri-Loder de R.L. De C.V. 49 Mexico - Nuevo Leon
CF MovesU.com Incorporated 100 Delaware