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, 2001
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
16400 S.E. CF Way, Vancouver, WA 98683
Telephone Number (360) 448-4000
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, 2001: 21,835,288
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended March 31, 2001
____________________________________________________________________________
____________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 3
Statements of Consolidated Operations -
Three Months Ended March 31, 2001 and 2000 5
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 38,197 $ 46,523
Trade accounts receivable, net of allowances 324,964 327,919
Other receivables 50,594 14,978
Operating supplies, at lower of average
cost or market 7,966 8,419
Prepaid expenses 50,092 41,286
Deferred income taxes 79,876 70,610
Total Current Assets 551,689 509,735
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 90,041 81,697
Buildings and improvements 356,319 350,137
Revenue equipment 515,412 518,086
Other equipment and leasehold improvements 153,286 149,123
1,115,058 1,099,043
Accumulated depreciation and amortization (749,150) (750,249)
365,908 348,794
OTHER ASSETS
Deposits and other assets 74,681 68,153
74,681 68,153
TOTAL ASSETS $ 992,278 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 93,946 $ 97,741
Accrued liabilities 229,167 211,043
Accrued claims costs 84,952 86,674
Short-term borrowings 28,000 --
Total Current Liabilities 436,065 395,458
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 99,097 99,074
Employee benefits 120,234 120,317
Deferred income taxes 24,429 6,282
Other liabilities 48,659 38,267
Total Liabilities 743,584 674,498
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 75,206 75,767
Accumulated other comprehensive loss (13,603) (11,293)
Retained earnings 198,240 200,067
Treasury stock, at cost (1,298,812 and 1,436,712
shares, respectively) (11,380) (12,588)
Total Shareholders' Equity 248,694 252,184
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 992,278 $ 926,682
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,
2001 2000
REVENUES $ 574,578 $ 593,629
COSTS AND EXPENSES
Salaries, wages and benefits 373,758 379,660
Operating expenses 103,133 115,815
Purchased transportation 52,988 49,125
Operating taxes and licenses 16,383 18,468
Claims and insurance 15,161 18,059
Depreciation 12,925 13,741
574,348 594,868
OPERATING INCOME (LOSS) 230 (1,239)
OTHER INCOME (EXPENSE)
Investment income 224 353
Interest expense (1,856) (1,087)
Miscellaneous, net (649) (4,106)
(2,281) (4,840)
Loss before income tax benefits (2,051) (6,079)
Income tax benefits (224) (3,100)
NET LOSS $(1,827) $ (2,979)
Basic average shares outstanding 21,818,691 21,350,812
Diluted average shares outstanding 21,818,691 (a) 21,350,812
Basic Loss per Share: $ (0.08) $ (0.14)
Diluted Loss per Share: $ (0.08) $ (0.14)
(a) Does not include 305,624 potentially dilutive securities because to do
so would be anti-dilutive.
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,
2001 2000
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 46,523 $ 49,050
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (1,827) (2,979)
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Depreciation and amortization 15,633 15,255
Increase (decrease) in deferred income taxes 8,881 (1,461)
Gains from property disposals, net (19,475) (297)
Issuance of common stock under stock
and benefit plans 647 735
Changes in assets and liabilities:
Receivables (11,661) 17,471
Prepaid expenses (8,806) (9,933)
Accounts payable (3,795) (12,333)
Accrued liabilities 18,124 18,202
Accrued claims costs (1,699) 878
Income taxes -- (3,481)
Employee benefits (83) 1,080
Other 410 2,829
Net Cash Provided (Used) by Operating Activities (3,651) 25,966
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (34,183) (5,436)
Software expenditures (585) (2,879)
Proceeds from sales of property 2,093 981
Net Cash Used by Investing Activities (32,675) (7,334)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 28,000 20,000
Net Cash Provided by Financing Activities 28,000 20,000
Increase (decrease) in Cash and Cash Equivalents (8,326) 38,632
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,197 $ 87,682
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
2000 Annual Report to Shareholders.
There were no significant changes in the Company's commitments
and contingencies as previously described in the 2000 Annual Report
to Shareholders and related annual report to the Securities and
Exchange Commission on Form 10-K.
2. 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 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)
Three Months Ended
March 31,
2001 2000
Revenues
United States $538,430 $557,903
Canada 36,148 35,726
Total $574,578 $593,629
Property, Plant and Equipment
United States $331,064 $323,826
Canada 34,844 36,604
Total $365,908 $360,430
4. Comprehensive Loss
Comprehensive loss for the three months ended March 31, 2001 and
2000 is as follows:
(Dollars in thousands)
Three Months Ended
March 31,
2001 2000
Net Loss $(1,827) $(2,979)
Other Comprehensive Loss:
Foreign currency translation
adjustments (2,310) (7)
Comprehensive Loss $(4,137) $(2,986)
5. Credit Facility
As of March 31, 2001, the Company had $28 million of short-term
borrowings and $78 million of letters of credit outstanding under its
existing $155 million credit facility. The Company was in compliance
with all covenants of this facility as of March 31st. On April 27,
2001, the Company entered into a five-year, $200 million credit
facility, securitized by accounts receivable, with a new lender. The
new facility provides for working capital and letter of credit needs
and is a replacement for the existing facility. Letters of credit
are limited to $100 million. Borrowings will bear interest at either
the commercial paper rate plus 75 basis points or LIBOR plus 75 basis
points. Approximately $125 million will be used to repay borrowings
and support letters of credit under the existing facility as well as
to purchase 2,700 trucks and tractors under lease with the existing
lender. The continued availability of funds under the new facility
will require that the Company comply with certain financial
convenants, the most restrictive of which requires the Company to
maintain a minimum EBITDAL (earnings before interest, taxes,
depreciation, amortization and lease expense). The Company expects
to be in compliance with these covenants during 2001.
6.Recently Adopted Accounting Standards
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 133 (SFAS 133). "Accounting for Derivative
Instruments and Hedging Activities" effective January 1, 2001. SFAS
133 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
derivative's intended use. Adoption of this standard did not have an
impact on the Company's financial position or results of operations.
7. 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.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenues for the quarter ended March 31, 2001 decreased 3.2% on
a 5.1% decrease in tonnage levels. Tonnage decreased due to a
continued general economic slowdown and severe winter weather
conditions. Shipments decreased 4.8% and the weight per shipment
decreased 0.3%. The tonnage decrease was partially offset by a 2.1%
increase in revenue per hundredweight due to a rate increase and a
fuel surcharge.
Salaries, wages and benefits decreased 1.6% from the prior year
due primarily to lower tonnage levels and management's efforts to
reduce costs. However, the Company was impacted by contractual wage
and benefit increases as well as decreases in pick-up and delivery
and dock efficiencies, due in part to the severe winter weather. The
prior year includes $4.3 million of severance pay due to an
administrative reorganization.
Operating expenses decreased 11% from the prior year due to
$19.5 million of gains on sales of facilities. Excluding the gains,
operating expenses increased 5.9%, despite lower tonnage levels. The
increase was due to a 5.6% increase in the average fuel cost per
gallon, increased lease expense on revenue equipment, increased
repair and maintenance expense, and costs associated with the severe
winter weather. The costs were partially offset by increased use of
rail services.
Purchased transportation increased 7.9% due to increased use of
rail services. Rail miles as a percentage of inter-city miles
increased to 26.3% from 22.8% in the prior year.
Operating taxes and licenses decreased 11.3% due to lower
tonnage levels and increased use of rail services.
Claims and insurance decreased 16.0% due to improved claims
experience and lower tonnage levels. The Company benefited from new
process improvement programs directed at reducing freight damage and
increasing vehicular safety.
Depreciation decreased 5.9% due to a higher proportion of the
fleet becoming fully depreciated.
Operating income improved $1.5 million from the prior year with
the operating ratio improving to 99.9% from 100.2%. Excluding the
gains on sales of facilities, the operating loss was $19.3 million
and the operating ratio was 103.4%. The Canadian operations
contributed $2.8 million of operating income in both the current and
prior year periods.
Other expense, net, decreased $2.6 million to $2.3 million. The
decrease is due to the fact that the prior year included a $4.0
million charge for settlement of a tax sharing liability with the
former parent. The decrease was partially offset by increased
interest expense due to higher average short-term borrowings and
interest expense on a tax obligation payable to the former parent.
The Company's effective income tax rates differ from the
statutory federal rate due primarily to foreign and state taxes and
non-deductible items.
The Company began to see the benefits of its systematic process
improvement programs during the quarter. These programs are aimed at
increasing pick-up and delivery and dock efficiencies, increasing
load factor and reducing claims expense. The Company experienced
significantly fewer claims compared with the prior year and month
over month improvement in load factor during the quarter.
Additionally, despite a year over year decrease in pick-up and
delivery and dock efficiencies, the Company experienced month over
month improvement during the quarter. The Company will continue to
aggressively pursue further cost efficiencies in these areas as well
as in the general and administrative areas to improve margins. The
Company expects to return to profitability in the second half of
2001, subject to any further declining general economic trends.
As discussed in the Company's Annual Report on Form 10-K, the
Company has various stock incentive plans under which restricted
stock has been granted. There are approximately 950,000 restricted
shares that had not achieved the pre-determined increases in stock
price required for vesting as of March 31st. Compensation expense
will be recognized for those shares once the stock price meets the
required levels. Of the 950,000 shares, 843,000 will be forfeited if
the stock price does not meet the required levels by December 2,
2001. The remaining shares must meet the required stock prices by
May 12, 2002.
The Company continues to experience increased fuel costs per
gallon. 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. The Company currently has a fuel surcharge in effect.
However, there can be no assurance that the Company will be able
maintain this surcharge or successfully implement such surcharges in
response to increased fuel costs in the future.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, the Company had $38.2 million in cash and
cash equivalents. Net cash used by operating activities of $3.7
million compares with $26.0 million provided by operating activities
for the same period last year. The decrease was due primarily to
increased operating losses. Management expects that existing cash
balances, cash flow from operations and available borrowings under
the Company's new credit facility will be sufficient for working
capital requirements in 2001.
Net cash used by investing activities of $32.7 million compares
with $7.3 million in the same period last year. The increase
reflects the purchases of strategic terminal properties in Brooklyn,
NY, Laredo, TX, and Phoenix, AZ. Management expects capital and
software expenditures to be approximately $93 million for the
remainder of the year, primarily for upgrades to terminal properties,
the purchase of the Company's new headquarters and administrative
facility, the purchase of revenue equipment and technology
enhancements. It is anticipated that those expenditures will be
funded with existing cash balances, cash flow from operations and
financing arrangements.
The Company sold its administrative facility in Portland, OR
during the quarter. Consideration received was in the form of a $21
million note receivable, bearing interest at 6.45% per annum, due on
or before September 25, 2001. The proceeds from the note will be
used to purchase the Company's new Vancouver, WA headquarters and
administrative facility.
Net cash provided by financing activities of $28 million
reflects net short-term borrowings under the Company's credit
facility. This compares with $20 million in the same period last
year. The Company anticipates settling a $20 million tax obligation
payable to its former parent, originally due in May 2004, in the
second quarter, using its new credit facility.
As discussed in Footnote 5 above, the Company had $28 million of
short-term borrowings and $78 million of letters of credit
outstanding under its existing $155 million credit facility as of
March 31st. The Company was in compliance with all covenants of this
facility as of March 31st. On April 27, 2001, the Company entered
into a five-year, $200 million credit facility, securitized by
accounts receivable, with a new lender. The new facility provides
for working capital and letter of credit needs and is a replacement
for the existing facility. Letters of credit are limited to $100
million. Borrowings will bear interest at either the commercial paper
rate plus 75 basis points or LIBOR plus 75 basis points.
Approximately $125 million will be used to repay borrowings and
support letters of credit under the existing facility as well as to
purchase 2,700 trucks and tractors under lease with the existing
lender. The continued availability of funds under the new facility
will require that the Company comply with certain financial
convenants, the most restrictive of which requires the Company to
maintain a minimum EBITDAL (earnings before interest, taxes,
depreciation, amortization and lease expense). The Company expects
to be in compliance with these covenants during 2001.
OTHER
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.
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 (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.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
March 31, 2001
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 14, 2001 /s/Robert E. Wrightson
Robert E. Wrightson
Executive Vice President and
Chief Financial Officer
May 14, 2001 /s/James R. Tener
James R. Tener
Vice President and Controller