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 June 30, 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 July 31, 2001: 22,041,475
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended June 30, 2001
____________________________________________________________________________
____________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 3
Statements of Consolidated Operations -
Three and Six Months Ended June 30, 2001 and 2000 5
Statements of Consolidated Cash Flows -
Six Months Ended June 30, 2001 and 2000 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Stockholder Proposals 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 37,859 $ 46,523
Trade accounts receivable, net of allowances 354,716 334,155
Other receivables 27,361 8,742
Operating supplies, at lower of average
cost or market 7,558 8,419
Prepaid expenses 44,325 41,286
Deferred income taxes 76,664 70,610
Total Current Assets 548,483 509,735
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 90,447 81,697
Buildings and improvements 362,794 350,137
Revenue equipment 533,969 518,086
Other equipment and leasehold improvements 153,923 149,123
1,141,133 1,099,043
Accumulated depreciation and amortization (758,375) (750,249)
382,758 348,794
OTHER ASSETS
Deposits and other assets 83,755 68,153
83,755 68,153
TOTAL ASSETS $1,014,996 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 97,013 $ 97,741
Accrued liabilities 229,587 211,043
Accrued claims costs 89,216 86,674
Federal and other income taxes 2,508 --
Short-term borrowings 69,500 --
Total Current Liabilities 487,824 395,458
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 96,960 99,074
Employee benefits 122,196 120,317
Deferred income taxes 18,517 6,282
Other liabilities 59,142 38,267
Total Liabilities 799,739 674,498
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 74,898 75,767
Accumulated other comprehensive loss (12,711) (11,293)
Retained earnings 163,191 200,067
Treasury stock, at cost (1,181,433 and 1,436,712
shares, respectively) (10,352) (12,588)
Total Shareholders' Equity 215,257 252,184
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,014,996 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2001 2000 2001 2000
REVENUES $ 590,415 $ 586,101 $1,164,993 $1,179,730
COSTS AND EXPENSES
Salaries, wages and benefits 391,857 377,971 765,615 757,631
Operating expenses 123,826 110,946 226,959 226,761
Purchased transportation 60,152 46,330 113,140 95,455
Operating taxes and licenses 16,448 18,092 32,831 36,560
Claims and insurance 16,002 17,452 31,163 35,511
Depreciation 13,852 13,181 26,777 26,922
622,137 583,972 1,196,485 1,178,840
OPERATING INCOME (LOSS) (31,722) 2,129 (31,492) 890
OTHER INCOME (EXPENSE)
Investment income 166 539 390 892
Interest expense (2,037) (1,220) (3,893) (2,307)
Miscellaneous, net 336 (126) (313) (4,232)
(1,535) (807) (3,816) (5,647)
Income (loss) before income taxes (benefits) (33,257) 1,322 (35,308) (4,757)
Income taxes (benefits) 1,792 1,215 1,568 (1,885)
NET INCOME (LOSS) $ (35,049) $ 107 $ (36,876) $ (2,872)
Basic average shares outstanding 21,920,756 21,458,860 21,870,028 21,404,836
Diluted average shares outstanding (a) 21,920,756 21,458,860 21,870,028 21,404,836
Basic Earnings (Loss) per Share: $ (1.60) $ - $ (1.69) $ (0.13)
Diluted Earnings (Loss) per Share: $ (1.60) $ - $ (1.69) $ (0.13)
<F/N>
(a) The three and six-months ended June 30, 2001 do not include 428,073 and 336,205 potentially dilutive
securities, respectively, 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
Six Months Ended
June, 30
2001 2000
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 46,523 $ 49,050
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (36,876) (2,872)
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Depreciation and amortization 31,500 30,125
Increase (decrease) in deferred income taxes 6,181 (24,469)
Gains from property disposals, net (19,665) (3,044)
Issuance of common stock under stock
and benefit plans 1,232 1,358
Changes in assets and liabilities:
Receivables (18,180) 31,076
Prepaid expenses (3,039) (3,637)
Accounts payable (728) (11,810)
Accrued liabilities 18,544 18,932
Accrued claims costs 428 (379)
Income taxes 2,508 1,841
Employee benefits 1,879 1,965
Other 1,273 3,177
Net Cash Provided (Used) by Operating Activities (14,943) 42,263
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (64,895) (19,110)
Software expenditures (1,583) (4,417)
Proceeds from sales of property 3,122 4,983
Acquisition of First Air, net of cash acquired -- (576)
Net Cash Used by Investing Activities (63,356) (19,120)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of)
short-term borrowings 69,500 (691)
Proceeds from exercise of stock options 135 --
Purchase of common stock -- (267)
Net Cash Provided (Used) by Financing Activities 69,635 (958)
Increase (Decrease) in Cash and Cash Equivalents (8,664) 22,185
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,859 $ 71,235
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. Certain amounts in prior years'
financial statements have been reclassified to conform to the current
year presentation.
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, except as discussed in Footnote 7
below.
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 as 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 Six
Months Ended Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues
United States $552,363 $549,349 $1,090,793 $1,107,252
Canada 38,052 36,752 74,200 72,478
Total $590,415 $586,101 $1,164,993 $1,179,730
Geographic Information (continued)
As of
June 30,
2001 2000
Property, Plant and Equipment
United States $348,253 $323,780
Canada 34,505 35,444
Total $382,758 $359,224
3. Comprehensive Income (Loss)
Comprehensive income (loss) for the three and six months ended
June 30, 2001 and 2000 is as follows:
(Dollars in thousands)
Three Six
Months Ended Months Ended
June 30, June 30,
2001 2000 2001 2000
Net Income (Loss) $(35,049) $ 107 $(36,876) $(2,872)
Other comprehensive income
(loss):
Foreign currency
translation adjustments 892 (56) (1,418) (63)
Comprehensive Income (Loss) $(34,157) $ 51 $(38,294) $(2,935)
4. Credit Facility
On April 27, 2001, the Company entered into a five-year, $200
million credit facility, securitized by accounts receivable, to
provide for working capital and letter of credit needs. This
facility replaces a previous $155 million unsecured credit facility.
Letters of credit are limited to $100 million and borrowings are
limited to an agreed upon availability calculation. Borrowings bear
interest at either the commercial paper rate or LIBOR, plus a margin
(75 basis points as of June 30th). As of June 30, 2001, the Company
had $69.5 million of short-term borrowings and $73.0 million of
letters of credit outstanding. The continued availability of funds
under the facility requires that the Company comply with certain
financial convenants, the most restrictive of which is to maintain a
minimum EBITDAL (earnings before interest, taxes, depreciation,
amortization and lease expense). The facility was subsequently
amended to provide for more flexible financial covenants and to allow
the Company to be in compliance as of June 30th. The Company expects
to be in compliance in the third quarter, but without an improvement
in the economy or improvement in planned cost savings and yield
enhancment programs, the Company does not expect to be in compliance
with the EBITDAL covenant in the fourth quarter. There can
be no assurance that the Company will not require additional
amendments this year or thereafter, or, if required, the lender
will grant them.
As a condition of the amendments, the Company is required to
have $50 million of additional financing in place by October 15th,
from which the proceeds will be applied to outstanding drawings on
letters of credit, if any, and short-term borrowings under the
facility. The Company is pursuing real estate-backed financing,
including sale and leaseback transactions, to meet the October 15th
condition. The Company currently has a letter of intent, subject to
due diligence, in excess of the $50 million requirement. Although the
Company anticipates securing the required financing, no assurance can
be made. Additional conditions of the amendments are an increase in
the margin on borrowings to 125 basis points through November 15,
2001 (subject to change thereafter depending on the Company's
financial performance), and changes to the cash borrowing
availability calculation.
5. Income Taxes
Deferred tax assets and liabilities in the Consolidated Balance
Sheets are classified based upon the related asset or liability
creating the deferred tax. Deferred taxes not related to a specific
asset or liability are classified based upon the estimated period of
reversal. As a result of the domestic loss during the quarter, the
Company recorded a $14.1 million income tax benefit and related
deferred tax asset. However, due to recent cumulative domestic
losses, current accounting standards required a $14.1 million
valuation allowance be recorded. The Company also assessed the need
for a valuation allowance against the existing $62.7 million net
deferred tax asset of its domestic subsidiaries. Through the use of
tax planning strategies, involving the sale of certain appreciated
assets, the Company has determined that it is more likely than not
that the net deferred tax asset as of June 30, 2001 will be realized.
As a result, no additional valuation allowance was recorded. Until
the cumulative loss is eliminated, the Company will record additional
valuation allowance against any tax benefit arising from future
losses. The Company will continue to assess the realizability of its
deferred tax assets and adjust the valuation allowance as
appropriate.
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
In October 1997, lawsuits were filed against the Company and
its principal operating subsidiary in Riverside County Superior Court
of California, claiming invasion of privacy and related tort claims
for intentional and negligent infliction of emotional distress and
seeking the recovery of punitive, statutory and emotional distress
damages in unspecified amounts. Those lawsuits arose out of the use
of hidden cameras at a California terminal facility, including
restrooms, in order to combat a problem with theft and drugs. There
are approximately 500 plaintiffs, mostly unionized employees.
Subsequently, the United States District Court for the Central
District of California dismissed the lawsuit as to employees on the
basis that the claims and issues in question are matters covered by
the collective bargaining agreement and subject to the arbitration
and grievance procedures. The decision was affirmed by the 9th U.S.
Circuit Court of Appeals, but later reversed by an en banc panel of
the 9th Circuit in June 2001, and returned to state court for trial
under state law. The Company is in the process of filing a petition
for certiorari to the U.S. Supreme Court. It is the opinion of
management that the ultimate outcome of the claims will not have a
material adverse effect on the Company's financial position or
results of operation.
The Company and its subsidiaries are involved in various other
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 June 30, 2001 increased 0.7% on a
1.0% increase in tonnage, compared with the prior year. Tonnage
increased, despite a continued economic slowdown, due to aggressive
sales efforts but was offset by a 1.2% decrease in revenue per
hundredweight. Revenue per hundredweight decreased due primarily to
a change in freight mix, reflecting a decrease in higher-rated
expedited freight. Shipments increased 1.3% and the weight per
shipment decreased 0.5%. Revenues for the six-month period decreased
1.2% on a tonnage decrease of 2.2%. The tonnage decrease reflects
the impact of the economic slowdown and the effects of severe winter
weather in the first quarter. Revenue per hundredweight increased
marginally, as a fuel surcharge and benefits of a rate increase
offset the change in freight mix. Shipments decreased 2.4% and the
weight per shipment increase was marginal.
Salaries, wages and benefits increased 3.7% in the quarter due
primarily to increased tonnage, a 3.4% contractual wage and benefit
increase effective April 1st and sales force incentive bonuses. The
Company benefited from improved cross-dock and pick-up and delivery
efficiencies as a result of process improvement programs. Salaries,
wages and benefits increased 1.1% in the six-month period, despite
lower tonnage, due to the contractual wage and benefit increase noted
above and lower freight handling efficiencies in the first quarter
due to the effects of severe winter weather. The prior year six-
month period includes $4.3 million of severance pay due to an
administrative reorganization.
Operating expenses increased 11.6% in the quarter due to
increased tonnage, a higher average fuel cost per gallon, increased
lease expense on revenue equipment, repair and maintenance expense,
professional services expense and software amortization. The quarter
includes $0.4 million of gains on sale of real properties compared
with $3.2 million in the prior year. Excluding the gains, operating
expenses increased 8.9%. For the six-month period, operating
expenses were unchanged, despite lower tonnage. Excluding gains on
sale of real property of $20.0 million in the six-month period and
$3.2 million in the prior year, operating expenses increased 7.4% for
the reasons noted above, as well as costs associated with the severe
winter weather. Operating expenses in both the quarter and six-month
periods were partially offset by increased use of rail services.
Purchased transportation increased 29.8% in the quarter and
18.5% in the six-month period due to increased use of rail services
in strategic lanes. Rail miles as a percentage of inter-city miles
increased to 28.9% during the quarter compared with 22.1% in the
prior year. For the six- month period, rail miles increased to 27.6%
compared with 22.5% in prior year.
Operating taxes and licenses decreased 9.1% in the quarter and
10.2% in the six-month period due primarily to increased use of rail
services. The six-month period also reflects lower tonnage.
Claims and insurance decreased 8.3% in the quarter and 12.2% in
the six-month period due primarily to improved claims experience.
The Company benefited from process improvement programs directed at
reducing freight damage and increasing vehicular safety. The six-
month period also reflects lower tonnage.
Depreciation increased 5.1% in the quarter due to increased
capital expenditures. For the six-month period, depreciation
decreased slightly as a higher proportion of the Company's assets
became fully depreciated.
The operating loss for the quarter was $31.7 million compared
with an operating profit of $2.1 million in the prior year. The
operating ratio deteriorated to 105.4% from 99.6%. The Canadian
operations contributed $3.8 million of operating income in the
quarter compared with $3.3 million in the prior year. Excluding
gains on sale of real property, the operating loss was $32.2 million
in the quarter compared with a $1.1 million operating loss in the
prior year. For the six-month period, the operating loss was $31.5
million compared with an operating profit of $0.9 million in the
prior year. The operating ratio deteriorated to 102.7% from 99.9%.
The Canadian operations contributed $6.6 million of operating income
in the six-month period compared with $6.1 million in the prior year.
Excluding gains on sale of real property, the operating loss for the
six-month period was $51.5 million compared with a loss of $2.3
million in the prior year.
Other expense, net, increased $0.7 million in the quarter
primarily due to increased interest expense on higher average short-
term borrowings and interest expense on a tax obligation payable to
the former parent. The six-month period, also impacted by higher
interest expense on increased debt levels, decreased $1.8 million 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 Company's effective tax rate differs from the statutory
federal rate due to foreign taxes and the recording of a deferred tax
valuation allowance during the quarter. As a result of the domestic
loss during the quarter, the Company recorded a $14.1 million income
tax benefit and related deferred tax asset. However, due to recent
cumulative domestic losses, current accounting standards required a
$14.1 million valuation allowance be recorded. The Company also
assessed the need for a valuation allowance against the existing
$62.7 million net deferred tax asset of its domestic subsidiaries.
Through the use of tax planning strategies, involving the sale of
certain appreciated assets, the Company has determined that it is
more likely than not that the net deferred tax asset as of June 30th
will be realized. As a result, no additional valuation allowance was
recorded. Until the cumulative loss is eliminated, the Company will
record additional valuation allowance against any tax benefit arising
from future losses. The Company will continue to assess the
realizability of its deferred tax assets and adjust the valuation
allowance as appropriate.
Due to continued economic uncertainty, the Company expects that
it will not return to profitability in 2001. To reduce operating
costs, management is continuing with aggressive cost control measures
including headcount and salary reductions, as well as other general
and administrative expense reductions. Programs aimed at increasing
pick-up and delivery and dock efficiencies, increasing load factor
and reducing claims expense are proving successful at select
terminals and will be expanded across the terminal system. The
resulting cost savings, along with a 5.1% general rate increase on
non-contractual accounts effective August 1st, should partially
offset the impact of the contractual wage and benefit increase. The
Company is also continuing to refine its freight profile, by
emphasizing higher quality, more profitable weight brackets and
aggressively marketing its higher-rated expedited service offering.
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 June 30th. 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 to
maintain this surcharge or successfully implement such surcharges in
response to increased fuel costs in the future.
In June 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142 (SFAS 142)
"Goodwill and Other Intangibles." SFAS 142 will require that
goodwill and other intangible assets that have indefinite lives no
longer be amortized, but will be subject to impairment review
annually. Intangible assets with finite useful lives will continue
to be amortized. The Company will adopt SFAS 142 effective January
1, 2002. The Company expects that adoption will not have a material
impact on the Company's financial condition or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, the Company had $37.9 million in cash and
cash equivalents. Net cash used by operating activities of $14.9
million compares with $42.3 million provided by operating activities
for the same period last year. The decrease was due primarily to
increased operating losses (adjusted for non-cash items) and
increased accounts receivable, partially offset by increased accounts
payable.
Net cash used by investing activities of $63.4 million compares
with $19.1 million in the same period last year. The increase
primarily reflects the purchases of strategic terminal properties in
Brooklyn, NY, Laredo, TX, and Phoenix, AZ, as well as revenue
equipment previously under lease. The Company expects capital and
software expenditures to be approximately $15 million for the
remainder of the year, primarily for the purchase of revenue
equipment and technology enhancements, but has the ability to defer
these expenditures in the event of further business deterioration.
The Company sold its administrative facility in Portland, OR in
March 2001. 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. Proceeds from the note will be used to
repay a $20 million tax obligation to the Company's former parent.
Net cash provided by financing activities of $69.6 million
primarily reflects net short-term borrowings under the Company's
credit facility. Net borrowings of $69.5 million compares with net
repayments of $0.7 million in the same period last year. The
increased borrowings were used to fund the operating activities and
capital expenditures discussed above.
Due to continued economic uncertainty, the Company does not
expect to generate positive cash flow during the remainder of the
year. The Company expects that its existing cash balances and
available borrowings under its credit facility, discussed below, will
be adequate to satisfy its short-term operating cash and capital
expenditure requirements, although no assurance can be made. The
Company is pursuing options to improve its short and long-term
liquidity including the sale of surplus real properties and a senior
debt offering, secured with real estate.
As discussed in Footnote 4, on April 27, 2001, the Company
entered into a five-year, $200 million credit facility, securitized
by accounts receivable, to provide for working capital and letter of
credit needs. This facility replaces a previous $155 million
unsecured credit facility. Letters of credit are limited to $100
million and borrowings are limited to an agreed upon availability
calculation. Borrowings bear interest at either the commercial paper
rate or LIBOR, plus a margin (75 basis points as of June 30th). As of
June 30, 2001, the Company had $69.5 million of short-term borrowings
and $73.0 million of letters of credit outstanding. The continued
availability of funds under the facility requires that the Company
comply with certain financial convenants, the most restrictive of
which is to maintain a minimum EBITDAL (earnings before interest,
taxes, depreciation, amortization and lease expense). The facility
was subsequently amended to provide for more flexible financial
covenants and to allow the Company to be in compliance as of June 30th.
The Company expects to be in compliance in the third quarter, but
without an improvement in the economy or improvement in planned cost
savings and yield enhancment programs, the Company does not expect
to be in compliance with the EBITDAL covenant in the fourth quarter.
There can be no assurance that the Company will not require
additional amendments this year or thereafter, or, if required, the lender
will grant them.
As a condition of the amendments, the Company is required to
have $50 million of additional financing in place by October 15th,
from which the proceeds will be applied to outstanding drawings on
letters of credit, if any, and short-term borrowings under the
facility. The Company is pursuing real estate-backed financing,
including sale and leaseback transactions, to meet the October 15th
condition. The Company currently has a letter of intent, subject to
due diligence, in excess of the $50 million requirement. Although the
Company anticipates securing the required financing, no assurance can
be made. Additional conditions of the amendments are an increase in
the margin on borrowings to 125 basis points through November 15,
2001 (subject to change thereafter depending on the Company's
financial performance), and changes to the cash borrowing
availability calculation.
OTHER
On August 2, 2001, Patrick J. Brady resigned as Senior Vice
President-Sales and Marketing. On February 9, 2001, Henry C.
Montgomery was elected to the Board of Directors for a one-year term,
replacing John M. Lillie. Raymond F. O'Brien resigned from Board of
Directors on May 24, 2001.
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 4. Submission of Matters to a Vote of Security Holders
At the Annual Shareholders Meeting held May 15, 2001, the
following matters were presented with the indicated voting results:
For the purpose of electing members of the Board of Directors,
the votes representing shares of Common stock were cast as follows:
Nominee For Withheld
Patrick H. Blake 18,587,993 1,531,027
Paul B. Guenther 19,489,769 629,251
William D. Walsh 19,414,998 704,022
Because the terms of office for their classes of directors had not
ended, the following directors did not stand for election and
continued in office after the Annual Shareholders Meeting: Robert W.
Hatch, G. Robert Evans, James B. Malloy, Henry C. Montgomery and
Raymond F. O'Brien. As noted above, Raymond F. O'Brien resigned from
the Board of Directors on May 24, 2001.
For the purpose of ratification of appointment of Arthur Andersen
LLP as auditors, the votes representing shares of Common stock were
cast as follows: For, 19,494,373; Against, 204,122; Abstain, 420,525.
ITEM 5. Stockholder Proposals
Pursuant to the Company's bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 2002 annual
meeting of stockholders must provide specified information to the
Company between January 18, 2002 and February 18, 2002 (unless such
matters are included in the Company's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended, in
which case the information must be received by the Company by
December 3, 2001).
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Financing Agreement between General Electric Capital
Corporation and Consolidated Freightways Corporation
dated April 27, 2001, with amendments.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
June 30, 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)
August 13, 2001 /s/Robert E. Wrightson
Robert E. Wrightson
Executive Vice President and
Chief Financial Officer
August 13, 2001 /s/James R. Tener
James R. Tener
Vice President and Controller