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 September 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 October 31, 2001: 22,207,747
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended September 30, 2001
____________________________________________________________________________
____________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 3
Statements of Consolidated Operations -
Three and Nine Months Ended
September 30, 2001 and 2000 5
Statements of Consolidated Cash Flows -
Nine Months Ended September 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 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
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
September 30, December 31,
2001 2000
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,435 $ 46,523
Trade accounts receivable, net of allowances 363,254 334,155
Other receivables 5,483 8,742
Operating supplies, at lower of average
cost or market 7,424 8,419
Prepaid expenses 39,431 41,286
Deferred income taxes 68,033 70,610
Total Current Assets 515,060 509,735
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 87,670 81,697
Buildings and improvements 354,904 350,137
Revenue equipment 527,391 518,086
Other equipment and leasehold improvements 155,793 149,123
1,125,758 1,099,043
Accumulated depreciation and amortization (758,304) (750,249)
367,454 348,794
OTHER ASSETS
Deposits and other assets 88,030 68,153
88,030 68,153
TOTAL ASSETS $ 970,544 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 99,053 $ 97,741
Accrued liabilities 212,583 211,043
Accrued claims costs 85,252 86,674
Federal and other income taxes 2,677 --
Short-term borrowings 96,000 --
Total Current Liabilities 495,565 395,458
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 97,080 99,074
Employee benefits 123,285 120,317
Deferred income taxes 9,953 6,282
Other liabilities 44,834 38,267
Total Liabilities 785,817 674,498
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 74,596 75,767
Accumulated other comprehensive loss (14,088) (11,293)
Retained earnings 133,266 200,067
Treasury stock, at cost (1,058,937 and 1,436,712
shares, respectively) (9,278) (12,588)
Total Shareholders' Equity 184,727 252,184
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 970,544 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2001 2000 2001 2000
REVENUES $ 571,947 $ 592,902 $ 1,736,940 $ 1,772,632
COSTS AND EXPENSES
Salaries, wages and
benefits 381,181 372,923 1,146,796 1,130,554
Operating expenses 113,164 109,279 340,123 336,040
Purchased transportation 56,231 54,010 169,371 149,465
Operating taxes and
licenses 17,079 16,932 49,910 53,492
Claims and insurance 15,587 21,490 46,750 57,001
Depreciation 14,776 12,674 41,553 39,596
598,018 587,308 1,794,503 1,766,148
OPERATING INCOME (LOSS) (26,071) 5,594 (57,563) 6,484
OTHER INCOME (EXPENSE)
Investment income 167 339 557 1,231
Interest expense (2,334) (1,273) (6,227) (3,580)
Miscellaneous, net 236 (95) (77) (4,327)
(1,931) (1,029) (5,747) (6,676)
Income (loss) before
income taxes (28,002) 4,565 (63,310) (192)
Income taxes 1,923 3,244 3,491 1,359
NET INCOME (LOSS) $ (29,925) $ 1,321 $ (66,801) $ (1,551)
Basic average shares
outstanding 22,045,529 21,507,159 21,929,171 21,439,193
Diluted average shares
outstanding (a) 22,045,529 21,531,817 21,929,171 21,439,193
Basic Earnings (Loss)
per Share: $ (1.36) $ 0.06 $ (3.05) $ (0.07)
Diluted Earnings (Loss)
per Share: $ (1.36) $ 0.06 $ (3.05) $ (0.07)
<FN>
(a) The three and nine months ended September 30, 2001 do not include
229,093 and 325,445 potentially dilutive stock options, respectively,
because to do so would be anti-dilutive. The three months ended September
30, 2000 includes the dilutive effects of stock options. The nine months
ended September 30, 2000 does not include 8,219 potentially dilutive stock
options, 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
Nine Months Ended
September 30,
2001 2000
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 46,523 $ 49,050
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (66,801) (1,551)
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Depreciation and amortization 48,380 44,779
Increase (decrease) in deferred income taxes 6,248 (33,862)
Gains from property disposals, net (24,508) (11,849)
Issuance of common stock under stock
and benefit plans 1,832 1,902
Changes in assets and liabilities
Receivables (25,840) 12,635
Prepaid expenses 1,855 1,290
Accounts payable 1,312 (13,446)
Accrued liabilities 2,540 21,539
Accrued claims costs (3,416) 2,577
Income taxes 2,677 230
Employee benefits 2,968 1,832
Other 774 5,117
Net Cash Provided (Used) by Operating Activities (51,979) 31,193
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (69,799) (30,062)
Software expenditures (2,451) (5,114)
Proceeds from sales of property 12,834 19,536
Acquisition of First Air, net of cash acquired -- (1,176)
Net Cash Used by Investing Activities (59,416) (16,816)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from (repayments of)
short-term borrowings 96,000 (691)
Proceeds from exercise of stock options 307 --
Purchase of common stock -- (267)
Net Cash Provided (Used) by Financing Activities 96,307 (958)
Increase (Decrease) in Cash and Cash Equivalents (15,088) 13,419
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 31,435 $ 62,469
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 year's
financial statements have been reclassified to conform to the current
year presentation.
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 Nine
Months Ended Months Ended
September 30, September 30,
2001 2000 2001 2000
Revenues
United States $534,420 $555,917 $1,625,213 $1,663,169
Canada 37,527 36,985 111,727 109,463
Total $571,947 $592,902 $1,736,940 $1,772,632
Geographic Information (continued)
As of
September 30,
2001 2000
Property, Plant and Equipment
United States $334,000 $315,454
Canada 33,454 36,337
Total $367,454 $351,791
3. Comprehensive Income (Loss)
Comprehensive income (loss) for the three and nine months ended
September 30, 2001 and 2000 is as follows:
(Dollars in thousands)
Three Nine
Months Ended Months Ended
September 30, September 30,
2001 2000 2001 2000
Net Income (Loss) $(29,925) $1,321 $(66,801) $(1,551)
Other comprehensive income
(loss):
Foreign currency
translation adjustments (1,377) (5) (2,795) (68)
Comprehensive Income (Loss) $(31,302) $1,316 $(69,596) $(1,619)
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 replaced a $155 million unsecured credit facility. Letters
of credit are limited to $100 million and borrowings are limited to
an agreed upon availability calculation of eligible accounts
receivable. Borrowings bear interest at either the commercial paper
rate or LIBOR, plus a margin (125 basis points as of September 30,
2001). 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). Subsequent amendments to the facility provided for
more flexible financial covenants, allowing the Company to be in
compliance, and increased the margin on borrowings to 250 basis
points effective October 24, 2001. Given current economic
uncertainties and the Company's operating performance, there can be
no assurance that the Company will be in compliance with the
covenants at December 31, 2001, nor that the lender will grant
additional amendments, if required. As of September 30, 2001, the
Company had $96.0 million of short-term borrowings and $73.4 million
of letters of credit outstanding. Availability of the remaining
$30.6 million of borrowing capacity is dependent on the calculation
of eligible accounts receivable.
As a condition of a previous amendment, the Company was required
to have $50 million of additional financing in place by October 15,
2001. The proceeds were to be applied to outstanding short-term
borrowings under the facility. In subsequent negotiations with the
lender, the requirement to obtain the $50 million of additional
financing was waived.
On October 24, 2001, the Company entered into a six-month, $50
million revolving credit facility with the current lender, secured by
real property, to provide for short-term working capital needs and
other general corporate purposes. Borrowings bear interest at LIBOR
plus 350 basis points. Of the $50 million, $25 million was available
and was used to reduce outstanding borrowings under the Company's
existing credit facility discussed above. Of the availability
created under the existing credit facility, $15 million was used for
letter of credit needs and $10 million was restricted for existing
credit facility needs. The remaining $25 million under the new
facility will be available on or after November 30, 2001, provided
the Company achieves a minimum required EBITDA (earnings before
interest, taxes, depreciation and amortization), as well as minimum
load factor and revenue per hundredweight measures. Given current
economic uncertainties and the Company's operating performance, it is
unlikely that the Company will meet these measures in 2001 and there
can be no assurance that the Company will achieve these measures in
2002.
Please refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations for an update on the
Company's liquidity.
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 losses during the second and
third quarters, the Company recorded income tax benefits and related
deferred tax assets of $14.1 million and $11.5 million, respectively.
However, due to recent cumulative domestic losses, current accounting
standards required valuation allowances of $14.1 million and $11.5
million be recorded in the respective quarters. The Company
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 September
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
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 below.
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.
Reliance, the Company's insurer of record from October 1, 1996
to October 1, 2000, has been placed in liquidation and may be unable
to pay $5 million the insurance carrier committed to plaintiffs in
the settlement of a casualty case. The Company maintains that
plaintiffs accepted the risk of payment when they settled the case,
that the insurance carrier with the next layer of insurance is
required to make the payment if the liquidating carrier cannot, and
that otherwise there has been no settlement. The Company is unable
to determine whether it will be liable for any portion of the excess
policy not paid and, if so, how much.
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 September 30, 2001 decreased 3.5%
on a 0.8% decrease in tonnage, compared with the prior year. Tonnage
decreased due primarily to the continued economic slowdown. Revenue
per hundredweight decreased 3.2% to $17.24, despite the benefits of
an August rate increase, due to unfavorable changes in the freight
mix, including a decrease in higher-rated expedited freight. Revenue
per hundredweight was also impacted by a decrease in the fuel
surcharge as fuel prices moderated during the quarter. Shipments
increased 0.4% and the average weight per shipment decreased 1.2% to
996 lbs. Revenues for the nine-month period decreased 2.0% on a
tonnage decrease of 1.7%. The tonnage decrease reflects the impact
of the economic slowdown and the effects of severe winter weather in
the first quarter. Revenue per hundredweight decreased 1.0% to
$17.42 for the reasons noted above. Shipments decreased 1.5% and the
average weight per shipment decreased 0.3% to 996 lbs.
Salaries, wages and benefits increased 2.2% in the quarter and
1.4% in the nine-month period, despite lower tonnage, due primarily
to a 3.4% contractual wage and benefit increase effective April 1st
and sales force incentive bonuses. These increased costs were
partially offset by improved cross-dock and pick-up and delivery
efficiencies as a result of process improvement programs, and
headcount reductions as management began adjusting the workforce to
reflect lower business levels. The prior year nine-month period
includes $4.3 million of severance pay due to an administrative
reorganization.
Operating expenses increased 3.6% in the quarter compared with
the prior year. The quarter includes $4.8 million of gains on sale
of property compared with $8.8 million in the prior year. Excluding
the gains, operating expenses were flat, despite lower tonnage and
lower fuel costs per gallon. For the nine-month period, operating
expenses increased 1.2%, despite lower tonnage. Excluding gains on
sale of property of $24.5 million in the nine-month period and $11.8
million in the prior year, operating expenses increased 4.8%. The
quarter and nine-month periods were impacted by increased lease
expense on revenue equipment, professional services expense and
software amortization. The nine-month period was also impacted by
severe winter weather in January and February. Operating expenses in
both the quarter and nine-month period were partially offset by
increased use of rail services.
Purchased transportation increased 4.1% in the quarter and 13.3%
in the nine-month period due to increased use of rail services in
strategic lanes. Rail miles as a percentage of inter-city miles
increased to 26.7% during the quarter compared with 25.4% in the
prior year. For the nine- month period, rail miles increased to
27.3% compared with 23.4% in prior year.
Operating taxes and licenses increased 1.0% in the quarter,
despite lower tonnage, due primarily to property taxes on recently
purchased terminals. Operating taxes and licenses decreased 6.7% in
the nine-month period due primarily to lower tonnage.
Claims and insurance decreased 27.5% in the quarter and 18.0% in
the nine-month period due to lower tonnage and improved claims
experience. The Company continued to benefit from process
improvement programs directed at reducing freight damage and
increasing vehicular safety.
Depreciation increased 16.6% in the quarter and 4.9% in the nine-
month period due to increased capital expenditures. Capital
expenditures were $69.8 million in the nine-month period, compared
with $30.1 million in the prior year, and include the additions of
terminal properties in Brooklyn, NY, Laredo, TX, and Phoenix, AZ, as
well as revenue equipment previously under lease.
The operating loss for the quarter was $26.1 million compared
with an operating profit of $5.6 million in the prior year. The
operating ratio deteriorated to 104.6% from 99.1%. The Canadian
operations contributed $3.6 million of operating income in the
quarter compared with $3.5 million in the prior year. Excluding
gains on sale of real property, the operating loss was $30.9 million
in the quarter compared with a $3.2 million operating loss in the
prior year. For the nine-month period, the operating loss was $57.6
million compared with an operating profit of $6.5 million in the
prior year. The operating ratio deteriorated to 103.3% from 99.6%.
The Canadian operations contributed $10.1 million of operating income
in the nine-month period compared with $9.6 million in the prior
year. Excluding gains on sale of real property, the operating loss
for the nine-month period was $82.1 million compared with a loss of
$5.4 million in the prior year.
Other expense, net, increased $0.9 million in the quarter
primarily due to increased interest expense on higher average short-
term borrowings. The nine-month period, also impacted by higher
interest expense on increased debt levels, decreased $0.9 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.
Excluding the settlement charge, other expense, net increased $3.1
million in the nine-month period.
The Company's effective tax rate differs from the statutory
federal rate due to foreign taxes and the recording of deferred tax
valuation allowances. As a result of the domestic losses during the
second and third quarters, the Company recorded income tax benefits
and related deferred tax assets of $14.1 million and $11.5 million,
respectively. However, due to recent cumulative domestic losses,
current accounting standards required valuation allowances of $14.1
million and $11.5 million be recorded in the respective quarters.
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
September 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.
Due to continued economic deterioration, the Company will not
return to profitability in 2001. To reduce operating costs,
management is continuing with aggressive cost control measures
including headcount 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. In an effort to
improve yields, the Company is reviewing its pricing, especially in
the under 500 lbs. weight bracket. Additionally, the Company is
reviewing the pricing of those contract accounts coming up for
renewal. The above improvements should help offset a contractual
wage and benefit increase in April 2002 that is expected to add
approximately $20 million of expense.
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 928,000 restricted
shares that had not achieved the pre-determined increases in stock
price required for vesting as of September 30, 2001. Compensation
expense will be recognized for those shares if the stock price meets
the required levels. Of the 928,000 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 fluctuations in 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 (FASB)
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 of this statement will not
have material adverse affect on the Company's financial position or
results of operations.
Also in June 2001, the FASB issued SFAS 143 "Accounting for
Asset Retirement Obligations." This standard will require that the
fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable
estimate of the fair value can be made. The associated asset
retirement costs will be capitalized as part of the carrying amount
of the asset. This statement is effective for fiscal years beginning
after June 15, 2002. The Company expects that adoption of this
statement will not have material adverse affect on the Company's
financial position or results of operations.
In August 2001, the FASB issued SFAS 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement
supercedes current accounting guidance relating to the impairment of
long-lived assets and provides a single accounting methodology to be
applied to all long-lived assets to be disposed of, including
discontinued operations. This statement is effective for fiscal
years beginning after December 15, 2001. The Company is currently
assessing the impact of adoption of this statement.
LIQUIDITY AND CAPITAL RESOURCES
Current Financing Requirements
The Company currently projects that it will need to raise
approximately $30 million of financing to fund operations and support
letter of credit requirements through December 31, 2001 and an
additional $45 million in 2002.
The Company believes that it has a reasonable prospect of
securing a $50 million revolving credit facility collateralized with
accounts receivable, real property and revenue equipment to provide
for working capital needs. The Company expects funding over various
dates through December 31, 2001. However, there can be no assurances
that the Company will be able to secure this financing.
The Company is pursuing a number of options to improve both
short and long-term liquidity. The Company has significant
unleveraged assets and is pursuing asset-backed borrowings, the sale
of surplus real properties and the sale and leaseback of real
properties and revenue equipment. However, there can be no
assurance that the Company will be able to complete these
transactions or that they will be on reasonable terms.
During the first week of November 2001, the Company completed
the sale of 3 surplus properties. It also anticipates completing the
sale of 2 surplus properties by November 30, 2001 and is in active
negotiations to sell 7 more. The Company has the ability to sell
other surplus properties with an aggregate market value of
approximately $30 million.
The ability of the Company to continue to fund operations and
meet its obligations as they come due will be dependent on
accomplishing its financing initiatives and performance goals.
Existing Credit Agreements
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 replaced a $155 million unsecured credit facility. Letters
of credit are limited to $100 million and borrowings are limited to
an agreed upon availability calculation of eligible accounts
receivable. Borrowings bear interest at either the commercial paper
rate or LIBOR, plus a margin (125 basis points as of September 30,
2001). 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). Subsequent amendments to the facility provided for
more flexible financial covenants, allowing the Company to be in
compliance, and increased the margin on borrowings to 250 basis
points effective October 24, 2001. Given current economic
uncertainties and the Company's operating performance, there can be
no assurance that the Company will be in compliance with the
covenants at December 31, 2001, nor that the lender will grant
additional amendments, if required. As of September 30, 2001, the
Company had $96.0 million of short-term borrowings and $73.4 million
of letters of credit outstanding. Availability of the remaining
$30.6 million of borrowing capacity is dependent on the calculation
of eligible accounts receivable.
As a condition of a previous amendment, the Company was required
to have $50 million of additional financing in place by October 15,
2001. The proceeds were to be applied to outstanding short-term
borrowings under the facility. In subsequent negotiations with the
lender, the requirement to obtain the $50 million of additional
financing was waived.
On October 24, 2001, the Company entered into a six-month, $50
million revolving credit facility with the current lender, secured by
real property, to provide for short-term working capital needs and
other general corporate purposes. Borrowings bear interest at LIBOR
plus 350 basis points. Of the $50 million, $25 million was available
and was used to reduce outstanding borrowings under the Company's
existing credit facility discussed above. Of the availability
created under the existing credit facility, $15 million was used for
letter of credit needs and $10 million was restricted for existing
credit facility needs. The remaining $25 million under the new
facility will be available on or after November 30, 2001, provided
the Company achieves a minimum required EBITDA (earnings before
interest, taxes, depreciation and amortization), as well as minimum
load factor and revenue per hundredweight measures. Given current
economic uncertainties and the Company's operating performance, it is
unlikely that the Company will meet these measures in 2001 and there
can be no assurance that the Company will achieve these measures in
2002.
Cash Flows for the Nine Months Ended September 30, 2001 and 2000
As of September 30, 2001, the Company had $31.4 million in cash
and cash equivalents. Net cash used by operating activities of $52.0
million in the nine-month period compares with $31.2 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.
Net cash used by investing activities of $59.4 million compares
with $16.8 million in the same period last year. The increase
primarily reflects the additions of terminal properties in Brooklyn,
NY, Laredo, TX, and Phoenix, AZ, as well as revenue equipment
previously under lease. The Company expects capital expenditures to
be approximately $5 million for the remainder of the year, primarily
for the purchase of revenue equipment and real estate, but has the
ability to defer these expenditures.
Net cash provided by financing activities of $96.3 million
primarily reflects net short-term borrowings under the Company's
credit facility. Net borrowings of $96.0 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.
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; successful execution of operating plans, customer
service initiatives, marketing plans, process and operational
improvements and cost reduction efforts and adequate financing.
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.
Please refer to Footnote 7 above for a discussion of certain
legal proceedings.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fourth Amendment to the Letter of Credit Agreement between
Consolidated Freightways Corporation and General Electric
Capital Corporation dated October 18, 2001.
10.2 Fourth Amendment to the Securitization Agreement between
Consolidated Freightways Corporation and General Electric
Capital Corporation dated as of October 18, 2001.
10.3 Fifth Amendment to the Letter of Credit Agreement between
Consolidated Freightways Corporation and General Electric
Capital Corporation dated October 24, 2001.
10.4 Fifth Amendment to the Securitization Agreement between
Consolidated Freightways Corporation and General Electric
Capital Corporation dated as of October 24, 2001.
(b) Reports on Form 8-K
A Form 8-K was filed on October 25, 2001 disclosing a short-
term financing arrangement between the Company and General
Electric Capital Corporation.
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)
November 14, 2001 /s/Robert E. Wrightson
Robert E. Wrightson
Executive Vice President and
Chief Financial Officer
November 14, 2001 /s/James R. Tener
James R. Tener
Vice President and Controller