Exhibit 13
Consolidated Freightways Corporation
and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Comparison of 2001 and 2000
Revenues for the year ended December 31, 2001 decreased 4.9% on a
tonnage decrease of 3.6%, compared with 2000. The tonnage decrease
primarily reflects the impact of the events of September 11th, the
continued economic slowdown that began in the fourth quarter of
2000, a higher proportion of lighter weight freight in the system
and increased competition. Shipments decreased 2.2% and the
average weight per shipment decreased 1.4% to 989 lbs. Revenue
per hundredweight decreased 1.9% to $17.33, 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 year.
Excluding the fuel surcharge, revenue per hundredweight decreased
1.5%. 2001 revenues also reflect a full year of air freight
forwarding operations, acquired in June 2000, and the shutdown of
a brokerage subsidiary in July 2001.
Salaries, wages and benefits decreased 0.9% in 2001 due primarily
to lower tonnage levels. A 3.4% contractual wage and benefit
increase effective April 1st, operational and sales force
incentive bonuses and a full year of air freight forwarding
operations negatively impacted the year. These increased costs
were partially offset by improved cross-dock and pick-up and
delivery efficiencies as a result of process improvement programs
and increased use of rail services. Beginning in the third
quarter, management made headcount reductions to adjust to
continued lower business levels. Total headcount was reduced
approximately 14% in 2001. 2000 included $4.3 million of severance
pay due to an administrative reorganization.
Operating expenses decreased 1.2% in 2001. Excluding gains on
sales of operating properties of $26.1 million in 2001 and $17.7
million in 2000, operating expenses increased marginally, despite
lower tonnage and an 8.6% decrease in the average fuel cost per
gallon. The Company was impacted by an unfavorable change in the
freight mix, an increase in the average length of haul and lower
fuel efficiency during 2001. Additionally, increased facility
rental expense related to expansion of the air freight forwarding
operations and the Company's new administrative facility and
increased software amortization impacted the year. Increases in
operating expenses were partially offset by increased use of rail
services.
Purchased transportation increased 4.4% due primarily to increased
use of lower cost rail services in strategic lanes. Rail miles as
a percentage of inter-city miles increased to 26.8% from 24.4% in
2000. Increased costs associated with the air freight forwarding
operations were offset by the shutdown of a brokerage subsidiary.
Operating taxes and licenses decreased 8.5% due to lower tonnage
levels and a reduction in the fleet.
Claims and insurance decreased 15.7% due to lower tonnage and
improved vehicular claims experience.
Depreciation increased 5.1% due to increased capital expenditures
in 2001. Capital expenditures were $74.1 million, compared with
$42.3 million in 2000, and include the additions of terminal
properties in Brooklyn, NY, Laredo, TX, and Phoenix, AZ, and
revenue equipment, including equipment previously under lease.
The operating loss was $91.1 million compared with an operating
loss of $1.9 million in 2000. The operating ratio deteriorated to
104.1% from 100.1%. The Canadian operations contributed $13.1
million of operating income compared with $12.7 million in 2000.
Excluding gains on sales of operating properties, the operating
loss was $117.2 million compared with a $19.6 million operating
loss in 2000.
Other expense, net, increased marginally in 2001. 2001 included
increased interest expense on higher average short-term borrowings
and decreased investment income on lower average short-term
investments. 2000 included a $4.0 million charge for settlement
of a tax sharing liability with the former parent.
The Company's 2001 effective tax rate differed from the statutory
federal rate due to foreign taxes and the recording of deferred
tax valuation allowances. As a result of domestic losses during
2001, the Company recorded income tax benefits of $41.8 million
and related deferred tax assets of $16.8 million. However, due to
domestic cumulative losses over the past three years, current
accounting standards require the Company to assess the
realizability of its domestic net deferred tax asset ($102.6
million as of December 31, 2001). Through the use of tax planning
strategies, involving the sale of appreciated assets, the Company
has determined that it is more likely than not that $62.6 million
of its domestic net deferred tax asset as of December 31, 2001 will
be realized. A valuation allowance of $40 million has been
recorded as of December 31, 2001 for the remaining portion of its
domestic net deferred tax asset. Until the recent cumulative loss
is eliminated, the Company will continue to record additional
valuation allowance against any tax benefit arising from future
domestic operating losses. The Company will assess the
realizability of its deferred tax assets on an ongoing basis and
adjust the valuation allowance as appropriate.
Comparison of 2000 and 1999
Revenues for the year ended December 31, 2000 decreased 1.1%
compared to 1999 due to an 8.1% decrease in tonnage levels.
Continued refinement of the Company's freight profile, a higher
proportion of lighter weight freight in the system as well as a
slow down in the economy in the fourth quarter accounted for the
decrease in tonnage. Shipments decreased 4.8% and the average
weight per shipment decreased 3.5% to 1,003 lbs. The tonnage
decrease was offset by a 7.5% increase in revenue per
hundredweight to $17.67 due to rate increases, a fuel surcharge
and a change in freight profile. Excluding the fuel surcharge,
revenue per hundredweight increased 4.8%. Revenues were also
impacted by the shutdown of the Company's owner-operator truckload
subsidiary in the first quarter.
Salaries, wages and benefits decreased 1.3% in 2000 due primarily
to lower tonnage levels. However, a 3.4% April contractual wage
and benefit increase, lower use of rail services and $4.3 million
of severance pay due to an administrative reorganization impacted
the year. Additionally, the lower freight levels had an adverse
impact on pick-up and delivery and dock efficiencies.
Operating expenses increased 6.2% in 2000. Excluding gains on
sales of operating properties of $17.7 million in 2000 and $3.4
million in 1999, operating expenses increased 9.5%, despite lower
tonnage. The Company was impacted by a 63.8% increase in the
average fuel cost per gallon and a change in freight mix. As
noted above, the Company had a revenue fuel surcharge in place
that helped to mitigate the impact of increased fuel costs.
Continued higher information systems costs, revenue equipment
lease expense and software amortization, as well as lower use of
rail services, also impacted the year.
Purchased transportation decreased 13.0% in 2000 due to lower use
of rail. Rail miles as a percentage of inter-city miles decreased
to 24.4% from 27.4% in 1999 due to lower tonnage. The decrease
also reflects lower use of owner-operators due to the shutdown of
the Company's owner-operator subsidiary in the first quarter.
Operating taxes and licenses increased marginally in 2000 as the
impact of lower tonnage was offset by higher licensing costs due
to changes in the fleet.
Claims and insurance expense increased 12.5% in 2000, despite
lower tonnage, due to higher cost vehicular accidents and
increased cargo claims.
Depreciation decreased 1.1% as a higher proportion of the fleet
became fully depreciated.
Operating income decreased $9.8 million in 2000 to a loss of $1.9
million. The operating ratio deteriorated to 100.1% from 99.7%.
The Company's Canadian operations contributed $12.7 million of
operating income in 2000 compared to $11.3 million in 1999.
Excluding gains on sales of operating properties, the operating
loss was $19.6 million compared with $4.5 million of operating
income in 1999.
Other expense, net increased $6.5 million in 2000 primarily due to
a $4.0 million charge for settlement of a tax liability with the
former parent, interest expense on tax obligations payable to the
former parent and lower investment income on the Company's short-
term investments. The Company earned lower investment income in
2000 as short-term investments were used for working capital
needs, capital expenditures and share repurchases.
The Company's effective income tax rates differed from the
statutory federal rate due primarily to foreign and state taxes
and non-deductible items.
Risk Factors
Adequate Liquidity: The Company incurred a net loss of $104.3 million
for the year ended December 31, 2001 and expects to incur further
operating losses in 2002 due to the continued economic slowdown.
Cash used by operating activities was $41.1 million in 2001. The
Company's financing requirements to fund operations and capital
expenditures and to support letters of credit in 2002 are expected
to be approximately $45 to $55 million. Subsequent to December
31, 2001, the Company secured financing sufficient to meet these
requirements.
The Company has secured a $45 million financing agreement secured by
real property. In addition, the Company completed a $4.1 million
financing agreement secured by revenue equipment of a Canadian
subsidiary and is currently negotiating additional financing
agreements for approximately $25 million, secured by assets of the
Canadian subsidiaries. Of this amount, the Company has lender
credit committee approval and is in the documentation stages for
approximately $13 million and expects to receive funding during
the second quarter of 2002. The Company has significant
additional unleveraged assets and is considering other asset-
backed borrowings and the sale of surplus real properties.
However, there can be no assurance that the Company will be able
to complete these transactions or that they will be on reasonable
terms.
The Company has an existing accounts receivable securitization
agreement and an existing real estate backed credit facility to
provide for working capital and letter of credit needs. The
combined availability of funds under these financing
agreements was $2.6 million as of December 31, 2001 and $6.5
million as of March 31, 2002. Consistent with these types of
agreements, the availability ranged from $0 to $15 million during
the quarter ended March 31, 2002. The continued availability of
funds under these agreements requires that the Company comply with
certain financial convenants, the most restrictive of which are to
maintain a minimum EBITDAL (earnings before interest, taxes,
depreciation, amortization and lease expense) and fixed charge
coverage ratio. On April 8, 2002, to cure violations of these
covenants as of March 31, 2002, the covenants were amended for
2002.
The amended covenants require the Company to achieve significant
improvements in EBITDAL for the remainder of 2002. (See
"Liquidity and Capital Resources" below). To achieve these
improvements, the Company and the Board of Directors have
developed plans that include an immediate and continuing reduction
of workforce in line with lower business levels and expansion of
programs aimed at increasing pick-up and delivery and dock
efficiencies, increasing load factor and reducing claims expense
that have proved successful at selected terminals during 2001.
Additionally, starting in the fourth quarter of 2001, the Company
began carefully reviewing its business activities with its
customers in an effort to secure additional business and to ensure
that it is fairly compensated for the services provided. As part
of this plan, the Company began reviewing contract accounts as
they came up for renewal during the fourth quarter of 2001 and is
continuing this review in 2002. The Company and the Board of
Directors believe that the above actions will be sufficient to
allow the Company to meet the amended covenant requirements for
the balance of 2002. If the Company does not achieve the
operating improvements, it may violate the amended covenants in
2002. Although the Company has previously received amendments to
the covenants, there can be no assurance that the lender will
grant waivers or additional amendments if required. The inability
of the Company to meet its covenants or obtain waivers or
additional amendments, if required, would require the Company to
secure additional financing to fund operating activities and
provide letters of credit necessary to support its self-insurance
program in 2002. Failure to secure letters of credit to support
the self-insurance program would require the Company to fund state
insurance programs which would have a material adverse effect on
the Company's financial position.
Economic Growth: The less-than-truckload industry (LTL) is
affected by the state of the overall economy, which affects the
amount of freight to be transported. Further deterioration in the
economic environment or failure of the Company to improve
operating performance and achieve a cost structure in line with
lower business levels would have a material adverse effect on the
Company's financial position and results of operations.
Declining Market Share: The Company is faced with a decline of the
"greater than 1,500 miles" length-of-haul market due to market
trends such as the "regionalization" of freight due to just-in-
time inventory practices, distributed warehousing and other
changes in business processes. Also contributing to this decline
are longer length-of-haul service offerings by regional and parcel
carriers. To grow, the Company must continue to invest in its
infrastructure to become more competitive and efficient in shorter
length-of-haul lanes, improve efficiencies in its core longer
length-of-haul lanes and develop services tailored to customer
needs. Additionally, continued substantial operating losses may
result in loss of customers due to lack of confidence.
Price Stability: Continuing pricing discipline amongst competitors
and reduced industry capacity has contributed to relative price
stability over the last several years. Competitive action through
price discounting may significantly impact the Company's
performance through a reduction in revenue without a corresponding
reduction in cost.
Cyclicality and Seasonality: The months of September, October and
November of each year usually have the highest business levels
while January, February and December have the lowest. The LTL
industry is affected by seasonal fluctuations, which affect the
amount of freight to be transported. Freight shipments and
operating results are also adversely affected by inclement weather
conditions.
Market Risk: The Company is subject to market risks related to
changes in interest rates and foreign currency exchange rates,
primarily the Canadian dollar and Mexican peso. Management
believes that the impact on the Company's financial position,
results of operations and cash flows from fluctuations in interest
rates and foreign currency exchange rates would not be material.
Consequently, management does not currently use derivative
instruments to manage these risks; however, it may do so in the
future.
Inflation: As discussed above, the Company experienced lower
average fuel costs per gallon in 2001 than 2000. However, the
cost per gallon still exceeded historical norms. The Company's
rules tariff implements a fuel surcharge when the average cost per
gallon of on-highway diesel fuel exceeds $1.10, as determined from
the Energy Information Administration of the Department of
Energy's publication of weekly retail on-highway diesel prices.
This provision of the rules tariff became effective in July 1999
and remains 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.
Critical Accounting Policies
Management considers as its most critical accounting policies
those that require the use of estimates and assumptions,
specifically, self-insurance reserves, deferred tax valuations and
pension and post-retirement benefit liabilities. In developing
these estimates and assumptions, the Company takes into
consideration historical experience, current and expected economic
conditions and, in certain cases, actuarial analysis. The Company
continually reviews these factors and makes adjustments as needed.
Actual results could differ from these estimates and could have a
material adverse effect on the Company's financial position and
results of operations. Please refer to the Notes to the
Consolidated Financial Statements for a full discussion of these
accounting policies.
2002 Outlook
The economic slowdown has continued to adversely impact tonnage
levels during the first quarter of 2002. The Company expects that
tonnage levels in the first quarter will decrease approximately 8%
from the fourth quarter of 2001. Return to profitability by the
latter portion of 2002 will be dependent on an improvement in the
economic environment, improved operating performance and alignment
of costs with lower business levels. In the interim, management
will continue with aggressive cost control plans to align
operating costs with lower business levels. These plans include
an immediate and continuing reduction of workforce and expansion
of programs aimed at increasing pick-up and delivery and dock
efficiencies, increasing load factor and reducing claims expense
that have proved successful at selected terminals during 2001.
Starting in the fourth quarter of 2001, the Company began
carefully reviewing its business activities with its customers in
an effort to secure additional business and to ensure that it is
fairly compensated for the services provided. As part of this
plan, the Company began reviewing contract accounts as they came
up for renewal during the fourth quarter of 2001 and is continuing
this review in 2002. Further deterioration in the economic
environment or failure of the Company to achieve a cost structure
in line with lower business levels would have a material adverse
effect on the Company's financial position and results of
operations.
On April 1, 2002, a 2.0% wage and benefit increase will go into
effect for employees covered by the National Master Freight
Agreement. The increase is expected to add approximately $13.5
million of expense in 2002. Please refer to "Other" below for a
discussion of the National Master Freight Agreement.
As discussed in Note 9 "Stock Compensation Plans" in the
Consolidated Financial Statements, the Company has various stock
incentive plans under which restricted stock has been granted.
There were 82,750 restricted shares that had not achieved the pre-
determined stock price required for vesting as of December 31,
2001. The pre-determined stock prices range between $10.03 and
$20.00. Compensation expense will be recognized for those shares
if the stock price meets the required levels by May 12, 2002;
otherwise, the shares will be forfeited.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangibles" (SFAS 142) and SFAS No. 143
"Accounting for Asset Retirement Obligations" (SFAS 143). SFAS
142 requires 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 estimated
finite useful lives will continue to be amortized. The Company
will adopt SFAS 142 effective January 1, 2002. The Company is
currently evaluating approximately $2.1 million of goodwill for
impairment under SFAS 142. SFAS 143 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 a material effect on the Company's
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 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
expects that adoption of this statement will not have a material
effect on the Company's financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Current Requirements
The Company's financing requirements to fund operations and
capital expenditures and to support letters of credit in 2002 are
expected to be approximately $45 to $55 million. The Company
anticipates funding these requirements using the availability
under its existing credit facilities and the proceeds from real
estate and other asset-backed financings, each of which is
discussed below.
In February 2002, the Company secured a $45 million financing
agreement secured by real property, of which $20 million was
funded in February. Under the agreement, the Company contributed
real property with a net book value of approximately $21 million
to CFCD 2002 LLC, a wholly owned, consolidated special purpose
company. CFCD 2002 LLC used the properties as collateral for the
borrowings. Borrowings bear interest at LIBOR plus 375 basis
points. Principal and interest payments are due monthly over a 15-
year period. The $20 million of proceeds was used to pay down
short-term borrowings under the Company's $200 million credit
facility discussed below. Subsequent to the paydown, the Company
issued a $20 million letter of credit under the $200 million
credit facility to support its self-insurance program. The
remaining $25 million commitment is expected to be fully funded in
April 2002.
Also in February 2002, the Company completed a three-year, $4.1
million financing agreement secured by revenue equipment of a
Canadian subsidiary. The borrowings bear interest at 7.2%.
Principal and interest are payable monthly. The Company is
currently negotiating additional financing agreements for
approximately $25 million, secured by assets of the Canadian
subsidiaries. Of this amount, the Company has credit committee
approval and is in the documentation stages for approximately $13
million and expects to receive funding during the second quarter
of 2002. However, there can be no assurance that the Company will
be able to complete these transactions or that the final terms
will be reasonable.
The Company is focused on improving both short and long-term
liquidity. The Company has significant additional unleveraged
assets and is considering other asset-backed borrowings and the
sale of surplus real properties. However, there can be no
assurance that the Company will be able to complete these
transactions or that they will be on reasonable terms.
If business conditions and the Company's performance do not
improve and the Company is unable to align its cost structure with
lower business levels, cash requirements to fund operations could
be significantly higher than anticipated and would have a material
adverse effect on the Company's financial position and would
require additional financing. The ability of the Company to
continue to fund operations and meet its obligations as they come
due will be dependent on reducing operating losses and completing
the financing agreements discussed above.
As discussed in Note 2 "Summary of Significant Accounting
Policies" in the Consolidated Financial Statements, the Company is
required to post letters of credit to support its self-insurance
program. Letters of credit outstanding to support the program
were $90 million as of December 31, 2001, and were issued under
the Company's $200 million credit facility, discussed below.
Subsequent to December 31, 2001, the Company issued an additional
$27 million of letters of credit to support this program. Adverse
economic conditions in the insurance market or failure of the
Company to improve operating performance could result in the
Company being required to post additional letters of credit in the
fourth quarter of 2002 in excess of regular increases. Inability
of the Company to continue to issue letters of credit under its
$200 million credit facility to support its self insurance program
would require the Company to secure alternative financing
arrangements. Failure to secure these alternative financing
arrangements would require the Company to fund state insurance
programs which would have a material adverse effect on the
Company's financial position.
Existing Financing Agreements
In April 2001, the Company entered into a $200 million accounts
receivable securitization agreement to provide for working capital
and letter of credit needs. Under the agreement, the Company
sells or contributes, on a continuous basis, trade receivables to
CF Funding LLC (Funding), a wholly owned, consolidated special
purpose company. Funding uses the receivables as collateral for
borrowings and letters of credit. Letters of credit are limited
to $150 million and borrowings are limited to an agreed upon
availability calculation of eligible accounts receivable.
Borrowings bear interest at LIBOR, plus a margin (250 basis points
at December 31, 2001). The agreement expires in April 2006. As of
December 31, 2001, there were $49.9 million of short-term
borrowings and $98.4 million of letters of credit outstanding.
As of March 31, 2002, there were $3.7 million of short-term
borrowings and $128.8 million of letters of credit outstanding.
Availability of the remaining borrowing capacity is dependent on
the calculation of eligible accounts receivable which is subject
to business level fluctuations which may further limit
availability.
In October 2001, the Company entered into a six-month, $50 million
revolving credit agreement with the same lender, secured by real
property with a net book value of approximately $53 million, to
provide for short-term working capital needs and other general
corporate purposes. As of December 31, 2001, the Company had $34
million of short-term borrowings outstanding, bearing interest at
LIBOR plus 350 basis points. In February 2002, the term of the
facility was extended until February 2004 with borrowings limited
to a maximum of $42 million. Borrowings bear interest at Prime
plus 500 basis points, with a minimum rate of 10%. The agreement
contains mandatory paydown provisions using a portion of the
proceeds of future debt offerings and asset sales, which will
limit future availability. As of March 31, 2002, outstanding
borrowings were $34.7 million.
The combined availability of funds under the above financing
agreements was $2.6 million as of December 31, 2001 and $6.5
million as of March 31, 2002. Consistent with these types of
agreements, the availability ranged from $0 to $15 million during
the quarter ended March 31, 2002. The continued availability of
funds under the above agreements requires that the Company comply
with certain financial convenants, the most restrictive of which
are to maintain a minimum EBITDAL (earnings before interest,
taxes, depreciation, amortization and lease expense) and fixed
charge coverage ratio. To cure violations of these covenants as
of March 31, 2002, the covenants were amended on April 8, 2002.
The following are the minimum EBITDAL and fixed charge coverage
ratio covenant requirements for 2002. The Company's actual
EBITDAL and fixed charge coverage ratio were $(10,723,000) and
(1.17) to 1, respectively, for the quarter ended March 31, 2002.
Minimum Required Covenant Levels
(Dollars in thousands)
Fixed
Charge
Quarter Ended EBITDAL Coverage
Ratio
March 31, 2002 $(13,300) (1.80)
June 30, 2002 (16,400) (1.20)
September 30, 2002 1,400 (0.30)
December 31, 2002 20,500 0.20
If the Company does not improve operating performance through
improved business levels and additional cost reduction efforts, it
may violate the amended covenants in 2002. There can be no
assurance that the lender will grant waivers or additional
amendments if required. Failure to obtain waivers or additional
amendments, if required, would have a material adverse effect on
the Company's financial position.
Cash Flows for the Year Ended December 31, 2001 and 2000
Cash and cash equivalents were $28.1 million as of December 31,
2001. Net cash used by operating activities of $41.1 million in
2001 compares with $21.1 million provided by operating activities
for 2000. The decrease was due primarily to increased operating
losses, adjusted for non-cash items.
Net cash used by investing activities of $61.6 million compares
with $22.7 million in 2000. The increase primarily reflects the
additions of terminal properties in Brooklyn, NY, Laredo, TX, and
Phoenix, AZ, and revenue equipment, including equipment previously
under lease. The Company expects capital expenditures to be
approximately $7 million for 2002, primarily for the purchase of
revenue and miscellaneous equipment, but has the ability to defer
these expenditures into future years.
Net cash provided by financing activities of $84.2 million in 2001
primarily reflects net short-term borrowings under the Company's
credit facilities. Net borrowings of $83.9 million compares with
net repayments of $0.7 million in 2000. The increased borrowings
were used to fund the operating activities and capital
expenditures discussed above.
As of December 31, 2001, the Company's ratio of long-term debt to
total capital was 9.2% compared with 5.6% as of December 31, 2000.
The current ratio was 1.0 to 1 and 1.3 to 1 as of December 31,
2001 and 2000, respectively.
The following table presents the Company's cash obligations under
operating lease and long-term debt agreements, including
agreements entered into subsequent to December 31, 2001, as
discussed above. Please refer to Note 5 "Debt" and Note 6
"Leases" in the Company's Consolidated Financial Statements.
Contractual Cash Obligations
(Dollars in thousands)
Agreements
Entered
Into
Subsequent to
Agreements as of December 31, Interest
December 31, 2001 2001 on
Payable Operating Long-Term Long-Term Long-Term
In Leases Debt Debt (a) Debt (b) Total
2002 $ 26,429 $ -- $ 1,664 $ 1,942 $ 30,035
2003 24,397 1,000 2,351 2,191 29,939
2004 22,677 14,100 2,510 1,408 40,695
2005 14,177 -- 1,510 1,106 16,793
2006 5,161 -- 1,201 1,034 7,396
Thereafter 15,781 -- 17,264 5,646 38,691
$108,622 $ 15,100 $ 26,500 $ 13,327 $163,549
(a) Reflects agreements funded as of April 12, 2002.
(b) Assumes no change in LIBOR rate.
Other
As of December 31, 2001, 81% of the Company's domestic employees
were represented by various labor unions, primarily the
International Brotherhood of Teamsters (IBT). The Company and the
IBT are parties to the National Master Freight Agreement, which
expires on March 31, 2003. Although the Company believes it will
be able to successfully negotiate a new contract with the IBT,
there can be no assurance that it will be able to do so, or that
work stoppages will not occur, or that the terms of any such
contract will not be substantially less favorable than those of
the existing contract, any of which could have a material adverse
effect on the Company's financial position and results of
operations.
The Company has received notices from the Environmental Protection
Agency (EPA) and others that it has been identified as a
potentially responsible party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or
other Federal and state environmental statutes at various
Superfund sites. Under CERCLA, PRP's are jointly and severally
liable for all site remediation and expenses. Based upon the
advice of local environmental attorneys and cost studies performed
by environmental engineers hired by the EPA (or other Federal 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.
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 the Board of Directors on May 24,
2001. On August 2, 2001, Patrick J. Brady resigned as Senior Vice
President-Sales and Marketing. He was succeeded by Martin W.
Larson, who previously served as Chief Information Officer and
Vice President of eCommerce.
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; weather;
environmental and tax matters; changes in governmental regulation;
technology costs; legal claims; timing and amount of capital
expenditures; and failure to execute operating plans, freight mix
adjustment plans, yield improvements efforts, process and
operations improvements, cost reduction efforts, customer service
initiatives; pension funding requirements; and financing needs and
availability. As a result of the foregoing, no assurance can be
given as to future results of operations or financial condition.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
2001 2000
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 28,067 $ 46,523
Trade accounts receivable, net (Note 2) 292,851 334,155
Other accounts receivable 6,045 8,742
Operating supplies, at lower of average cost
or market 6,670 8,419
Prepaid expenses 35,772 41,286
Deferred income taxes (Note 7) 59,897 70,610
Total Current Assets 429,302 509,735
Property, Plant and Equipment, at cost (Notes 2 and 5)
Land 87,024 81,697
Buildings and improvements 353,102 350,137
Revenue equipment 519,546 518,086
Other equipment and leasehold improvements 158,963 149,123
1,118,635 1,099,043
Accumulated depreciation and amortization (761,044) (750,249)
357,591 348,794
Other Assets
Deposits and other assets (Note 2) 93,687 68,153
93,687 68,153
Total Assets $ 880,580 $ 926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
2001 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 85,043 $ 97,741
Accrued liabilities (Note 4) 189,361 211,043
Accrued claims costs (Note 2) 85,593 86,674
Federal and other income taxes (Note 7) 2,264 -
Short-term borrowings (Note 5) 83,900 -
Total Current Liabilities 446,161 395,458
Long-Term Liabilities
Long-term debt (Note 5) 15,100 15,100
Accrued claims costs (Note 2) 94,187 99,074
Employee benefits (Note 8) 124,284 120,317
Deferred income taxes (Note 7) 1,978 6,282
Other liabilities (Note 2) 50,631 38,267
Total Liabilities 732,341 674,498
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 74,020 75,767
Accumulated other comprehensive loss (13,712) (11,293)
Retained earnings 95,814 200,067
Treasury stock, at cost (926,102 and 1,436,712
shares, respectively) (8,114) (12,588)
Total Shareholders' Equity 148,239 252,184
Total Liabilities and Shareholders' Equity $880,580 $926,682
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
Years Ended December 31,
(Dollars in thousands except per share data)
2001 2000 1999
REVENUES $ 2,237,703 $ 2,352,368 $ 2,379,000
COSTS AND EXPENSES
Salaries, wages and benefits 1,482,922 1,496,663 1,516,978
Operating expenses (Note 2) 446,248 451,882 425,580
Purchased transportation 216,906 207,788 238,944
Operating taxes and licenses 63,913 69,825 69,382
Claims and insurance 64,182 76,176 67,685
Depreciation 54,619 51,961 52,556
2,328,790 2,354,295 2,371,125
OPERATING INCOME (LOSS) (91,087) (1,927) 7,875
OTHER INCOME (EXPENSE)
Investment income 670 1,490 2,688
Interest expense (Note 2) (8,361) (4,883) (4,160)
Miscellaneous, net (818) (4,904) (375)
(8,509) (8,297) (1,847)
Income (loss) before income taxes (benefits) (99,596) (10,224) 6,028
Income taxes (benefits) (Note 7) 4,657 (2,659) 3,315
NET INCOME (LOSS) $ (104,253) $ (7,565) $ 2,713
Basic average shares outstanding (Note 2) 21,995,874 21,492,130 22,349,997
Diluted average shares outstanding (Note 2) 21,995,874 21,492,130 22,556,275
Basic Earnings (Loss) per Share (Note 2) $ (4.74) $ (0.35) $ 0.12
Diluted Earnings (Loss) per Share (Note 2) $ (4.74) $ (0.35) $ 0.12
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended December 31,
(Dollars in thousands)
2001 2000 1999
Cash and Cash Equivalents, Beginning
of Year $ 46,523 $ 49,050 $ 123,081
Cash Flows from Operating Activities
Net income (loss) (104,253) (7,565) 2,713
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 65,952 59,152 58,363
Increase (decrease) in deferred income taxes (Note 7) 6,409 (21,690) (15,379)
Gains from property disposals, net (Notes 2 and 7) (25,922) (17,514) (4,286)
Issuance of common stock under stock and
benefit plans (Notes 8 and 9) 2,420 2,660 289
Changes in assets and liabilities:
Receivables 44,001 8,478 (48,064)
Accounts payable (12,698) (3,733) 13,840
Accrued liabilities (20,682) 8,156 14,759
Accrued claims costs (5,968) 9,294 (93)
Income taxes 2,264 (16,883) 2,710
Employee benefits 3,967 (1,466) 4,547
Other 3,457 2,244 (7,886)
Net Cash Provided (Used) by Operating Activities (41,053) 21,133 21,513
Cash Flows from Investing Activities
Capital expenditures (74,068) (42,348) (67,273)
Software expenditures (2,803) (5,963) (27,938)
Proceeds from sales of property 15,261 26,785 12,308
Acquisition of FirstAir Inc., net of cash acquired (Note 3) - (1,176) -
Net Cash Used by Investing Activities (61,610) (22,702) (82,903)
Cash Flows from Financing Activities
Net proceeds from (repayments of) short-term borrowings 83,900 (691) -
Proceeds from exercise of stock options 307 - -
Purchase of treasury stock - (267) (12,641)
Net Cash Provided (Used) by Financing Activities 84,207 (958) (12,641)
Decrease in Cash and Cash Equivalents (18,456) (2,527) (74,031)
Cash and Cash Equivalents, End of Year $ 28,067 $ 46,523 $ 49,050
Supplemental Disclosure
Cash paid (received) for income taxes $ (7,573) $ 19,731 $ 14,469
Cash paid for interest $ 6,868 $ 1,606 $ 2,349
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Additional
Number of Paid-in
Shares Amount Capital
Balance, December 31, 1998 23,066,905 $ 231 $ 77,303
Comprehensive income (Note 2)
Net income - - -
Foreign currency translation adjustment - - -
Total comprehensive income
Purchase of 1,407,725 treasury shares - - -
Issuance of 21,720 treasury shares under
employee stock plans - - 98
Issuance of common stock under employee
stock plans 66,943 - 5
Balance, December 31, 1999 23,133,848 231 77,406
Comprehensive loss (Note 2)
Net loss - - -
Foreign currency translation adjustment - - -
Total comprehensive loss
Purchase of 60,000 treasury shares - - -
Issuance of 69,045 treasury shares under
employee stock plans (Note 9) - - (359)
Issuance of 390,707 treasury shares under
employee benefit plan (Note 8) - - (1,185)
Issuance of 27,227 treasury shares for
payment of non-employee director fees - - (95)
Balance, December 31, 2000 23,133,848 231 75,767
Comprehensive loss (Note 2)
Net loss - - -
Foreign currency translation adjustment - - -
Total comprehensive loss
Issuance of 46,438 treasury shares under
employee stock plans (Note 9) - - (128)
Issuance of 57,000 treasury shares under
employee stock option plan (Note 9) - - (230)
Issuance of 407,173 treasury shares under
employee benefit plan (Note 8) - - (1,389)
Balance, December 31, 2001 23,133,848 $ 231 $ 74,020
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands)
Accumulated
Other
Comprehensive Retained Treasury
Income (Loss) Earnings Stock, at cost Total
Balance, December 31, 1998 $ (11,565) $ 204,919 $ (4,170) $ 266,718
Comprehensive income (Note 2)
Net income - 2,713 - 2,713
Foreign currency translation adjustment 1,478 - - 1,478
Total comprehensive income 4,191
Purchase of 1,407,725 treasury shares - - (12,641) (12,641)
Issuance of 21,720 treasury shares under
employee stock plans - - 191 289
Issuance of common stock under employee
stock plans - - - 5
Balance, December 31, 1999 (10,087) 207,632 (16,620) 258,562
Comprehensive loss (Note 2)
Net loss - (7,565) - (7,565)
Foreign currency translation adjustment (1,206) - - (1,206)
Total comprehensive loss (8,771)
Purchase of 60,000 treasury shares - - (267) (267)
Issuance of 69,045 treasury shares under
employee stock plans (Note 9) - - 609 250
Issuance of 390,707 treasury shares under
employee benefit plan (Note 8) - - 3,450 2,265
Issuance of 27,227 treasury shares for
payment of non-employee director fees - - 240 145
Balance, December 31, 2000 (11,293) 200,067 (12,588) 252,184
Comprehensive loss (Note 2)
Net loss - (104,253) - (104,253)
Foreign currency translation adjustment (2,419) - - (2,419)
Total comprehensive loss (106,672)
Issuance of 46,438 treasury shares under
employee stock plans (Note 9) - - 407 279
Issuance of 57,000 treasury shares under
employee stock option plan (Note 9) - - 537 307
Issuance of 407,173 treasury shares under
employee benefit plan (Note 8) - - 3,530 2,141
Balance, December 31, 2001 $ (13,712) $ 95,814 $ (8,114) $ 148,239
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Description of Business: Consolidated Freightways Corporation
(the Company) primarily provides less-than-truckload
transportation, air freight forwarding and supply chain
management services throughout the United States and Canada, as
well as in Mexico through a joint venture, and international
freight services between the United States and more than 80
countries. The Company, incorporated in the state of Delaware,
consists of Consolidated Freightways Corporation of Delaware, a
nationwide motor carrier, and its Canadian operations, including
Canadian Freightways Ltd., Epic Express, Milne & Craighead,
Interport Sufferance Warehouses, Blackfoot Logistics, and other
related businesses; CF AirFreight Corporation, a non-asset based
provider of domestic and international air freight forwarding and
full and less-than-container load ocean freight transportation;
Redwood Systems, Inc., a non-asset based supply chain management
services provider; CF Risk Management, a captive insurance
company; and CF Funding LLC, a wholly owned, consolidated special
purpose company.
Liquidity, Management's Plan and Subsequent Events: The Company
incurred a net loss of $104.3 million for the year ended December
31, 2001 and expects to incur further operating losses in 2002
due to the continued economic slowdown. Cash used by operating
activities was $41.1 million in 2001. The Company's financing
requirements to fund operations and capital expenditures and to
support letters of credit in 2002 are expected to be
approximately $45 to $55 million. Subsequent to December 31,
2001, the Company secured financing sufficient to meet these
requirements.
The Company has secured a $45 million financing agreement secured by
real property. In addition, the Company completed a $4.1 million
financing agreement secured by revenue equipment of a Canadian
subsidiary and is currently negotiating additional financing
agreements for approximately $25 million, secured by assets of
the Canadian subsidiaries. Of this amount, the Company has
lender credit committee approval and is in the documentation
stages for approximately $13 million and expects to receive
funding during the second quarter of 2002. The Company has
significant additional unleveraged assets and is considering
other asset-backed borrowings and the sale of surplus real
properties. However, there can be no assurance that the Company
will be able to complete these transactions or that they will be
on reasonable terms.
The Company has an existing accounts receivable securitization
agreement and an existing real estate backed credit facility to
provide for working capital and letter of credit needs. The
combined availability of funds under the accounts receivable
securitization agreement and real estate backed credit facility
was $2.6 million as of December 31, 2001. The continued
availability of funds under these agreements requires that the
Company comply with certain financial convenants, the most
restrictive of which are to maintain a minimum EBITDAL (earnings
before interest, taxes, depreciation, amortization and lease
expense) and fixed charge coverage ratio. On April 8, 2002, to
cure violations of these covenants as of March 31, 2002, the
covenants were amended for 2002.
The amended covenants require the Company to achieve significant
improvements in EBITDAL for the remainder of 2002. (See Note 5
"Debt"). To achieve these improvements, the Company and the
Board of Directors have developed plans that include an immediate
and continuing reduction of workforce in line with lower business
levels and expansion of programs aimed at increasing pick-up and
delivery and dock efficiencies, increasing load factor and
reducing claims expense that have proved successful at selected
terminals during 2001. Additionally, starting in the fourth
quarter of 2001, the Company began carefully reviewing its
business activities with its customers in an effort to secure
additional business and to ensure that it is fairly compensated
for the services provided. As part of this plan, the Company
began reviewing contract accounts as they came up for renewal
during the fourth quarter of 2001 and is continuing this review
in 2002. The Company and the Board of Directors believe that the
above actions will be sufficient to allow the Company to meet the
amended covenant requirements for the balance of 2002. If the
Company does not achieve the operating improvements, it may
violate the amended covenants in 2002. Although the Company has
previously received amendments to the covenants, there can be no
assurance that the lender will grant waivers or additional
amendments if required. The inability of the Company to meet its
covenants or obtain waivers or additional amendments, if
required, would require the Company to secure additional
financing to fund operating activities and provide letters of
credit necessary to support its self-insurance program in 2002.
Failure to secure letters of credit to support the self-insurance
program would require the Company to fund state insurance
programs which would have a material adverse effect on the
Company's financial position.
2. Summary of Significant Accounting Policies
Principles of Consolidation: The accompanying consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents: The Company considers highly liquid
investments with a maturity at acquisition of three months or
less to be cash equivalents. As of December 31, 2001 and 2000,
$22,838,000 and $32,263,000, respectively, of drafts outstanding
were included in Accounts Payable in the Consolidated Balance
Sheets.
Trade Accounts Receivable, Net: Trade accounts receivable are net
of allowances of $11,627,000 and $12,887,000 as of December 31,
2001 and 2000, respectively.
Property, Plant and Equipment, at cost: Property, plant and
equipment are depreciated on a straight-line basis over their
estimated useful lives, which are generally 25 years for
buildings and improvements, 6 to 10 years for tractor and trailer
equipment and 3 to 10 years for most other equipment. Leasehold
improvements are amortized over the shorter of the terms of the
respective leases or the useful lives of the assets. Expenditures
for equipment maintenance and repairs are charged to operating
expenses as incurred; betterments are capitalized.
Gains or losses on sales of equipment and operating properties
are recorded in Operating Expenses in the Statements of
Consolidated Operations. Gains on sales of operating properties
of $26,052,000, $17,742,000 and $3,420,000 were included in
Operating Expenses for the years ended December 31, 2001, 2000
and 1999, respectively.
The Company had 21 surplus properties for sale as of December 31,
2001. The book value of those properties was $5,300,000 and is
included in Land and Buildings on the Consolidated Balance Sheet.
As of December 31, 2001, the fair values of properties held for
sale exceeded the carrying value of each of the properties.
Software Costs: The Company capitalizes the costs of purchased
and internally developed software. Deposits and Other Assets in
the Consolidated Balance Sheets included $32,429,000 and
$39,284,000 of purchased and internally developed software costs
as of December 31, 2001 and 2000, respectively. These costs are
being amortized over the lesser of 60 months or the useful lives
of the software.
Goodwill: Goodwill, which represents the costs in excess of net
assets of businesses acquired, is capitalized and amortized on a
straight-line basis over 20 to 40 years. Goodwill, net of
accumulated amortization, was $3,529,000 and $3,893,000 as of
December 31, 2001 and 2000, respectively, and was included in
Deposits and Other Assets in the Consolidated Balance Sheets.
Effective January 1, 2002, the Company will adopt the provisions
of Statement of Financial Accounting Standards (SFAS) No. 142
"Goodwill and Other Intangibles" (SFAS 142), as discussed in
"Recent Accounting Pronouncements" below.
Impairment of Long-Lived Assets: The Company reviews its long-
lived assets, including identifiable intangibles, for impairment
when events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. The Company
compares the carrying value of the asset with the asset's
expected future undiscounted cash flows. If the carrying value
of the asset exceeds the expected future undiscounted cash flows,
an impairment exists which is measured by the excess of the
carrying value over the fair value of the asset. No impairment
losses were recognized in 2001, 2000 or 1999. Effective January
1, 2002, the Company will adopt the provisions of SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets"
(SFAS 144), as discussed in "Recent Accounting Pronouncements"
below.
Income Taxes: The Company follows the liability method of
accounting for income taxes.
Accrued Claims Costs: The Company self insures for the costs of
medical, casualty, liability, vehicular, cargo and workers'
compensation claims, up to retention limits that range between
$1,000,000 to $5,000,000. Such costs are estimated each year
based on historical claims and unfiled claims relating to
operations conducted through December 31. The actual costs may
vary from estimates based upon trends of losses for filed claims
and claims estimated to be incurred. The long-term portion of
accrued claims costs relates primarily to vehicular and workers'
compensation claims which are payable over several years. The
Company is required to post letters of credit to ensure payment
under its self-insurance program. Outstanding letters of credit
related to this program as of December 31, 2001 were $90 million
and were issued under the Company's $200 million credit facility,
as discussed in Note 5 "Debt." Subsequent to December 31, 2001,
the Company issued an additional $27 million of letters of credit
to support this program.
The Company, through its captive insurance subsidiary,
participates in a reinsurance pool to reinsure the majority of
its workers' compensation liability. As a participant, the
Company transfers its liability into the pool and reinsures an
equivalent amount of risk from the pool. Under the provisions of
SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-
Duration and Long-Duration Contracts," the Company records a
reinsurance receivable associated with liabilities transferred
into the pool and a corresponding liability for the reinsured
risk. As of December 31, 2001, the reinsurance receivable
associated with liabilities transferred into the pool was
$43,591,000 and was included in Deposits and Other Assets in the
Consolidated Balance Sheet. The corresponding reinsured risk of
$43,591,000 was included in Other Liabilities in the Consolidated
Balance Sheet. The reinsurance receivable and corresponding
reinsured risk was $10,141,000 as of December 31, 2000.
Reinsurance does not relieve the Company of ultimate
responsibility for its own transferred liabilities. Failure of
the reinsurers to honor their obligations could result in losses
to the Company. However, it is the opinion of the Company that
the reinsurers in the pool are financially sound and that any
risk for non-payment is minimal. Therefore, no allowance for
uncollectible amounts has been established nor does the Company
hold collateral to ensure payment.
Translation of Foreign Currency: Local currencies are generally
considered to be the functional currencies outside the United
States. The Company translates the assets and liabilities of its
foreign operations at the exchange rate in effect at the balance
sheet date. Income and expenses are translated using the average
exchange rate for the period. The resulting translation
adjustments are reflected in the Statements of Consolidated
Shareholders' Equity. Transactional gains and losses are
included in results of operations.
Recognition of Revenues: Transportation freight charges are
recognized as revenue when freight is received for shipment. The
estimated costs of performing the total transportation services
are then accrued. This revenue recognition method does not result
in a material difference from the in-transit or completed service
methods of recognition.
Interest Expense: The interest expense presented in the
Statements of Consolidated Operations is related to short-term
borrowings and industrial revenue bonds, as discussed in Note 5,
"Debt," and long-term tax liabilities, as discussed in Note 7,
"Income Taxes."
Earnings (Loss) per Share: Basic earnings (loss) per share are
calculated using only the weighted average shares outstanding for
the period. Diluted earnings (loss) per share includes the
dilutive effect of restricted stock and stock options. See Note
9, "Stock Compensation Plans." For all years presented, net
income (loss) used in the calculation of basic and diluted
earnings (loss) per share was the same. The years ended December
31, 2001 and 2000 did not include 210,663 and 6,165 potentially
dilutive securities, respectively, in the computation of the
diluted loss per share because to do so would have been
antidilutive. The computation of diluted earnings per share for
the year ended December 31, 1999 included 206,278 dilutive stock
options and restricted shares.
Comprehensive Income: Comprehensive income (loss) includes all
changes in equity during a period except those resulting from
investments by and distributions to shareholders. Comprehensive
income (loss) for the years ended December 31, 2001, 2000 and
1999 is presented in the Statements of Consolidated Shareholders'
Equity.
Estimates: Management makes estimates and assumptions when
preparing the financial statements in conformity with accounting
principles generally accepted in the United States. These
estimates and assumptions affect the amounts reported in the
accompanying financial statements and notes thereto. Actual
results could differ from these estimates.
Recent Accounting Pronouncements: The Company adopted the
provisions of SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133) 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.
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142 "Goodwill and Other Intangibles" and SFAS No.
143 "Accounting for Asset Retirement Obligations." SFAS 142
requires 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 estimated
finite useful lives will continue to be amortized. The Company
will adopt SFAS 142 effective January 1, 2002. The Company is
currently evaluating approximately $2.1 million of goodwill for
impairment under SFAS 142. SFAS 143 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 a material effect on the
Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 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
expects that adoption of this statement will not have a material
effect on the Company's financial position or results of
operations.
Reclassification: Certain amounts in prior years' financial
statements have been reclassified to conform to the current year
presentation.
3. Acquisition
In February 2002, the Company entered into an agreement to
acquire 100% ownership of the business operations of its joint
venture in Mexico. The purchase price is approximately $2.1
million and is payable in installments through April 2003.
Interest on unpaid installments is 7.5% annually. The Company
previously accounted for the joint venture using the equity
method and will fully consolidate the operations going forward.
Total sales and assets of the Mexico operations were not
material.
In June 2000, CF AirFreight Corporation, a wholly owned
subsidiary of the Company, acquired substantially all of the
assets and liabilities of privately held FirstAir, Inc., a non-
asset based provider of domestic and international air freight
forwarding and full and less-than-container load ocean freight
transportation. The purchase price was $1.2 million in cash and
assumption of certain liabilities. The acquisition was accounted
for under the purchase method of accounting, and accordingly, the
purchase price was allocated to assets purchased and liabilities
assumed based upon the fair values at the date of acquisition.
The excess of the purchase price over the fair values of the
assets acquired was approximately $2.3 million. The purchase
agreement provides for a contingent payment to the former owner
if revenues exceed certain targeted levels before May 31, 2003.
The contingent payment shall not exceed $2.5 million. A payment,
if required, will be recorded as additional purchase price. The
operating results of FirstAir, Inc. have been included in the
Company's consolidated financial statements since the date of
acquisition. Operating results prior to acquisition would have
had an immaterial effect on the Company's results of operations.
4. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
(Dollars in thousands)
2001 2000
Accrued payroll and benefits $ 83,406 $ 90,459
Other accrued liabilities 58,411 68,194
Accrued union health and welfare 18,046 23,845
Accrued taxes other than income taxes 18,468 18,991
Accrued interest 11,030 9,554
Total accrued liabilities $ 189,361 $ 211,043
5. Debt
In April 2001, the Company entered into a $200 million accounts
receivable securitization agreement to provide for working
capital and letter of credit needs. Under the agreement, the
Company sells or contributes, on a continuous basis, trade
receivables to CF Funding LLC (Funding), a wholly owned,
consolidated special purpose company. Funding uses the
receivables as collateral for borrowings and letters of credit.
Letters of credit are limited to $150 million and borrowings are
limited to an agreed upon availability calculation of eligible
accounts receivable. Borrowings bear interest at LIBOR, plus a
margin (250 basis points at December 31, 2001). The agreement
expires in April 2006. As of December 31, 2001, there were $49.9
million of short-term borrowings and $98.4 million of letters of
credit outstanding. Availability of the remaining borrowing
capacity is dependent on the calculation of eligible accounts
receivable which is subject to business level fluctuations which
may further limit availability.
In October 2001, the Company entered into a six-month, $50
million revolving credit agreement with the same lender, secured
by real property with a net book value of approximately $53
million, to provide for short-term working capital needs and
other general corporate purposes. As of December 31, 2001, the
Company had $34 million of short-term borrowings outstanding,
bearing interest at LIBOR plus 350 basis points. In February
2002, the term of the facility was extended until February 2004
with borrowings limited to a maximum of $42 million. Borrowings
bear interest at Prime plus 500 basis points, with a minimum rate
of 10%. The agreement contains mandatory paydown provisions using
a portion of the proceeds of future debt offerings and asset
sales, which will limit future availability.
The combined availability of funds under the above financing
agreements was $2.6 million as of December 31, 2001. The
continued availability of funds under the above agreements
requires that the Company comply with certain financial
convenants, the most restrictive of which are to maintain a
minimum EBITDAL (earnings before interest, taxes, depreciation,
amortization and lease expense) and fixed charge coverage ratio.
To avoid violations of these covenants as of March 31, 2002, the
covenants were amended April 8, 2002. The following are the
minimum EBITDAL and fixed charge coverage ratio covenant
requirements for 2002.
Minimum Required Covenant Levels
(Dollars in thousands)
Fixed
Charge
Coverage
Quarter Ended EBITDAL Ratio
March 31, 2002 $(13,300) (1.80)
June 30, 2002 (16,400) (1.20)
September 30, 2002 1,400 (0.30)
December 31, 2002 20,500 0.20
In February 2002, the Company secured a $45 million financing
agreement secured by real property, of which $20 million was
funded in February. Under the agreement, the Company contributed
real property with a net book value of approximately $21 million
to CFCD 2002 LLC, a wholly owned, consolidated special purpose
company. CFCD 2002 LLC used the properties as collateral for the
borrowings. Borrowings bear interest at LIBOR plus 375 basis
points. Principal and interest payments are due monthly over a
15-year period. The $20 million of proceeds was used to pay down
short-term borrowings under the Company's $200 million credit
facility discussed above. Subsequent to the paydown, the Company
issued a $20 million letter of credit under the $200 million
credit facility to support its self-insurance program, as
discussed in Note 2 "Summary of Significant Accounting Policies."
The remaining $25 million commitment is expected to be fully
funded in April 2002.
Also in February 2002, the Company completed a three-year, $4.1
million financing agreement secured by revenue equipment of a
Canadian subsidiary. The borrowings bear interest at 7.2%.
Principal and interest are payable monthly.
Long-term debt was $15,100,000 of industrial revenue bonds with
rates between 5.15% and 5.25% as of December 31, 2001. Annual
maturities and sinking fund requirements of this debt as of
December 31, 2001 are as follows: $1,000,000 in 2003 and
$14,100,000 in 2004.
Based on interest rates currently available to the Company for
debt with similar terms and maturities, the fair value of long-
term debt approximated the carrying value as of December 31, 2001
and 2000.
The Company capitalizes the costs incurred in entering into
financing agreements and amortizes them over the lives of the
agreements. Unamortized debt costs were $4,582,000 and $862,000
as of December 31, 2001 and 2000, respectively, and were included
in Other Assets in the Consolidated Balance Sheets. Amortization
of debt costs recognized in the years ended December 31, 2001,
2000 and 1999 was $1,532,000, $462,000 and $1,589,000,
respectively, and was included in Miscellaneous, net in the
Statements of Consolidated Operations.
6. Leases
The Company is obligated under various non-cancelable leases for
real estate and revenue equipment that expire at various dates
through 2013. Future minimum lease payments under all leases
with initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2001 are $26,429,000 in 2002;
$24,397,000 in 2003; $22,677,000 in 2004; $14,177,000 in 2005;
$5,161,000 in 2006 and $15,781,000 thereafter.
Operating leases that cover approximately 2,025 trucks, tractors
and trailers with a total cost of $81.9 million provide for
residual value guarantees by the Company at the end of the lease
terms. The Company has the right to exercise fair market value
purchase options or the equipment can be sold to third parties.
The Company is obligated to pay the difference between the
residual value guarantees and the fair market value of the
equipment at termination of the leases. The Company expects the
fair market value of the leased equipment, which is subject to
purchase option or sale to third parties, to substantially reduce
or eliminate the Company's payments under the residual value
guarantees. As of December 31, 2001, the amount of the residual
value guarantees relative to the assets under lease was
approximately $13.8 million, which is excluded from the future
minimum lease payments above.
Rental expense for operating leases is comprised of the
following:
(Dollars in thousands)
2001 2000 1999
Minimum rentals $53,026 $50,950 $48,065
Less sublease rentals (2,512) (2,209) (2,707)
Net rental expense $50,514 $48,741 $45,358
7. Income Taxes
The components of pretax income (loss) and income taxes
(benefits) are as follows:
(Dollars in thousands)
2001 2000 1999
Pretax income (loss)
U.S. corporations $(111,104) $(22,926) $ (7,201)
Foreign corporations 11,508 12,702 13,229
Total pretax income (loss) $ (99,596) $(10,224) $ 6,028
Income taxes (benefits)
Current
U.S. Federal $ (6,551) $(18,615) $ 7,297
State and local (1,185) (1,530) 6,024
Foreign 5,984 5,494 5,373
(1,752) (14,651) 18,694
Deferred
U.S. Federal 5,150 10,229 (10,705)
State and local 796 1,181 (5,478)
Foreign 463 582 804
6,409 11,992 (15,379)
Total income taxes (benefits) $ 4,657 $ (2,659) $ 3,315
Deferred tax assets and liabilities in the Consolidated Balance
Sheets are classified based on the related asset or liability
creating the deferred tax. Deferred taxes not related to a
specific asset or liability are classified based on the estimated
period of reversal. As a result of domestic losses during 2001,
the Company recorded income tax benefits of $41.8 million and
related deferred tax assets of $16.8 million. However, due to
domestic cumulative losses of $141 million over the past three
years, current accounting standards require the Company to assess
the realizability of its domestic net deferred tax asset ($102.6
million as of December 31, 2001). Through the use of tax
planning strategies, involving the sale of appreciated assets,
the Company has determined that it is more likely than not that
$62.6 million of its domestic net deferred tax asset as of
December 31, 2001 will be realized. A valuation allowance of $40
million has been recorded as of December 31, 2001 for the
remaining portion of its domestic net deferred tax asset. Until
the recent cumulative loss is eliminated, the Company will
continue to record additional valuation allowance against any tax
benefit arising from future domestic operating losses. The
Company will assess the realizability of its deferred tax assets
on an ongoing basis and adjust the valuation allowance as
appropriate.
The components of deferred tax assets and liabilities in the
Consolidated Balance Sheets as of December 31 relate to the
following:
(Dollars in thousands)
2001 2000
Deferred Taxes - Current
Assets
Reserves for accrued claims costs $ 41,247 $ 32,904
Employee benefits 18,257 23,261
Other reserves not currently
deductible 28,534 29,209
Valuation allowance - current (18,888) --
Liabilities
Unearned revenue, net (9,253) (10,550)
Employee benefits -- (4,214)
Total deferred taxes- current $ 59,897 $ 70,610
Deferred Taxes - Non Current
Assets
Reserves for accrued claims costs $ 11,229 $ 15,531
Employee benefits 29,062 28,233
Retiree health benefits 25,834 25,646
Benefit of net operating loss 19,809 --
Liabilities
Depreciation (50,797) (58,443)
Tax benefits from leasing
transactions (9,079) (10,520)
Valuation allowance - non current (21,122) --
Other (6,914) (6,729)
Total deferred taxes - non current (1,978) (6,282)
Net deferred taxes $ 57,919 $ 64,328
Income taxes (benefits) varied from the amounts calculated by
applying the U.S. statutory income tax rate to the pretax income
(loss) as set forth in the following reconciliation:
2001 2000 1999
U.S. statutory tax rate (35.0)% (35.0)% 35.0%
State income taxes
(benefits), net of
federal income tax (benefit) (4.0) (7.6) 4.0
Foreign taxes in excess of
U.S. statutory rate 2.0 15.5 16.8
Non-deductible operating
expenses 4.6 31.6 91.8
Fuel tax credits (0.2) (2.1) (4.2)
Foreign tax credits (2.9) (21.5) (83.7)
Valuation allowance 40.2 -- --
Other, net -- (6.9) (4.7)
Effective income tax
(benefit) rate 4.7% (26.0)% 55.0%
As of December 31, 2001, the Company had net operating loss
carryforwards for U.S. Federal income tax purposes of $58 million
which are available to offset future Federal taxable income, if
any, through 2021.
As of December 31, 2001, the Company had cumulative undistributed
earnings from foreign subsidiaries totaling $70 million. Because
these earnings have been reinvested indefinitely in the
respective foreign subsidiaries, no provision has been made for
any U.S. tax applicable to foreign subsidiaries' undistributed
earnings. If distributed, however, the earnings would be subject
to withholding tax. The amount of withholding tax that would be
payable on remittance of the undistributed earnings would
approximate $3.5 million.
The Company's former parent, CNF Inc. (CNF), continues to dispute
certain tax issues with the Internal Revenue Service relating to
taxable years prior to the spin-off of the Company. The
controversies are lodged at various stages of administrative
appeals and litigation in the U.S. Tax Court and Federal District
Court. The issues arise from tax positions first taken by CNF
prior to the spin-off. Under the tax sharing agreement entered
into between CNF and the Company at the time of the spin-off, the
Company is obligated to reimburse CNF for its share of any
additional taxes and interest that relate to the Company's
business prior to the spin-off. Although the majority of the tax
sharing liability has been settled, certain enumerated tax items
still remain open that are anticipated to be resolved within the
next 12 to 18 months. As of December 31, 2001, the Company
believes that accrued tax reserves adequately provide for its
entire tax sharing liability to CNF under the tax sharing
agreement. To the extent that contingent tax liabilities exist
outside the scope of the tax sharing agreement with CNF, the
Company continues to accrue interest on the potential tax
deficiency until such issues are resolved.
During 2001, the Company sold its former administrative facility
to CNF. Consideration received was in the form of a $21 million
note receivable. Subsequently, the Company exchanged the note
and related interest receivable for a $20 million tax obligation
payable to CNF, including interest. The Company recognized a
$19.0 million gain on the transaction which was included in
Operating Expenses in the Statement of Consolidated Operations.
8. Employee Benefit Plans
The Company maintains a non-contributory defined benefit pension
plan (the Pension Plan) covering the Company's employees in the
United States who are not covered by collective bargaining
agreements. The Company's annual pension provision and
contributions are based on an independent actuarial computation.
The Company's funding policy is to contribute the minimum
required tax-deductible contribution for the year. However, it
may increase its contribution above the minimum if appropriate to
its tax and cash position and the Pension Plan's funded status.
Benefits under the Pension Plan are based on a career average
final five-year pay formula. Approximately 97% of the Pension
Plan assets are invested in publicly traded stocks and bonds. The
remainder is invested in temporary cash investments and real
estate funds.
The following information sets forth the Company's pension
liabilities included in Employee Benefits in the Consolidated
Balance Sheets as of December 31:
(Dollars in thousands)
2001 2000
Change in Benefit Obligation
Benefit obligation at beginning
of year $306,557 $271,074
Service cost 7,798 7,856
Interest cost 24,062 22,880
Benefit payments (14,643) (13,499)
Actuarial loss 13,427 18,246
Plan amendments 448 --
Benefit obligation at end of year $337,649 $306,557
Change in Fair Value of Plan Assets
Fair value of plan assets at
beginning of year $293,755 $308,081
Actual loss on plan assets (12,327) (827)
Benefit payments (14,643) (13,499)
Fair value of plan assets at end of
year $266,785 $293,755
Funded Status of the Plan
Fund status at end of year $ (70,864) $ (12,802)
Unrecognized net actuarial (gain) loss 14,030 (39,228)
Unrecognized prior service cost 4,276 4,885
Unrecognized net transition asset (2,207) (3,311)
Accrued Pension Plan Liability $ (54,765) $ (50,456)
Weighted-average assumptions as of December 31:
2001 2000
Discount rate 7.50% 7.75%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 3.40% 5.00%
Net pension cost (benefit) included the following:
2001 2000 1999
Components of net pension
cost (benefit)
Service cost $ 7,798 $ 7,856 $ 8,418
Interest cost 24,062 22,880 20,291
Expected return on plan
assets (27,155) (28,700) (24,963)
Amortization of:
Transition asset (1,104) (1,104) (1,104)
Prior service cost 1,057 1,057 1,057
Actuarial gain (349) (3,921) (253)
Total net pension cost
(benefit) $ 4,309 $ (1,932) $ 3,446
The Company's Pension Plan includes a supplemental executive
retirement plan to provide additional benefits for compensation
excluded from the basic Pension Plan. The annual provision for
this plan is based upon independent actuarial computations using
assumptions consistent with the Pension Plan. As of December 31,
2001 and 2000, the liability was $3,427,000 and $3,024,000,
respectively. The pension cost was $609,000, $1,319,000 and
$421,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Approximately 81% of the Company's domestic employees are covered
by union-sponsored, collectively bargained, multi-employer
health, welfare and pension plans. The Company contributed and
charged to expense the following for these plans:
(Dollars in thousands)
2001 2000 1999
Pension Plans $140,330 $137,087 $131,470
Health and Welfare Plans 135,662 133,092 127,990
Total $275,992 $270,179 $259,460
These contributions were made in accordance with negotiated labor
contracts and generally were based on time worked. Under
existing legislation regarding multi-employer pension plans, a
total or partial withdrawal from an under-funded plan would
result in the Company having to fund a proportionate share of the
unfunded vested liability. The Company has no plans for taking
any action that would subject it to any material obligation under
this legislation.
The Company maintains a retiree health plan that provides
benefits to non-contractual employees at least 55 years of age
with ten years or more of service. The retiree health plan limits
benefits for participants who were not eligible to retire before
January 1, 1993, to a defined dollar amount based on age and
years of service and does not provide employer-subsidized retiree
health care benefits for employees hired on or after January 1,
1993.
During 2001, the Company amended the plan to increase co-
payments, deductibles and co-insurance premiums to be paid by
retirees, resulting in a $6.4 million decrease in the benefit
obligation as of December 31, 2001.
The following information sets forth the Company's total
postretirement benefit liabilities included in Employee Benefits
in the Consolidated Balance Sheets as of December 31:
(Dollars in thousands)
2001 2000
Change in Benefit Obligation
Benefit obligation at beginning
of year $55,975 $57,526
Service cost 496 471
Interest cost 4,363 4,214
Benefit payments (4,935) (4,145)
Actuarial (gain) loss 6,983 (2,091)
Plan amendments (6,397) --
Benefit obligation at end of year $56,485 $55,975
Change in Fair Value of Plan Assets
Fair value of plan assets at
beginning of year $ -- $ --
Company contributions 4,935 4,145
Benefit payments (4,935) (4,145)
Fair value of plan assets at end
of year $ -- $ --
Funded Status of the Plan
Fund status at end of year $(56,485) $(55,975)
Unrecognized net actuarial gain (3,225) (10,429)
Unrecognized prior service credit (6,574) (221)
Accrued Postretirement Benefit
Liability $(66,284) $(66,625)
Weighted-average assumptions as of December 31:
2001 2000
Discount rate 7.50% 7.75%
For measurement purposes, a 9.0% annual increase in the per
capita cost of covered health care benefits was assumed for 2002,
decreasing by 0.5% per year to the ultimate rate of 5.5% in 2010
and after.
Net post retirement cost included the following:
(Dollars in thousands)
2001 2000 1999
Components of net benefit cost
Service cost $ 496 $ 471 $ 548
Interest cost 4,363 4,214 4,221
Amortization of:
Prior service credit (44) (44) (44)
Actuarial gain (222) (524) -
Total net benefit cost $4,593 $4,117 $4,725
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one-percentage
point change in the assumed health care cost trend rates would
have the following effects:
(Dollars in thousands)
1% 1%
Increase Decrease
Effect on total of service and interest
cost components $ 160 $ (183)
Effect on the postretirement benefit
obligation $ 2,062 $ (2,346)
The Company's non-contractual employees in the United States are
eligible to participate in the Company's Stock and Savings Plan.
This is a 401(k) plan that allows employees to make contributions
that the Company matches with common stock up to 50% of the first
three percent of a participant's basic compensation. The
Company's contribution, which is charged as an expense, totaled
$2,141,000 in 2001, $2,265,000 in 2000, and $2,460,000 in 1999.
The Company's match was made with 407,173 and 390,707 treasury
shares in 2001 and 2000, respectively.
The Company has adopted various plans relating to the achievement
of specific goals to provide incentive bonuses for designated
employees. Total incentive bonuses earned by the participants
were $7,128,000, $1,548,000 and $2,282,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
9. Stock Compensation Plans
The Company has various stock incentive plans (the Plans) under
which shares of restricted stock and stock options have been
awarded to regular, full-time employees and non-employee
directors.
Stock options are granted with an exercise price equal to market
price on the date of grant, have a term of seven years or less
and vest within four years of the date of grant.
The following is a summary of stock option data:
Number of Weighted
Options Average
Exercise
Price
Outstanding as of December 31, 1998 -- $ --
Granted 916,400 13.83
Exercised -- --
Forfeited -- --
Outstanding as of December 31, 1999 916,400 $ 13.83
Granted 1,328,600 4.81
Exercised -- --
Forfeited (198,872) 12.83
Outstanding as of December 31, 2000 2,046,128 $ 8.07
Granted 396,949 6.09
Exercised (57,000) 4.72
Forfeited (191,031) 7.90
Outstanding as of December 31, 2001 2,195,046 $ 7.81
The following is a summary of stock options outstanding and
exercisable as of December 31, 2001:
Outstanding Options
Range of Exercise Number of Weighted Weighted
Prices Options Average Average
Remaining Exercise
Life Price
(Years)
$4.72-$5.95 1,388,340 5.2 $ 4.99
$6.44-$7.17 131,021 4.5 $ 6.79
$13.00-$14.06 675,685 2.4 $ 13.80
2,195,046
Exercisable Options
Range of Exercise Number of Weighted
Prices Options Average
Exercise
Price
$4.72-$5.95 583,276 $ 4.82
$6.44-$7.17 91,354 $ 6.81
$13.00-$14.06 400,960 $ 13.82
1,075,590
The Company granted 15,000 shares of restricted stock at $7.0625
per share in 2000 and 141,000 shares at $14.0625 per share in
1999. No shares were granted in 2001. The restricted stock
awards vest over time and are contingent on the Company's average
stock price achieving pre-determined increases over the grant
price for 10 consecutive trading days. All restricted stock
awards entitle the participant credit for any dividends.
Compensation expense is recognized based upon the stock price
when the minimum required stock price is achieved. There were
82,750 restricted shares that had not achieved the pre-determined
stock price required for vesting as of December 31, 2001. The pre-
determined stock prices range between $10.03 and $20.00.
Compensation expense will be recognized for those shares if the
stock price meets the required levels by May 12, 2002; otherwise,
the shares will be forfeited.
As of December 31, 2001 there were 128,271 shares available for
granting of restricted stock and stock options under the Plans.
The Company also has a Safety Award Plan under which it awards
shares of common stock to designated employees who achieve
certain operational safety goals. During the years ended December
31, 2001, 2000 and 1999, the Company issued 46,438, 69,045 and
8,120 treasury shares, respectively. As of December 31, 2001
there were 26,397 shares available for granting of awards under
this plan.
For the years ended December 31, 2001, 2000 and 1999, the Company
recognized non-cash charges of $279,000, $250,000 and $289,000,
respectively, under its stock compensation plans.
The Company accounts for stock compensation under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees." Had the Company applied SFAS No. 123, "Accounting
for Stock-Based Compensation," pro forma net income (loss) for
the years ended December 31, 2001, 2000 and 1999 would have been
as follows:
(Dollars in thousands except per share data)
2001 2000 1999
Pro forma net income (loss) $(106,081) $(10,127) $ 683
Pro forma net income (loss)
per basic share $(4.82) $(0.47) $0.03
Pro forma net income (loss)
per diluted share $(4.82) $(0.47) $0.03
The weighted average grant date fair value of the options granted
in 2001, 2000 and 1999 using the Black-Scholes option pricing
model was $3.48, $2.71 and $7.84 per share, respectively. The
following assumptions were used to calculate the values:
Weighted Average 2001 2000 1999
Assumptions
Risk-free interest rate 4.8% 6.3% 5.5%
Expected volatility 62.7% 60.0% 60.0%
Dividend yield 0.0% 0.0% 0.0%
Expected life (in years) 5 5 5
10. Contingencies
Reliance Insurance Company, one of the Company's excess insurers
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 purported
settlement of a casualty case. The Company maintains that (1)
plaintiffs accepted the risk of payment from the insurance
carrier when they purportedly settled the case; (2) Reliance is
obligated to transfer payments from a re-insurer to settle the
case; (3) the insurance carrier with the next layer of insurance
is required to make the payment if the liquidating carrier
cannot; and (4) 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. If
the Company is ultimately found liable for all or any portion of
such $5 million, the Company is unable to determine how much it
might recover from Reliance in liquidation, and if so, when. The
Company has successfully extended a stay of proceedings until
further order of the court. The Company is in the process of
filing a motion to cut through to a Reliance re-insurer to obtain
payment.
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 more than 500
plaintiffs, mostly unionized employees. The lawsuits were
subsequently transferred to Federal Court and recently returned
to state court in January 2002 after a final determination of
jurisdiction. The Company believes it has good defenses to the
claim and intends to aggressively pursue these defenses. 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 operations.
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.
The Company has received notices from the Environmental
Protection Agency (EPA) and others that it has been identified
as a potentially responsible party (PRP) under the
Comprehensive Environmental Response Compensation and Liability
Act (CERCLA) or other Federal and state environmental statutes
at various Superfund sites. Under CERCLA, PRP's are jointly and
severally liable for all site remediation and expenses. Based
upon the advice of local environmental attorneys and cost studies
performed by environmental engineers hired by the EPA (or other
Federal and state agencies), the Company believes its obligations
with respect to such sites would not have a material adverse
effect on its financial position or results of operations.
11. Segment and Geographic Information
The Company primarily provides less-than-truckload
transportation, air freight forwarding and supply chain
management services throughout the United States and Canada, as
well as in Mexico through a joint venture, and international
freight services between the United States and more than 80
countries. The Company does not present segment disclosures
because the air freight forwarding, supply chain management and
international freight service offerings do not meet the
quantitative thresholds of SFAS 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)
2001 2000 1999
Revenues
United States $2,090,793 $2,206,468 $2,248,773
Canada and other 146,910 145,900 130,227
Total $2,237,703 $2,352,368 $2,379,000
Property, Plant and Equipment
United States $323,311 $312,349 $332,999
Canada and other 34,280 36,445 35,953
Total $357,591 $348,794 $368,952
Management Report on Responsibility for Financial Reporting
The management of Consolidated Freightways Corporation has
prepared the accompanying financial statements and is
responsible for their integrity. The statements were
prepared in accordance with accounting principles generally
accepted in the United States, after giving consideration to
materiality, and are based on management's best estimates
and judgements. The other financial information in the annual
report is consistent with the financial statements.
Management has established and maintains a system of
internal control. Limitations exist in any control
structure based on the recognition that the cost of such
system should not exceed the benefits derived. Management
believes its control system provides reasonable assurance as
to the integrity and reliability of the financial
statements, the protection of assets from unauthorized use
or disposition, and the prevention and detection of
fraudulent financial reporting. The system of internal
control is documented by written policies and procedures
that are communicated to employees. The Company's
independent public accountants test the adequacy and
effectiveness of the internal controls.
The Board of Directors, through its audit committee
consisting of three independent directors, is responsible
for engaging the independent accountants and assuring that
management fulfills its responsibilities in the preparation
of the financial statements. The Company's financial
statements have been audited by Arthur Andersen LLP,
independent public accountants. Arthur Andersen LLP has
access to the audit committee without the presence of
management to discuss internal accounting controls, auditing
and financial reporting matters.
/s/Patrick H. Blake
Patrick H. Blake
President and Chief Executive Officer
/s/Robert E. Wrightson
Robert E. Wrightson
Executive Vice President and
Chief Financial Officer
/s/James R. Tener
James R. Tener
Vice President and Controller
Report of Independent Public Accountants
To the Shareholders and Board of Directors of
Consolidated Freightways Corporation:
We have audited the accompanying consolidated balance sheets of
Consolidated Freightways Corporation (a Delaware corporation) and
subsidiaries as of December 31, 2001 and 2000, and the related
statements of consolidated operations, cash flows and
shareholders' equity for each of the three years in the period
ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Consolidated Freightways Corporation and subsidiaries as of
December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
/s/Arthur Andersen LLP
Portland, Oregon
April 12, 2002
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
Quarterly Financial Data
(Unaudited)
(Dollars in thousands except per share data)
March 31 June 30 September 30 December 31
2001 - Quarter Ended
Revenues $574,578 $590,415 $571,947 $500,763
Operating income (loss) (a) 230 (31,722) (26,071) (33,524)
Loss before income taxes (benefits) (2,051) (33,257) (28,002) (36,286)
Income taxes (benefits) (224) 1,792 1,923 1,166
Net loss (1,827) (35,049) (29,925) (37,452)
Basic loss per share (0.08) (1.60) (1.36) (1.69)
Diluted loss per share (0.08) (1.60) (1.36) (1.69)
Market price range $3.81-$7.88 $5.74-$9.10 $2.60-$8.00 $3.00-$5.30
March 31 June 30 September 30 December 31
2000 - Quarter Ended
Revenues $593,629 $586,101 $592,902 $579,736
Operating income (loss) (b) (1,239)(c) 2,129 5,594 (8,411)
Income (loss) before income taxes
(benefits) (6,079) 1,322(d) 4,565 (10,032)
Income taxes (benefits) (3,100) 1,215 3,244 (4,018)
Net income (loss) (2,979) 107 1,321 (6,014)
Basic earnings (loss) per share (0.14) -- 0.06 (0.28)
Diluted earnings (loss) per share (0.14) -- 0.06 (0.28)
Market price range $5.31-$8.25 $4.00-$7.00 $4.19-$5.31 $3.25-$5.13
<FN>
(a) Includes gains on sales of operating properties of $19.6 million in the quarter ended March 31, 2001; $0.4 million
in the quarter ended June 30, 2001; $4.8 million in the quarter ended September 30, 2001; and $1.3 million
in the quarter ended December 31, 2001.
(b) Includes gains on sales of operating properties of $3.2 million in the quarter ended June 30, 2000; $8.8 million
in the quarter ended September 30, 2000; and $5.7 million in the quarter ended December 31, 2000.
(c) Includes a $4.3 million charge for severance due to an administrative reorganization.
(d) Includes a $4.0 million charge for settlement of a tax sharing liability with the former parent.
Five Year Financial Summary
Consolidated Freightways Corporation
And Subsidiaries
Years Ended December 31
(Dollars in thousands except per share data)
(Unaudited)
2001 2000 1999 1998 1997
SUMMARY OF OPERATIONS
Revenues $ 2,237,703 $ 2,352,368 $ 2,379,000 $ 2,238,423 $ 2,299,075
Operating income (loss) (91,087)(a) (1,927)(b) 7,875(d) 52,064(e) 45,259(f)
Depreciation and amortization 65,952 59,152 58,363 50,918 54,679
Investment income 670 1,490 2,688 4,957 1,894
Interest expense 8,361 4,883 4,160 4,012 3,213
Income (loss) before income
taxes (benefits) (99,596) (10,224)(c) 6,028 51,817 41,982
Income taxes (benefits) 4,657 (2,659) 3,315 25,471 21,623
Net income (loss) (104,253) (7,565) 2,713 26,346 20,359
Net cash provided (used) by
operating activities (41,053) 21,133 21,513 73,842 77,370
PER SHARE
Basic earnings (loss) (4.74) (0.35) 0.12 1.16 0.92
Diluted earnings (loss) (4.74) (0.35) 0.12 1.12 0.89
Shareholders' equity 6.68 11.62 12.16 11.81 10.58
FINANCIAL POSITION
Cash and cash equivalents 28,067 46,523 49,050 123,081 107,721
Property, plant and equipment, net 357,591 348,794 368,952 360,772 382,987
Total assets 880,580 926,682 916,272 890,390 897,796
Capital expenditures 74,068 42,348 67,273 31,271 22,674
Short-term borrowings 83,900 - - - -
Long-term debt 15,100 15,100 15,100 15,100 15,100
Shareholders' equity 148,239 252,184 258,562 266,718 243,447
RATIOS AND STATISTICS
Current ratio 1.0 to 1 1.3 to 1 1.2 to 1 1.3 to 1 1.3 to 1
Net income (loss) as % of revenues (4.7)% (0.3)% 0.1% 1.2% 0.9%
Effective income tax (benefit) rate 4.7% (26.0)% 55.0% 49.2% 51.5%
Long-term debt as % of
total capitalization 9.2% 5.6% 5.5% 5.4% 5.8%
Return on average invested capital (38.5)% (1.9)% 3.6% 26.2% 24.9%
Return on average shareholders' equity (49.7)% (3.0)% 1.1% 13.9% 12.9%
Average shares outstanding 21,995,874 21,492,130 22,349,997 22,634,362 22,066,212
Market price range $2.60-$9.10 $3.25-$8.25 $6.75-$18.44 $7.50-$19.75 $7.00-$18.50
Number of shareholders 32,000 32,500 31,800 34,350 31,650
Number of employees 18,100 21,100 22,100 21,000 21,600
<FN>
(a) Includes $26.1 million of gains on sales of operating properties.
(b) Includes $17.7 million of gains on sales of operating properties and a $4.3 million charge for severance due to an
administrative reorganization.
(c) Includes a $4.0 million charge for settlement of a tax sharing liability with the former parent.
(d) Includes $3.4 million of gains on sales of operating properties.
(e) Includes a $14.4 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(f) Includes a $14.3 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.