SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 1-12149
CONSOLIDATED FREIGHTWAYS CORPORATION
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 77-0425334
175 Linfield Drive, Menlo Park, CA 94025
Telephone Number (415) 326-1700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes___X___ No_______
Number of shares of Common Stock, $.01 par value,
outstanding as of April 30, 1997: 22,025,323
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended March 31, 1997
_____________________________________________________________________
_____________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Statements of Consolidated Operations -
Three Months Ended March 31, 1997 and 1996 5
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,205 $ 48,679
Trade accounts receivable, net of allowances 304,144 285,410
Other receivables 8,230 3,339
Operating supplies, at lower of average
cost or market 11,314 11,511
Prepaid expenses 46,408 35,848
Deferred income taxes 34,678 35,470
Total Current Assets 445,979 420,257
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 78,953 78,989
Buildings and improvements 343,043 343,023
Revenue equipment 561,435 559,823
Other equipment and leasehold improvements 119,380 115,317
1,102,811 1,097,152
Accumulated depreciation and amortization (691,061) (680,464)
411,750 416,688
OTHER ASSETS
Deposits and other assets 10,889 10,808
Deferred income taxes 8,643 9,334
19,532 20,142
TOTAL ASSETS $ 877,261 $ 857,087
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 78,783 $ 87,511
Accrued liabilities 215,981 187,267
Accrued claims costs 82,161 95,780
Federal and other income taxes 5,961 4,083
Total Current Liabilities 382,886 374,641
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 118,065 110,200
Employee benefits 114,522 113,312
Other liabilities and deferred credits 32,757 33,136
Total Liabilities 663,330 646,389
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 and outstanding
22,025,323 shares 220 220
Additional paid-in capital 57,174 57,174
Cumulative translation adjustment (4,931) (4,910)
Retained earnings 161,468 158,214
Total Shareholders' Equity 213,931 210,698
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 877,261 $ 857,087
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands except per share amounts)
Three Months Ended
March 31,
1997 1996
REVENUES $ 545,633 $ 502,544
COSTS AND EXPENSES
Salaries, wages and benefits 357,997 356,351
Operating expenses 90,742 82,825
Purchased transportation 43,337 37,588
Operating taxes and licenses 18,041 19,000
Claims and insurance 13,799 14,245
Depreciation 13,180 17,092
537,096 527,101
OPERATING INCOME (LOSS) 8,537 (24,557)
OTHER INCOME (EXPENSE)
Investment income 194 78
Interest expense (299) (240)
Miscellaneous, net (433) (1,623)
(538) (1,785)
Income (loss) before income taxes (benefits) 7,999 (26,342)
Income taxes (benefits) 4,745 (6,206)
NET INCOME (LOSS) $ 3,254 $ (20,136)
Average shares outstanding 22,025,323 22,025,323
NET INCOME (LOSS) PER SHARE $ 0.15 $ (0.91)
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1997 1996
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 48,679 $ 26,558
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 3,254 (20,136)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 13,628 17,213
Increase in deferred income taxes 1,483 3,333
Gains from property disposals, net (298) (636)
Changes in assets and liabilities:
Receivables (23,625) (16,549)
Prepaid expenses (10,560) (9,605)
Accounts payable (8,728) (2,239)
Accrued liabilities 28,714 11,049
Accrued claims costs (5,754) 3,728
Income taxes 1,878 (1,373)
Employee benefits 1,210 989
Other (1,125) 4,362
Net Cash Provided (Used) by Operating Activities 77 (9,864)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,058) (18,551)
Proceeds from sales of property 507 1,468
Net Cash Used by Investing Activities (7,551) (17,083)
CASH FLOWS FROM FINANCING ACTIVITIES
Former parent investments and advances -- 36,161
Net Cash Provided by Financing Activities -- 36,161
Increase (Decrease) in Cash and Cash Equivalents (7,474) 9,214
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41,205 $ 35,772
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of
Consolidated Freightways Corporation and subsidiaries (the Company)
have been prepared by the Company, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management,
the consolidated financial statements include all normal recurring
adjustments necessary to present fairly the information required to
be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted from these statements pursuant to such rules and regulations
and, accordingly, should be read in conjunction with the consolidated
financial statements included in the Company's 1996 Annual Report to
Shareholders.
There have been no significant changes in the accounting
policies of the Company. There were no significant changes in the
Company's commitments and contingencies as previously described in
the 1996 Annual Report to Shareholders and related annual report to
the Securities and Exchange Commission on Form 10-K.
2. Stock Compensation
As previously disclosed in the Company's 1996 Annual Report to
Shareholders and related annual report to the Securities and Exchange
Commission on Form 10-K, the Company granted 2,146,450 shares of
restricted stock to non-employee directors and certain designated
employees in December 1996. As of March 31, 1997, these granted but
unissued shares had an aggregate market value of $25,490,000. The
shares vest over three years and are contingent upon the Company's
stock price achieving pre-determined increases over the grant price
for 10 consecutive trading days following each anniversary of the
grant. If performance conditions are met in December 1997,
approximately 715,500 shares of stock, or one-third of the initial
grant, will be issued and compensation expense will be recognized
based on the then market price of the stock. Based on the market
price of the stock as of March 31, 1997, the Company would recognize
a $5.1 million non-cash charge, net of related tax benefits.
3. Contingencies
The Company and its subsidiaries are defendants in various
lawsuits incidental to their businesses. It is the opinion of
management that the ultimate outcome of these actions will not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company earned net income of $3.3 million or $0.15 per share
for the quarter ended March 31, 1997 on revenues of $545.6 million.
This compares with a net loss of $20.1 million or ($0.91) per share on
revenues of $502.5 million for the same period last year. The
revenue increase of $43.1 million or 8.6% was primarily due to
increased tonnage levels coupled with a sustained, general rate
increase of 5.65% on January 1, 1997. Total and less-than-truckload
(LTL) tonnage increased 6.5% and 6.3%, respectively, over the same
period last year, due primarily to valued-added service offerings.
The prior year was impacted by the implementation of the Business
Accelerator System (BAS), a re-engineering of the Company's freight
flow system, in October 1995.
Operating income was $8.5 million, a $33.1 million improvement
over the same period in 1996 with the operating ratio improving to
98.4 percent from 104.9 percent. The improvement in operating results
reflects the cost savings derived from more efficient operations
under BAS and the fact that prior year results were adversely
affected by the costs of completing operational refinements and
improving service levels in the new freight flow system.
Salaries, wages and benefits for the quarter ended March 31,
1997, at 65.6% of revenues, compares favorably with 70.9% for the
same period in 1996, as the prior year was adversely impacted by the
implementation of BAS. The improvement also reflects increased
productivity and freight handling efficiencies in the linehaul, dock
and city pick-up operations and the reduction of workers compensation
expense following implementation of aggressive cost containment
programs. Purchased transportation increased $5.7 million as the
Company increased its use of rail services from 22% to 26% of
intercity miles. Decreases in operating expense realized by greater
utilization of rail services were offset by increased fuel and
maintenance expenses, and resulted in a net increase in operating
expenses of $7.9 million. Depreciation expense decreased approximately
22.9% from the same period last year as the Company transferred real
properties, with an aggregate net book value of $57.6 million, to its
former parent in connection with its consolidation of terminal
properties at the spin-off in December 1996.
Other expense, net decreased $1.2 million from the same period
last year primarily due to the absence in 1997 of interest expense on
borrowings from the former parent, which was included in
Miscellaneous, net. The Company periodically borrowed funds under its
secured credit facility during the quarter ended March 31, 1997, but
ended the quarter with no borrowings outstanding.
The effective income tax (benefit) rates of 59.3% and (23.6%)
for the quarters ended March 31, 1997 and 1996, respectively, differ
from the statutory Federal rate due to foreign taxes and non-
deductible items.
On April 1, 1997, a 3.65% Teamsters wage and benefit increase
became effective which is expected to cost the Company approximately
$30 million in 1997. However, with continued focus on improving
linehaul efficiency and freight handling in its linehaul, dock and
city pickup operations, and an emphasis on business with higher
profit contributions, management expects to partially offset the
increased costs. As discussed in Footnote 2 in Part 1
of this Form 10-Q, the Company has a restricted stock program. If
performance conditions are met in December 1997, approximately
715,500 shares of stock will be issued and compensation expense will
be recognized based on the then market price of the stock. Based on
the market price of the stock as of March 31, 1997, the Company would
recognize a $5.1 million non-cash charge, net of related tax
benefits.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company had $41.2 million in cash and
cash equivalents. Net cash flow from operations was slightly above
breakeven, as net income and depreciation and amortization were
offset by changes in working capital. The increase in accounts
receivable of $23.6 million reflects the increased revenue levels.
Management expects cash flow from operations for the remainder of
1997 will be sufficient for working capital and capital expenditure
requirements. Capital expenditures for the period were $8.1 million
compared with $18.6 million in the comparable quarter of the previous
year, reflecting fewer fleet replacements and facility expenditures.
The Company expects capital expenditures to be approximately $21
million for the remainder of 1997 and will fund these with cash from
operations supplemented by financing arrangements, if necessary.
The Company has a $225.0 million secured credit facility with
several banks to provide for working capital and letter of credit
needs. Borrowings under the agreement, which expires in 2000, bear
interest based upon either prime or LIBOR, plus a margin dependent on
the Company's financial performance. Borrowings and letters of
credit are secured by substantially all of the assets (excluding real
property and certain rolling stock) of Consolidated Freightways
Corporation of Delaware (CFCD), a wholly owned subsidiary of the Company,
all of the outstanding stock of CFCD and 65% of the outstanding
capital stock of Canadian Freightways Limited (CFL), a wholly owned
subsidiary of CFCD. As of March 31, 1997, the Company had no
short-term borrowings and $68.3 million of letters of credit
outstanding under this facility. The continued availability of
funds under this credit facility will require that CFCD remain
in compliance with certain financial covenants. The most
restrictive covenants require the Company to maintain a minimum
level of earnings before interest, taxes, depreciation and
amortization, minimum amounts of tangible net worth and fixed charge
coverage, and limit capital expenditures. The Company is in
compliance as of March 31, 1997 and expects to be in compliance with
these covenants for the remainder of the year.
INFLATION
Significant increases in fuel prices, to the extent not offset
by increases in transportation rates, would have a material adverse
effect on the profitability of the Company. Historically, the
Company has responded to periods of sharply higher fuel prices by
implementing fuel surcharge programs or base rate increases, or both,
to recover additional costs, but there can be no assurance that the
Company will be able to successfully implement such surcharges or
increases in response to increased fuel costs in the future. The
Company currently has in place a fuel surcharge program in response
to the increased fuel prices that began in 1996 and continue in 1997.
OTHER
The Company's operations necessitate the storage of fuel in
underground tanks as well as the disposal of substances regulated by
various Federal and state laws. The Company adheres to a stringent
site-by-site tank testing and maintenance program performed by
qualified independent parties to protect the environment and comply
with regulations. Where clean-up is necessary, the Company takes
appropriate action.
The Company has received notices from the Environmental
Protection Agency 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. Based upon cost studies performed by independent third
parties, the Company believes its obligations with respect to such
sites would not have a material adverse effect on its financial
condition or results of operations.
CFCD and the International Brotherhood of
Teamsters (IBT) are parties to the National Master Freight Agreement
which expires on March 31, 1998. Although CFCD believes that it
will be able to successfully negotiate a new contract with the IBT,
there can be no assurances 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 CFCD's business, financial condition or results of operations.
Certain statements included herein constitute forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to a number of
risks and uncertainties. In that regard, the following factors,
among others, could cause actual results and other matters to differ
materially from those in such statements: changes in general business
and economic conditions; increasing domestic and international
competition and pricing pressure; changes in fuel prices; uncertainty
regarding the Company's ability to improve results of operations;
labor matters, including changes in labor costs, renegotiation of
labor contracts and the risk of work stoppages or strikes; changes in
governmental regulation, and environmental and tax matters. As a
result of the foregoing, no assurance can be given as to future
results of operations or financial condition.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously disclosed, the Company has received notices from the
Environmental Protection Agency 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. Based upon cost studies performed by independent
third parties, the Company believes its obligations with respect to
such sites would not have a material adverse effect on its
financial condition or results of operations. Certain legal matters
are discussed in Note 3 in the Notes to Consolidated Financial
Statements in Part I of this form.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Participation Agreement dated as of December 22, 1995
between Consolidated Freightways Corporation of Delaware,
as lessee, and ABN AMRO Bank N.V., as lessor, as amended.
(10.2) Participation Agreement dated as of September 30, 1994
between Consolidated Freightways Corporation of Delaware,
as lessee, and BA Leasing & Capital Corporation and various
other financial institutions, as lessors, as amended.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
March 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company (Registrant) has duly
caused this Form 10-Q Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Consolidated Freightways Corporation
(Registrant)
May 9, 1997 /s/David F. Morrison
David F. Morrison
Executive Vice President and
Chief Financial Officer
May 9, 1997 /s/Robert E. Wrightson
Robert E. Wrightson
Senior Vice President and
Controller