Exhibit 13
Consolidated Freightways Corporation
and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Consolidated Freightways Corporation (the Company) improved operating
income for the second consecutive year as an independent company, earning
$52.1 million in 1998. This is a $6.8 million improvement over 1997 and a
$125.1 million improvement over the 1996 operating loss of $73.1 million.
This increase in operating income reflects the success of management's
programs to contain costs, improve freight mix and gain market acceptance
of its higher yielding premium services. The 1998 results were accomplished
despite a 2.6% reduction in revenue. The improved performance generated
cash from operations of $56.3 million and $77.4 million for 1998 and 1997,
respectively. The 1996 results were adversely impacted by a reconfiguration
of the freight flow system.
Earnings per basic share in 1998 were $1.16 compared with $0.92 in the
previous year. Both 1998 and 1997 include pre-tax non-cash charges of
$14.4 million and $14.3 million, respectively, for the issuance of common
shares to all eligible, full-time employees under the Company's restricted
stock plan. Excluding these charges, earnings per basic share were $1.55
in 1998 compared with $1.31 in 1997.
Revenues for 1998 declined 2.6% as total and less-than-truckload (LTL)
tonnage declined 8.7% and 6.6%, respectively. Yield management programs,
shippers diverting freight due to the perceived threat of a work stoppage
early in the year and the regionalization of distribution activities
contributed to the lower tonnage levels. The decline in tonnage was
partially offset by improved revenue yields. Net revenue per hundred
weight increased 6.4% over 1997 due to improved freight mix, growth of
expedited service offerings and general rate increases, and despite the
elimination of a fuel surcharge in early 1998. In 1997, revenue per
hundred weight increased 6.2% over 1996 for the same reasons. Coupled with
an LTL tonnage increase of 1.6%, 1997 revenues increased 7.1% over 1996.
Salaries, wages and benefits decreased 4.2% in 1998 compared to 1997
primarily due to lower business volumes. The 1998 expenses include a $13.0
million signing bonus paid on signature of a new five year National Master
Freight Agreement, a significant savings over historical contractual wage
increases. The 1997 salaries, wages and benefits were 0.7% higher than
1996 reflecting a $30.0 million Teamster wage and benefit increase, an
increase of $21.1 million in incentive compensation for non-contractual
employees, a $14.3 million non-cash charge related to the Company's
restricted stock plan and expenses associated with increased business
levels. The Company benefited in 1998 and 1997 from increased use of
purchased transportation and the success of workers' compensation cost
containment programs. The 1996 expenses were adversely impacted by a
reconfiguration of the freight flow system in late 1995, and include salary
and benefits for administrative services which were outsourced to the
former parent in 1997 and a $15.0 million charge to increase workers'
compensation reserves.
Operating expenses increased 1.0% in 1998, despite lower business
volumes, due primarily to expenses related to the Company's Year 2000
project and a 9.0% increase in repair and maintenance expense on the
Company's aging fleet. Operating expenses increased 5.4% in 1997 over 1996
due to charges for outsourced administrative services that were included in
salaries, wages and benefits in 1996, as discussed above, and increased
repair and maintenance expense. The Company benefited in 1998 and 1997
from lower fuel costs per gallon and a higher proportion of freight
transported via rail. Operating expenses in 1996 were adversely impacted by
a reconfiguration of the freight flow system in late 1995.
Purchased transportation increased 8.6% in 1998 over 1997 as the
Company continued to maximize use of lower cost rail services. Rail miles
as a percentage of total inter-city miles were 28.0% in 1998 compared with
27.9% in 1997. The increase also reflects a 2.2% increase in rail cost per
mile in 1998 as well as costs associated with the Company's growing
PrimeTime Service. Purchased transportation increased 6.7% in 1997 over
1996 levels as rail miles increased from 26.0% of total inter-city miles.
Operating taxes and licenses decreased 16.2% in 1998 from 1997 due to
lower business volumes, increased use of rail services and continued
reductions in property tax assessments on terminal properties. Operating
taxes and licenses in 1997 decreased 2.9% from 1996 due to increased use
of rail services and reduced property tax assessments.
Claims and insurance decreased 12.5% in 1998 due to lower business
volumes and continued improved claims experience over last year. Claims
and insurance increased 11.4% in 1997 over 1996 due to increased business
volumes.
Depreciation expense decreased 7.2% and 17.5% in 1998 and 1997,
respectively, due primarily to a higher proportion of fully depreciated
equipment. Additionally, $57.6 million of excess properties were
transferred to the former parent in December 1996.
Other expense, net decreased $3.0 million and $1.4 million in 1998 and
1997, respectively, due to increased investment income on the Company's
short-term investments. 1996 includes interest expense on borrowings from
the former parent, which is included in Miscellaneous, net in the
Statements of Consolidated Operations.
The Company's effective income tax (benefit) rates differ from the
statutory Federal rate due primarily to foreign and state taxes and non-
deductible items.
During 1999 management will continue its emphasis on higher yield
premium services including its PrimeTime Service, preventing and containing
claims costs and improving linehaul and city operations. This should
contribute to a third year of improved operating performance and help
offset contractual wage and benefit increases of approximately $14 million
and amortization of approximately $5 million related to the
replacement of certain operational and financial systems and
applications for Year 2000 compliance. While management is optimistic
about the Company's long term prospects, several issues and uncertainties
may impact 1999 results.
Declining Market Share: The Company is faced with a steady erosion of
its market share in its traditional greater than 1,500 miles length- of-
haul 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 new longer
length-of-haul service offerings by regional and parcel carriers. To enjoy
continued growth, the Company must invest in its infrastructure to become
more competitive in shorter length-of-haul lanes and develop services
tailored to customer needs.
Price Stability: A relatively robust economy, pricing discipline
amongst competitors and reduced industry capacity has contributed to
relative price stability over the last two years. A decline in economic
growth and/or competitive action through price discounting may
significantly impact the Company's performance through a reduction in
revenue per hundredweight with minimal reduction in cost.
Cyclicality and Seasonality: The less than truckload industry is
affected by the state of the overall economy and seasonal fluctuations,
which affect the amount of freight to be transported. Freight shipments,
operating costs and earnings are also affected adversely by inclement
weather conditions. The months of September, October and November of each
year usually have the highest business levels while the first quarter has
the lowest.
As discussed in Footnote 8 in the Company's 1998 Consolidated
Financial Statements, the Company has a restricted stock plan. If
performance conditions are met, approximately 1,100,000 shares of common
stock will be issued in December 1999, and compensation expense recognized
based on the then market price of the stock. Based on the market price of
the stock on December 31, 1998, the Company would recognize a $10.4 million
non-cash charge, net of related tax benefits.
Risk Factors
The Company is subject to market risks related to changes in interest
rates and foreign currency exchange rates, primarily the Canadian dollar.
Management believes that the impact on the Company's financial position,
results of operations and cash flows from fluctuations in interest rates
and or 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.
Year 2000
Management has a formal plan in place through which it has identified
its operational and financial systems and applications requiring either
modification or replacement for Year 2000 compliance. Of these systems,
the Company's on-line equipment and freight tracking system is deemed most
critical. Based upon an assessment at December 31, 1998, testing and
modification of IT systems is approximately 55% complete while testing of
non-IT embedded systems is approximately 35% complete. 1998 expenses
related to Year 2000 modifications total $4.2 million and include payroll
and payroll related costs as well as the costs of external consultants. In
certain cases, management has opted to replace rather than modify certain
of its systems and applications. Costs associated with the replacement of
systems and applications are capitalized. As of December 31, 1998, $15.0
million has been capitalized and includes hardware, software and payroll
costs as well as costs of external consultants. Management expects to
spend an additional $22 million to convert its internal systems for Year
2000 compliance. Of this amount, it is expected that approximately $5
million will be expensed and approximately $17 million will be capitalized.
These estimates may be revised based upon the results of continued testing.
Management expects that all Year 2000 system modifications and replacements
will be funded with cash from operations.
Management has engaged outside consultants as part of the process of
assessing its Year 2000 risks. Part of that assessment includes 3rd party
compliance readiness. Management has identified and prioritized its
critical customers and key suppliers of products and services and is
currently soliciting written responses to Year 2000 readiness
questionnaires. Management will formulate contingency plans as necessary
based upon the results of those questionnaires.
Management anticipates having all of its internal systems Year 2000
compliant by mid-1999. However, failure to convert the Company's on-line
equipment and freight tracking system by the Year 2000 could result in the
inability to manage the flow of equipment and freight through the system
efficiently, but would not preclude the delivery of freight. Additionally,
failure to convert financial systems on a timely basis could result in a
return to manual processes resulting in delayed customer billings and
vendor payments. To the extent that the Company or its critical customers
and key suppliers fail to achieve Year 2000 compliance, there could be a
material adverse effect on the Company's business, results of operations
and financial position.
Liquidity and Capital Resources
As of December 31, 1998, the Company had $123.1 million in cash and
cash equivalents. Net cash flow from operations for the year ended
December 31, 1998 was $56.3 million due primarily to net income and
depreciation and amortization. Capital expenditures for the year ended
December 31, 1998 were $31.3 million compared with $22.7 million in the
prior year. Management expects capital expenditures to be approximately
$120 million for 1999, primarily for replacement revenue equipment and
upgrades to terminal properties. It is anticipated that those expenditures
will be funded with cash from operations, supplemented by financing
arrangements if necessary.
The Company entered into two operating lease agreements for 485
tractors and 27 trucks in the fourth quarter of 1998 for the replacement of
older equipment. Lease payments in 1999 will total approximately $4.5
million.
During the third quarter of 1998, the Company repurchased 1,448,174
shares of its common stock for $12.6 million. Approximately one million of
the repurchased shares were issued under the Company's restricted stock
program.
On July 2, 1998 the Company amended its secured credit facility,
reducing the total facility from $225.0 million to $150.0 million. Working
capital borrowings are limited to $100.0 million while letters of credit
are limited to $150.0 million. Borrowings under the agreement, which
expires in 2000, bear interest based upon prime or LIBOR, adjusted for a
margin dependent on the Company's financial performance. The amendment
reduced the margin and released all revenue equipment previously encumbered
under the original agreement. Borrowings and letters of credit are secured
primarily by eligible accounts receivable. The amendment further provides
for reduced letter of credit and unused line fees, and less restrictive
financial covenants. As of December 31, 1998, the Company had no short-
term borrowings and $74.6 million of letters of credit outstanding under
this facility. The continued availability of funds under this credit
facility will require that the Company comply with certain financial
covenants, the most restrictive of which limits capital expenditures. The
Company is in compliance as of December 31, 1998 and expects to be in
compliance with these covenants in 1999.
As of December 31, 1998, the Company's ratio of long-term debt to
total capital was 5.4% compared with 5.8% as of December 31, 1997. The
current ratio was 1.3 to 1 as of December 31, 1998 and 1997.
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.
However, 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.
Other
On April 13, 1998, the International Brotherhood of Teamsters ratified
a new five year National Master Freight Agreement with Consolidated
Freightways Corporation of Delaware, a wholly owned subsidiary of the
Company, and three other national motor freight carriers.
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. Under CERCLA, PRP's are jointly and severally
liable for all site remediation and expenses. 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 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: changes in general business and economic
conditions; increases in domestic and international competition and pricing
pressure; increases in fuel prices; uncertainty regarding the Company's
ability to improve results of operations; labor matters, including
shortages of drivers and increases in labor costs; changes in governmental
regulation; environmental and tax matters; increases in costs associated
with the conversion of financial and operational systems and applications
for Year 2000 compliance and failure to convert all systems by the year
2000. 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)
1998 1997
ASSETS
Current Assets
Cash and cash equivalents (Note 2) $ 123,081 $ 107,721
Trade accounts receivable, net of
allowances (Note 2) 292,463 310,601
Other accounts receivable 9,195 10,300
Operating supplies, at lower of average cost
or market 7,561 8,741
Prepaid expenses 40,335 39,696
Deferred income taxes (Notes 2 and 6) 6,806 16,554
Total Current Assets 479,441 493,613
Property, Plant and Equipment, at cost (Note 2)
Land 78,218 78,227
Buildings and improvements 343,492 342,413
Revenue equipment 562,624 559,610
Other equipment and leasehold improvements 123,404 116,390
1,107,738 1,096,640
Accumulated depreciation and amortization (746,966) (713,653)
360,772 382,987
Other Assets
Deposits and other assets (Note 2) 32,199 9,468
Deferred income taxes (Notes 2 and 6) 17,978 11,728
50,177 21,196
Total Assets $ 890,390 $ 897,796
[FN]
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
1998 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 84,861 $ 83,127
Accrued liabilities (Note 3) 187,528 212,644
Accrued claims costs (Note 2) 72,942 82,023
Federal and other income taxes (Note 6) 14,173 7,706
Total Current Liabilities 359,504 385,500
Long-Term Liabilities
Long-term debt (Note 4) 15,100 15,100
Accrued claims costs (Note 2) 103,574 112,173
Employee benefits (Note 7) 117,236 115,220
Other liabilities 28,258 26,356
Total Liabilities 623,672 654,349
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 23,066,905
and 23,038,437 shares, respectively 231 230
Additional paid-in capital 77,303 71,461
Accumulated other comprehensive loss (11,565) (6,572)
Retained earnings 204,919 178,573
Treasury stock, at cost (477,686 and
18,151 shares, respectively) (4,170) (245)
Total Shareholders' Equity 266,718 243,447
Total Liabilities and Shareholders' Equity $ 890,390 $ 897,796
[FN]
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)
1998 1997 1996
REVENUES $ 2,238,423 $ 2,299,075 $ 2,146,172
COSTS AND EXPENSES
Salaries, wages and benefits 1,445,899 1,509,665 1,498,707
Operating expenses 367,098 363,615 345,006
Purchased transportation 207,388 191,041 179,126
Operating taxes and licenses 61,090 72,882 75,083
Claims and insurance 55,804 63,741 57,214
Depreciation 49,080 52,872 64,102
2,186,359 2,253,816 2,219,238
OPERATING INCOME (LOSS) 52,064 45,259 (73,066)
OTHER INCOME (EXPENSE)
Investment income 4,957 1,894 263
Interest expense (4,012) (3,213) (843)
Miscellaneous, net (Note 11) (1,192) (1,958) (4,131)
(247) (3,277) (4,711)
Income (loss) before income taxes (benefits) 51,817 41,982 (77,777)
Income taxes (benefits) (Note 6) 25,471 21,623 (22,201)
NET INCOME (LOSS) $ 26,346 $ 20,359 $ (55,576)
Basic average shares outstanding (Note 2) 22,634,362 22,066,212 22,025,323
Diluted average shares outstanding (Note 2) 23,510,752 22,755,714 22,025,323
Basic Earnings (Loss) per Share: (Note 2) $ 1.16 $ 0.92 $ (2.52)
Diluted Earnings (Loss) per Share: (Note 2) $ 1.12 $ 0.89 $ (2.52)
<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)
1998 1997 1996
Cash and Cash Equivalents, Beginning
of Period $ 107,721 $ 48,679 $ 26,558
Cash Flows from Operating Activities
Net income (loss) 26,346 20,359 (55,576)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 50,918 54,679 64,565
Increase (decrease) in deferred income taxes (Note 6) 3,498 16,522 (35,634)
(Gains) losses from property disposals, net 94 (914) (3,089)
Issuance of common stock under restricted stock plan (Note 8) 14,449 14,297 -
Changes in assets and liabilities:
Receivables 19,243 (32,152) (34,484)
Accounts payable 1,734 (4,384) 1,199
Accrued liabilities (25,116) 25,377 4,612
Accrued claims costs (17,680) (11,784) 22,531
Income taxes 6,467 3,623 2,715
Employee benefits 2,016 1,908 7,216
Other (25,701) (10,161) 28,490
Net Cash Provided by Operating Activities 56,268 77,370 2,545
Cash Flows from Investing Activities
Capital expenditures (31,271) (22,674) (48,203)
Proceeds from sales of property 2,918 4,591 8,329
Net Cash Used by Investing Activities (28,353) (18,083) (39,874)
Cash Flows from Financing Activities
Purchase of treasury stock (12,555) (245) -
Former parent investment and advances, net (Note 11) - - 59,450
Net Cash Provided (Used) by Financing Activities (12,555) (245) 59,450
Increase in Cash and Cash Equivalents 15,360 59,042 22,121
Cash and Cash Equivalents, End of Period $ 123,081 $ 107,721 $ 48,679
Supplemental Disclosure
Cash paid for income taxes $ 15,104 $ 6,399 $ 4,099
Cash paid for interest $ 775 $ 1,389 $ 877
<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
Common Stock Additional Other Treasury
Number of Paid-in Comprehensive Retained Stock,
Shares Amount Capital Income (Loss) Earnings at cost Total
Balance, December 31, 1995 22,025,323 $ 220 $ 57,174 $ (5,611) $ 207,325 $ - $ 259,108
Comprehensive income (loss) (Note 2)
Net loss - - - - (55,576) - (55,576)
Foreign currency translation adjustment - - - 701 - - 701
Total comprehensive loss (54,875)
Net cash infusion from former
parent (Note 11) - - - - 59,450 - 59,450
Net asset transfers to former
parent (Note 11) - - - - (52,985) - (52,985)
Balance, December 31, 1996 22,025,323 220 57,174 (4,910) 158,214 - 210,698
Comprehensive income (loss) (Note 2)
Net income - - - - 20,359 - 20,359
Foreign currency translation adjustment - - - (1,662) - - (1,662)
Total comprehensive income 18,697
Issuance of common stock under restricted
stock plan (Note 8) 1,013,114 10 14,287 - - - 14,297
Purchase of 18,151 treasury shares - - - - - (245) (245)
Balance, December 31, 1997 23,038,437 230 71,461 (6,572) 178,573 (245) 243,447
Comprehensive income (loss) (Note 2)
Net income - - - - 26,346 - 26,346
Foreign currency translation adjustment - - - (4,993) - - (4,993)
Total comprehensive income 21,353
Purchase of 1,448,174 treasury shares - - - - - (12,555) (12,555)
Issuance of common stock under restricted
stock plan (Note 8) 28,468 1 23 - - - 24
Issuance of 988,639 treasury shares under
restricted stock plan (Note 8) - - 5,819 - - 8,630 14,449
Balance, December 31, 1998 23,066,905 $ 231 $ 77,303 $(11,565) $ 204,919 $ (4,170) $ 266,718
<FN>
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Consolidated Financial Statements and Basis of Presentation: The
accompanying consolidated financial statements include the accounts of
Consolidated Freightways Corporation and its wholly owned subsidiaries (the
Company). 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, Canadian Sufferance Warehouses, Blackfoot
Logistics, and other related businesses; Redwood Systems, a third party
logistics provider; and the Leland James Service Corporation (LJSC), an
administrative service provider. The Company primarily provides less-than-
truckload transportation and supply chain management services throughout
the United States, Canada and Mexico, and international freight services
between the United States and more than 80 countries.
The Company was a wholly owned subsidiary of CNF Transportation Inc.
(the former parent) through December 1, 1996. On December 2, 1996, the
Company was spun-off in a tax-free distribution (the Distribution) to
shareholders. The amounts included in the accompanying consolidated
financial statements through December 1, 1996 are based upon historical
amounts included in the consolidated financial statements of the former
parent and are presented as if the Company had operated as an independent
stand-alone entity, except that it has not been allocated any portion of
the former parent's consolidated borrowings or interest expense thereon.
2. Principal Accounting Policies
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 in-
transit or completed service methods of recognition.
Cash and Cash Equivalents: The Company considers highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Trade Accounts Receivable, Net: Trade accounts receivable are net of
allowances of $11,413,000 and $7,467,000 as of December 31, 1998 and 1997,
respectively.
Property, Plant and Equipment: 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 are recorded in operating expenses.
Software Costs: The Company adopted the provisions of American
Institute of Certified Public Accountants (AICPA) Statement of Position 98-
1 (SOP 98-1) "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" effective January 1, 1998. SOP 98-1
standardizes which costs related to computer software developed or obtained
for internal use are to be capitalized and those that are to be expensed as
incurred. Prior to adoption of this statement, the Company capitalized
only the costs of purchased software while costs of internally developed
software were expensed. The Company capitalized $17,574,000 of purchased
and internally developed software costs in the year ended December 31,
1998. These costs are included in Other Assets on the Consolidated
Balance Sheet and are being amortized over 5 years.
Income Taxes: The Company follows the liability method of accounting
for income taxes.
Accrued Claims Costs: The Company provides for the uninsured costs of
medical, casualty, liability, vehicular, cargo and workers' compensation
claims. 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 workers' compensation claims
which are payable over several years.
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.
Interest Expense: The interest expense presented in the Statements of
Consolidated Operations is related to industrial revenue bonds, as
discussed in Note 4 "Debt", and long-term tax liabilities. The interest
expense as presented for the year ended December 31, 1996 is not
necessarily intended to reflect the expense that would have been incurred
had the Company been an independent stand-alone company prior to the
Distribution.
Earnings per Share: Basic earnings per share are calculated using only
the weighted average shares outstanding for the period. Diluted earnings
per share include the dilutive effect of the Company's restricted stock.
See Footnote 8, "Stock Compensation Plans."
The following charts reconcile basic to diluted earnings per share for
the years ended December 31, 1998, 1997 and 1996:
(Dollars in thousands except per share amounts)
Weighted Earnings
Net Income Average (Loss)
Years Ended (Loss) Shares Per Share
December 31, 1998
Basic $ 26,346 22,634,362 $ 1.16
Dilutive effect
of restricted stock -- 876,390 (0.04)
Diluted $ 26,346 23,510,752 $ 1.12
December 31, 1997
Basic $ 20,359 22,066,212 $ 0.92
Dilutive effect
of restricted stock -- 689,502 (0.03)
Diluted $ 20,359 22,755,714 $ 0.89
December 31, 1996
Basic $(55,576) 22,025,323 $(2.52)
Dilutive effect
of restricted stock -- -- --
Diluted $(55,576) 22,025,323 $(2.52)
Comprehensive Income: The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" in 1998. Comprehensive income includes all changes
in equity during a period except those resulting from investments by and
distributions to owners. Comprehensive income (loss) for the years ended
December 31, 1998, 1997 and 1996 is presented in the Statements of
Consolidated Shareholders' Equity.
Estimates: Management makes estimates and assumptions when preparing
the financial statements in conformity with generally accepted accounting
principles. These estimates and assumptions affect the amounts reported in
the accompanying financial statements and notes thereto. Actual results
could differ from those estimates.
Recent Accounting Pronouncements: The AICPA issued Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities." This
statement requires that the costs of start-up activities and organization
costs be expensed as incurred. The statement is effective for fiscal years
beginning after December 15, 1998. Management does not expect that
adoption of this standard will have a material effect on the Company's
financial position or results of operations.
The Financial Accounting Standards Board (FASB) issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments. It 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
derivatives' intended use. This statement is effective for fiscal years
beginning after June 15, 1999. Management does not expect that adoption of
this standard will 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. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
1998 1997
(Dollars in thousands)
Accrued payroll and benefits $ 88,173 $101,665
Other accrued liabilities 54,184 59,378
Accrued union health and welfare 21,857 22,281
Accrued taxes other than income taxes 14,045 19,854
Accrued incentive bonus 9,269 9,466
Total accrued liabilities $187,528 $212,644
4. Debt
Long-term debt consisted of $15,100,000 of industrial revenue bonds
with rates between 5.15% and 5.25% as of December 31, 1998. Annual
maturities and sinking fund requirements of long-term debt as of December
31, 1998 are as follows: $0 in 1999; $0 in 2000; $0 in 2001; $0 in 2002;
$1,000,000 in 2003 and $14,100,000 in 2004.
During 1998 the Company amended its secured credit facility, reducing
the total facility from $225.0 million to $150.0 million. Working capital
borrowings are limited to $100.0 million while letters of credit are
limited to $150.0 million. Borrowings under the agreement, which expires
in 2000, bear interest based upon prime or LIBOR, adjusted for a margin
dependent on the Company's financial performance. The amendment reduced the
margin and released all revenue equipment previously encumbered under the
original agreement. Borrowings and letters of credit are secured primarily
by eligible accounts receivable. The amendment further provides for
reduced letter of credit and unused line fees, and less restrictive
financial covenants. As of December 31, 1998, the Company had no short-
term borrowings and $74.6 million of letters of credit outstanding under
this facility. The continued availability of funds under this credit
facility will require that the Company comply with certain financial
covenants, the most restrictive of which limits capital expenditures. The
Company is in compliance as of December 31, 1998 and expects to be in
compliance with these covenants in 1999.
Based on interest rates currently available to the Company for debt
with similar terms and maturities, the fair value of long-term debt was
equivalent to book value as of December 31, 1998. As of December 31, 1997,
the fair market value exceeded book value by 10.6%.
5. Leases
The Company is obligated under various non-cancelable leases 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, 1998, are $25,649,000 in 1999, $20,001,000 in 2000, $7,482,000 in 2001,
$6,121,000 in 2002, $5,006,000 in 2003, and $9,622,000 thereafter.
Rental expense for operating leases is comprised of the following:
1998 1997 1996
(Dollars in thousands)
Minimum rentals $37,953 $38,558 $47,146
Less sublease rentals (1,809) (2,102) (1,029)
Net rental expense $36,144 $36,456 $46,117
6. Income Taxes
The components of pretax income (loss) and income taxes (benefits) are
as follows:
1998 1997 1996
(Dollars in thousands)
Pretax income (loss)
U.S. corporations $ 38,115 $ 31,296 $ (86,829)
Foreign corporations 13,702 10,686 9,052
Total pretax income (loss) $ 51,817 $ 41,982 $ (77,777)
Income taxes (benefits)
Current
U.S. Federal $ 14,244 $ (296) $ 11,014
State and local 2,025 88 (2,048)
Foreign 5,704 5,309 4,467
21,973 5,101 13,433
Deferred
U.S. Federal 2,615 14,526 (35,098)
State and local 660 1,884 (536)
Foreign 223 112 -
3,498 16,522 (35,634)
Total income taxes (benefits) $ 25,471 $ 21,623 $ (22,201)
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. Although
realization is not assured, management believes it more likely than not
that all deferred tax assets will be realized.
The components of deferred tax assets and liabilities in the
Consolidated Balance Sheets as of December 31 relate to the following:
1998 1997
(Dollars in thousands)
Deferred taxes - current
Assets
Reserves for accrued claims costs $ 19,740 $ 23,079
Other reserves not currently deductible 7,358 4,282
Liabilities
Unearned revenue, net (8,871) (9,346)
Employee benefits (11,421) (1,461)
Total deferred taxes - current 6,806 16,554
Deferred taxes - non current
Assets
Reserves for accrued claims costs 39,865 43,675
Employee benefits 27,469 22,934
Retiree health benefits 24,016 24,054
Federal net operating loss and
credit carryovers -- 1,743
Liabilities
Depreciation (57,899) (63,937)
Tax benefits from leasing transactions (12,383) (13,875)
Other (3,090) (2,866)
Total deferred taxes - non current 17,978 11,728
Net deferred taxes $ 24,784 $ 28,282
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:
1998 1997 1996
U.S. statutory tax rate 35.0% 35.0% (35.0)%
State income taxes (benefits),
net of federal income
tax benefit 3.8 4.7 (2.0)
Foreign taxes in excess of
U.S. statutory rate 2.2 4.0 1.7
Non-deductible operating
expenses 3.5 3.8 2.6
Fuel tax credits (0.4) (0.6) (0.4)
Foreign tax credits -- (0.2) 0.7
Other, net 5.1 4.8 3.9
Effective income tax rate 49.2% 51.5% (28.5)%
The cumulative undistributed earnings of the Company's foreign
subsidiaries, totaling $53.0 million as of December 31, 1998, which if
remitted may be subject to withholding tax, have been reinvested
indefinitely in the respective foreign subsidiaries' operations.
Therefore, no provision has been made for any U.S tax applicable to foreign
subsidiaries' earnings. Taxes paid to foreign jurisdictions on distributed
foreign earnings may be used, in whole or in part, as credits against the
U.S. tax. The amount of withholding tax that would be payable on remittance
of the undistributed earnings would be $2.6 million.
7. Employee Benefit Plans
The Company adopted the provisions of SFAS No. 132 "Employers'
Disclosures About Pensions and Other Postretirement Benefits" in 1998.
This standard revises employers' disclosures about pension and other
postretirement plans but does not change expense recognition or
measurement. Prior year disclosures have been restated to conform with
current year presentation.
The Company maintains a non-contributory defined benefit pension plan
(the Pension Plan) covering the Company's non-contractual employees in the
United States. 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 92% 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) 1998 1997
Change in Benefit Obligation
Benefit obligation at beginning of period $243,869 $213,992
Service cost 7,252 5,975
Interest cost 18,661 17,172
Benefit payments (10,424) (9,589)
Actuarial loss 17,725 13,685
Plan amendments -- 2,634
Benefit obligation at end of period $277,083 $243,869
Change in Fair Value of Plan Assets
Fair value of plan assets at
beginning of period $244,286 $213,787
Actual return on plan assets 34,536 35,853
Benefit payments (10,424) (9,589)
Transfer from former parent -- 4,235
Fair value of plan assets at end of period $268,398 $244,286
Funded Status of the Plan
Funded status at end of year $ (8,685) $ 417
Unrecognized net actuarial gain (41,738) (49,484)
Unrecognized prior service cost 6,999 8,056
Unrecognized net transition asset (5,518) (6,621)
Accrued Pension Plan Liability $(48,942) $(47,632)
1998 1997
Weighted-average assumptions as of December 31,
Discount rate 7.0% 7.5%
Expected return on plan assets 9.5% 9.5%
Rate of compensation increase 4.5% 5.0%
Net pension cost includes the following:
(Dollars in thousands) 1998 1997 1996
Components of net pension cost
Service cost $ 7,252 $ 5,975 $ 7,055
Interest cost 18,661 17,172 16,596
Expected return on plan assets (22,758) (20,196) (18,447)
Amortization of:
Transition asset (1,103) (1,104) (1,119)
Prior service cost 1,057 1,057 1,158
Actuarial gain (1,799) (2,484) (127)
Total net pension cost $ 1,310 $ 420 $ 5,116
The Company's Pension Plan includes a program 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,
1998 and 1997, the liability was $1,492,000 and $1,177,000. The pension
cost was $315,000, $175,000 and $429,000 for the years ended December 31,
1998, 1997 and 1996.
Approximately 82% of the Company's domestic employees are covered by
union-sponsored, collectively bargained, multi-employer pension plans. The
Company contributed and charged to expense $123,882,000 in 1998,
$126,606,000 in 1997, and $116,712,000 in 1996 for such plans. Those
contributions were made in accordance with negotiated labor contracts and
generally were based on time worked.
The Company maintains a retiree health plan that provides benefits to
non-contractual employees at least 55 years of age with 10 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.
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) 1998 1997
Change in Benefit Obligation
Benefit obligation at beginning of period $ 46,776 $ 44,401
Service cost 434 409
Interest cost 4,121 3,472
Benefit payments (3,882) (2,880)
Actuarial loss 12,434 1,374
Benefit obligation at end of period $ 59,883 $ 46,776
Change in Fair Value of Plan Assets
Fair value of plan assets at
beginning of period $ -- $ --
Company contributions 3,882 2,880
Benefit payments (3,882) (2,880)
Fair value of plan assets at
end of period $ -- $ --
Funded Status of the Plan
Funded status at end of year $ (59,883) $ (46,776)
Unrecognized net actuarial gain (5,252) (17,853)
Unrecognized prior service credit (308) (352)
Accrued Postretirement Benefit Liability $ (65,443) $ (64,981)
1998 1997
Weighted-average assumptions as of December 31,
Discount rate 7.0% 7.5%
For measurement purposes, a 5.5% annual increase in the per capita
cost of covered health care benefits was assumed for 1999. This is
assumed to be the ultimate rate.
Net post retirement cost includes the following:
(Dollars in thousands) 1998 1997 1996
Components of net benefit cost
Service cost $ 434 $ 409 $ 540
Interest cost 4,121 3,472 4,000
Amortization of:
Prior service credit (44) (43) (41)
Actuarial gain (167) (980) (62)
Total net benefit cost $ 4,344 $ 2,858 $ 4,437
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 $193 $(196)
Effect on the postretirement benefit
obligation $2,582 $(2,630)
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 $2,088,000 in 1998, $1,993,000 in 1997, and
$1,926,000 in 1996.
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 $24,493,000,
$25,690,000 and $4,614,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
8. Stock Compensation Plans
The Company has a Stock Option and Incentive Plan (the Plan) under
which shares of restricted stock were granted to its regular, full-time
employees. During December 1996, 2,146,450 shares were granted at a
weighted average price of $7.475 per share. In 1997, 1,057,027 shares were
granted at a weighted average price of $15.31 per share, and in 1998,
78,874 shares were granted at a weighted average price of $12.20. The
shares vest over three years from the date of the original grant and are
contingent upon the Company's stock price achieving pre-determined
increases over the grant price for 10 consecutive trading days following
each year. All restricted stock awards entitle the participant credit for
any dividends. Compensation expense is recognized based upon the current
market price and the extent to which performance criteria are being met.
As of December 1998 and December 1997, restrictions on approximately
two-thirds of the shares lapsed. Accordingly, the Company recognized
non-cash charges of $14,449,000 and $14,297,000, respectively.
The Company has approximately 1,077,000 granted but unissued shares of
restricted stock for which compensation expense will be recognized
over future vesting periods as appropriate. As of December 31, 1998,
those shares had an aggregate market value of $17,097,000. The Company
has 137,325 shares remaining reserved under the Plan.
The Plan also allows for officers, non-employee directors and certain
designated employees to be granted options to purchase common stock of the
Company. The terms of the options will be set at the date of grant. No
options have been granted as of December 31, 1998.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Adoption of this statement is optional, and the Company has
opted to account for stock-based compensation in accordance with APB 25,
"Accounting for Stock Issued to Employees." Had the Company adopted SFAS
No. 123, pro forma net income for the year ended December 31, 1998 would
have been $29.8 million or $1.32 per basic share and $1.27 per diluted
share. Pro forma net income for the year ended December 31, 1997 would have
been $16.6 million or $0.75 per basic share and $0.73 per diluted share.
This statement would have had an immaterial effect on the net loss for the
year ended December 31, 1996.
[9. Contingencies
This footnote has been intentionally omitted. Please refer to Part II,
Item 8 "Financial Statements and Supplementary Data" in the Company's 1998
Form 10-K for the text of this footnote.]
10. Segment and Geographic Information
The Company adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" in 1998. This statement
requires the presentation of financial information on the same basis that
it is used within an organization to evaluate segment performance and
allocate resources. It also requires enhanced disclosures about
geographic, product and service information.
The Company operates in a single industry segment, primarily providing
less-than-truckload transportation and supply chain management services
throughout the United States, Canada and Mexico, and international freight
services between the United States and more than 80 countries. The
following information sets forth revenues and long lived assets 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)
1998 1997 1996
Long Long Long
Lived Lived Lived
Revenues Assets Revenues Assets Revenues Assets
United States $2,117,415 $332,912 $2,173,588 $359,961 $2,037,997 $392,428
Canada 121,008 27,860 125,487 23,026 108,175 24,260
Total $2,238,423 $360,772 $2,299,075 $382,987 $2,146,172 $416,688
11. Related Party Transactions
The Company is party to a Transition Services Agreement with its
former parent under which the former parent provides information systems,
data processing, computer, communications and certain administrative
services. The agreement expires December 2, 1999. The Company pays for
services on an arm's length negotiated basis. For the years ended
December 31, 1998 and 1997, the Company was charged $21,100,000 and
$22,649,000 for services under the agreement. For the period from the
Distribution date to December 31, 1996, the Company was charged $2,600,000.
As of December 31, 1998, the Company is in the process of assuming
responsibility for most administrative services and has entered into a five-
year out-sourcing agreement with a third party for information systems,
data processing, computer and communications services.
The Company is also party to an agreement with its former parent that
provides for the allocation of taxes and certain liabilities arising from
periods prior to the Distribution. See Footnote 9, "Contingencies."
As of December 31, 1998, the Company has pledged $22.0 million of real
properties and $13.5 million of letters of credit to its former parent for
uninsured workers' compensation and employer's liability claims incurred
prior to the Distribution and guaranteed by the former parent. The pledged
collateral is reduced over time as the Company's pending claims are
resolved.
The Company received certain corporate support services from the
former parent, namely accounting, finance, legal and treasury services,
prior to the Distribution. Costs were allocated to the Company using both
incremental and proportional methods on a revenue and capital basis. For
the period from January 1, 1996 to the Distribution date, the charge was
$10,600,000 and is included in Operating Expenses in the Statements of
Consolidated Operations. The Company believes that the allocation
methods used provided the Company with a reasonable share of such expenses
and approximates amounts that would have been incurred had the Company
operated on an independent, stand-alone basis.
Miscellaneous, net, in the Statement of Consolidated Operations for
the year ended December 31, 1996 includes $6,115,000 of interest expense on
advances from the former parent prior to the Distribution.
In connection with the Distribution, certain real properties, with an
aggregate net book value of $57,574,000, and net liabilities of $4,589,000
were transferred to the former parent.
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 generally accepted accounting
principles, 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/W. Roger Curry
W. Roger Curry
President and Chief Executive Officer
/s/David F. Morrison
David F. Morrison
Executive Vice President and
Chief Executive Officer
/s/Robert E. Wrightson
Robert E. Wrightson
Senior 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, 1998 and 1997, and the related
statements of consolidated operations, cash flows and shareholders'
equity for each of the three years in the period ended December 31,
1998. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting
principles.
As explained in Note 2 to the consolidated financial statements,
effective January 1, 1998, the Company changed its method of
accounting for the costs of internal use software to reflect adoption
of American Institute of Certified Public Accountants Statement of
Position No 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use."
/s/Arthur Andersen LLP
Portland, Oregon,
January 25, 1999
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
Quarterly Financial Data
(Unaudited)
(Dollars in thousands except per share data)
March 31 June 30 September 30 December 31
1998 - Quarter Ended
Revenues $545,648 $551,841 $571,231 $569,703
Operating income 14,800 15,506 17,397 4,361 (a)
Income before income taxes 14,319 15,557 17,566 4,375
Income taxes 7,302 8,084 8,335 1,750
Net income 7,017 7,473 9,231 2,625
Basic earnings per share 0.30 0.32 0.41 0.12
Diluted earnings per share 0.29 0.31 0.41 0.11
Market price range $13.00-$18.50 $12.875-$19.75 $7.625-$14.00 $7.50-$18.375
March 31 June 30 September 30 December 31
1997 - Quarter Ended
Revenues $545,633 $578,623 $603,253 $571,566
Operating income (loss) 8,537 16,676 24,340 (4,294)(b)
Income (loss) before income
taxes (benefits) 7,999 15,331 23,383 (4,731)
Income taxes (benefits) 4,745 8,413 11,600 (3,135)
Net income (loss) 3,254 6,918 11,783 (1,596)
Basic earnings (loss) per share 0.15 0.31 0.53 (0.07)
Diluted earnings (loss) per share 0.15 0.31 0.51 (0.07)
Market price range $7.00-$12.25 $10.00-$16.813 $13.75-$18.50 $11.875-$18.438
<FN>
(a) Includes $14.4 million non-cash charge for the issuance of common stock under the Company's
restricted stock plan.
(b) Includes $14.3 million non-cash charge for the issuance of common stock under the Company's
restricted stock plan.
Five Year Financial Summary
Consolidated Freightways Corporation
And Subsidiaries
Years Ended December 31,
(Dollars in thousands except per share data)
(Unaudited)
1998 1997 1996 1995 1994
SUMMARY OF OPERATIONS
Revenues $ 2,238,423 $ 2,299,075 $ 2,146,172 $ 2,106,529 $ 1,936,412
Operating income (loss) 52,064(a) 45,259(b) (73,066)(c) (42,786)(d) (47,743)
Depreciation and amortization 50,918 54,679 64,565 63,902 73,443
Investment income 4,957 1,894 263 756 497
Interest expense 4,012 3,213 843 918 880
Income (loss) before income taxes (benefits) 51,817 41,982 (77,777) (43,798) (44,478)
Income taxes (benefits) 25,471 21,623 (22,201) (13,889) (14,274)
Net income (loss) 26,346 20,359 (55,576) (29,909) (32,116)
Cash from operations 56,268 77,370 2,545 41,772 33,739
PER SHARE
Basic earnings (loss) 1.16 0.92 (2.52) (1.36) (1.46)
Diluted earnings (loss) 1.12 0.89 (2.52) (1.36) (1.46)
Shareholders' equity 11.81 10.58 9.57 11.76 9.70
FINANCIAL POSITION
Cash and cash equivalents 123,081 107,721 48,679 26,558 23,116
Property, plant and equipment, net 360,772 382,987 416,688 501,311 452,878
Total assets 890,390 897,796 857,087 866,698 852,510
Capital expenditures 31,271 22,674 48,203 111,962 32,120
Long-term debt 15,100 15,100 15,100 15,100 15,100
Shareholders' equity 266,718 243,447 210,698 259,108 213,579
RATIOS AND STATISTICS
Current ratio 1.3 to 1 1.3 to 1 1.1 to 1 1.0 to 1 1.1 to 1
Net income (loss) as % of revenues 1.2% 0.9% (2.6)% (1.4)% (1.7)%
Effective income tax rate 49.2% 51.5% (28.5)% (31.7)% (32.1)%
Long-term debt as % of
total capitalization 5.4% 5.8% 6.7% 5.5% 6.6%
Return on average invested capital 26.2% 24.9% (27.8)% (17.1)% (17.1)%
Return on average shareholders' equity 13.9% 12.9% (21.2)% (12.7)% (13.4)%
Average shares outstanding 22,634,362 22,066,212 22,025,323 22,025,323 22,025,323
Market price range $7.50-$19.75 $7.00-$18.50 $6.00-$9.125 n/a n/a
Number of shareholders 34,350 31,650 13,500 n/a n/a
Number of employees 21,000 21,600 20,300 20,200 22,000
<FN>
(a) Includes $14.4 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(b) Includes $14.3 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(c) Includes $15.0 million non-cash charge for the increase in workers' compensation reserve.
(d) Includes approximately $26 million of costs related to implementation of the Business Accelerator System.