-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KJBAxtXIsPTNDE2KiZS4BtDg4d9PmwcSpNbh7mN+MyYuzmnIQVE4CieXNn7oA+P7 z7FJn1TaJJILojXNbqpnhQ== 0001022581-98-000004.txt : 19980514 0001022581-98-000004.hdr.sgml : 19980514 ACCESSION NUMBER: 0001022581-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED FREIGHTWAYS CORP CENTRAL INDEX KEY: 0001022581 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 770425334 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12149 FILM NUMBER: 98618124 BUSINESS ADDRESS: STREET 1: 175 LINFIELD DR CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 4153261700 MAIL ADDRESS: STREET 1: 175 LINFIELD DRIVE CITY: MENLO PARK STATE: CA ZIP: 94025 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 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 (650) 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, 1998: 23,048,754 Page 1 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-Q Quarter Ended March 31, 1998 _____________________________________________________________________ _____________________________________________________________________ INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3 Statements of Consolidated Income - Three Months Ended March 31, 1998 and 1997 5 Statements of Consolidated Cash Flows - Three Months Ended March 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 Page 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1998 1997 (Dollars in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 134,302 $ 107,721 Trade accounts receivable, net of allowances 309,673 310,601 Other receivables 4,591 10,300 Operating supplies, at lower of average cost or market 8,543 8,741 Prepaid expenses 47,856 39,696 Deferred income taxes 15,715 16,554 Total Current Assets 520,680 493,613 PROPERTY, PLANT AND EQUIPMENT, at cost Land 78,503 78,227 Buildings and improvements 343,438 342,413 Revenue equipment 560,070 559,610 Other equipment and leasehold improvements 117,774 116,390 1,099,785 1,096,640 Accumulated depreciation and amortization (725,384) (713,653) 374,401 382,987 OTHER ASSETS Deposits and other assets 11,308 9,468 Deferred income taxes 14,227 11,728 25,535 21,196 TOTAL ASSETS $ 920,616 $ 897,796 The accompanying notes are an integral part of these statements. Page 3 CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1998 1997 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 78,104 $ 83,127 Accrued liabilities 225,610 212,644 Accrued claims costs 79,213 82,023 Federal and other income taxes 14,749 7,706 Total Current Liabilities 397,676 385,500 LONG-TERM LIABILITIES Long-term debt 15,100 15,100 Accrued claims costs 113,840 112,173 Employee benefits 115,646 115,220 Other liabilities and deferred credits 27,878 26,356 Total Liabilities 670,140 654,349 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 23,062,631 and 23,038,437 shares, respectively 231 230 Additional paid-in capital 71,484 71,461 Accumulated other comprehensive income (6,584) (6,572) Retained earnings 185,590 178,573 Treasury stock (18,151 shares) (245) (245) Total Shareholders' Equity 250,476 243,447 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 920,616 $ 897,796 The accompanying notes are an integral part of these statements. Page 4 CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Dollars in thousands except per share amounts) Three Months Ended March 31, 1998 1997 REVENUES $ 545,648 $ 545,633 COSTS AND EXPENSES Salaries, wages and benefits 353,571 357,997 Operating expenses 88,320 90,742 Purchased transportation 45,936 43,337 Operating taxes and licenses 17,103 18,041 Claims and insurance 13,284 13,799 Depreciation 12,634 13,180 530,848 537,096 OPERATING INCOME 14,800 8,537 OTHER INCOME (EXPENSE) Investment income 952 194 Interest expense (995) (299) Miscellaneous, net (438) (433) (481) (538) Income before income taxes 14,319 7,999 Income taxes 7,302 4,745 NET INCOME $ 7,017 $ 3,254 Basic average shares outstanding 23,029,695 22,025,323 Diluted average shares outstanding 24,118,668 22,128,619 Basic Earnings per Share: $ 0.30 $ 0.15 Diluted Earnings per Share: $ 0.29 $ 0.15 The accompanying notes are an integral part of these statements. Page 5 CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS Three Months Ended March 31, 1998 1997 (Dollars in thousands) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 107,721 $ 48,679 CASH FLOWS FROM OPERATING ACTIVITIES Net income 7,017 3,254 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,079 13,628 Increase (decrease) in deferred income taxes (1,660) 1,483 Gains from property disposals, net (6) (298) Changes in assets and liabilities: Receivables 6,637 (23,625) Prepaid expenses (8,160) (10,560) Accounts payable (5,023) (8,728) Accrued liabilities 12,966 28,714 Accrued claims costs (1,143) (5,754) Income taxes 7,043 1,878 Employee benefits 426 1,210 Other (797) (1,125) Net Cash Provided by Operating Activities 30,379 77 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (3,960) (8,058) Proceeds from sales of property 162 507 Net Cash Used by Investing Activities (3,798) (7,551) Increase (Decrease) in Cash and Cash Equivalents 26,581 (7,474) CASH AND CASH EQUIVALENTS, END OF PERIOD $ 134,302 $ 41,205 The accompanying notes are an integral part of these statements. Page 6 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 1997 Annual Report to Shareholders. There were no significant changes in the Company's commitments and contingencies as previously described in the 1997 Annual Report to Shareholders and related annual report to the Securities and Exchange Commission on Form 10-K. 2. Stock Compensation The Company previously granted 3,203,477 shares of restricted stock to its regular, full-time employees under its Stock Option and Incentive Plan. On December 16, 1997, 1,059,355 of these shares vested and were issued to employees. As of March 31, 1998, there were 2,144,122 granted but unissued shares remaining which had an aggregate market value of $36.5 million. The shares vest in two installments as early as December 16, 1998 and 1999, but are contingent upon the Company's stock price achieving pre-determined increases over the price at the time of grant in December 1996. If performance conditions are met, approximately 1,072,000 shares of common stock will be issued in December 1998 and compensation expense will be recognized based on the then market price of the stock. Based on the market price of the stock on March 31, 1998, the Company would recognize a $10.9 million non-cash charge, net of related tax benefits. Page 7 3. Earnings per Share The following chart reconciles basic to diluted earnings per share for the quarters ended March 31, 1998 and 1997: Weighted Average Earnings Quarter Ended Net Income Shares Per Share March 31, 1998 Basic $7,017 23,029,695 $0.30 Dilutive effect of restricted stock -- 1,088,973 (0.01) Diluted $7,017 24,118,668 $0.29 March 31, 1997 Basic $3,254 22,025,323 $0.15 Dilutive effect of restricted stock -- 103,296 -- Diluted $3,254 22,128,619 $0.15 4. Comprehensive Income The Company adopted the provisions of Statement of Financial Accounting Standards No. 130, "Comprehensive Income" in the quarter ended March 31, 1998. Comprehensive income for the quarters ended March 31, 1998 and 1997 is as follows: Quarter Ended Quarter Ended March 31, 1998 March 31, 1997 Net Income $7,017 $3,254 Other Comprehensive Income: Foreign currency translation adjustments, net of taxes (7) (13) Comprehensive Income $7,010 $3,241 5. Accounting for Software Costs The Company adopted the provisions of American Institute of Certified Public Accountants Statement of Position 98-1 (SOP 98-1) "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" in the quarter ended March 31, 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. Adoption of this statement did not have a material effect on the results of operations for the quarter ended March 31, 1998. Page 8 6. 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. Page 9 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 $7.0 million or $0.30 per basic share in the quarter ended March 31, 1998. This was a 115.6% improvement over net income of $3.3 million or $0.15 per basic share earned in the same period last year. This significant improvement was due primarily to higher revenue yields, despite elimination of a fuel surcharge in early February 1998. Revenue per hundred weight increased 6.5% as the Company benefited from a 5.5% January rate increase and improved freight mix. Less-than-truckload tonnage decreased 4.2% and total tonnage decreased 6.2%, due to shippers diverting freight pending renewal of the Teamsters' contract, which was subsequently ratified on April 8, 1998, and the Company's program to improve freight mix. Salaries, wages and benefits decreased 1.2% reflecting lower business volumes, increased use of rail services as discussed below, continued cost savings from workers' compensation claims containment programs and increased efficiencies in cross-dock freight handling. These cost savings were partially offset by higher contractual wage and benefit rates compared with the same period last year. Operating expenses decreased 2.7% also due to lower business volumes and increased use of rail services. Additionally, the Company benefited from lower fuel prices as the average fuel cost per gallon decreased 26.9% from the same period last year. Purchased transportation increased 6.0% as the Company continued to increase its use of lower cost rail service in strategic lanes. Rail miles as a percentage of total inter-city miles were 26.8% for the quarter ended March 31, 1998 compared with 25.9% in the same period last year. The combination of lower business volumes and increased use of rail services also resulted in a 5.2% decrease in operating taxes and licenses. Additionally, the lower business volumes resulted in a 3.7% decrease in claims and insurance expense. Depreciation decreased 4.1% due to more fully depreciated equipment in the quarter ended March 31, 1998. The combination of enhanced yields and lower operating costs resulted in operating income of $14.8 million, a $6.3 million or 73.4% increase over the same period last year. The operating ratio improved to 97.3% from 98.4%. Other expense, net decreased 10.6% due to increased investment income on the Company's short-term investments. The Company's effective income tax rates of 51.0% and 59.3% for the quarters ended March 31, 1998 and 1997, respectively, differ from the statutory Federal rate due to foreign taxes and non-deductible items. Page 10 Management is currently in the process of replacing or converting the Company's financial and operational systems and applications for Year 2000 compliance. Based upon a current assessment of systems and applications requiring modification, management expects to spend approximately $25 to $30 million. Of this amount, approximately $11 million relates to the purchase and implementation of new hardware and software, which will be capitalized and amortized over their estimated useful lives. Management expects to have all of its financial and operational systems replaced or converted by mid 1999. However, to the extent systems are not converted by the year 2000, there could be a material adverse effect on the Company's operations. On April 8, 1998, the International Brotherhood of Teamsters ratified a new, five year National Master Freight Agreement with Consolidated Freightways Corporation of Delaware (CFCD), a wholly- owned subsidiary of the Company, and three other national motor freight carriers. The agreement provides for, among other things, increased wage and pension benefits for CFCD's union employees. A provision of the agreement grants a one-time, $750 signing bonus in lieu of a wage increase in the first year of the contract. The Company expects to pay $13.3 million in signing bonuses in June 1998. With the new five year contract ratified and a current stable pricing environment, management is focusing on improving yield management and cost containment programs. Prior to ratification of the agreement, many shippers diverted freight to non-union carriers to avoid repercussions of a possible strike. Since ratification, those shippers have begun returning freight, although at a slower rate than anticipated by management. Management is actively working to recapture only that freight which enhances the Company's profitability. As discussed in Footnote 2, the Company has a restricted stock program. If performance conditions are met, approximately 1,072,000 shares of common stock will be issued in December 1998, and compensation recognized based on the then market price of the stock. Based on the market price of the stock at March 31, 1998, the Company would recognize a $10.9 million non-cash charge, net of related tax benefits. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1998, the Company had $134.3 million in cash and cash equivalents. Net cash flow from operations for the quarter ended March 31, 1998 was $30.4 million due primarily to net income and depreciation and amortization. Management expects cash flow from operations for 1998 will be sufficient for working capital and capital expenditure requirements. Capital expenditures for the quarter ended March 31, 1998 were $4.0 million compared with $8.1 million in the same period last year. Management expects capital expenditures to be approximately $66 million for the remainder of 1998, primarily for replacement of the Company's aging fleet of truck, tractors and trailers. Management expects to fund these expenditures with cash from operations supplemented by financing arrangements, if necessary. Page 11 The Company has a $225.0 million secured credit facility with several banks to provide for working capital and letter of credit needs. 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 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 CFCD, all of the outstanding stock of CFCD and 65% of the outstanding capital stock of Canadian Freightways Limited, a wholly owned subsidiary of CFCD. As of March 31, 1998, the Company had no short-term borrowings and $93.1 million of letters of credit outstanding under this facility. The continued availability of funds under this credit facility will require that the Company 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, 1998 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. 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 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. Page 12 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. 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. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended March 31, 1998. Page 13 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 13, 1998 /s/David F. Morrison David F. Morrison Executive Vice President and Chief Financial Officer May 13, 1998 /s/Robert E. Wrightson Robert E. Wrightson Senior Vice President and Controller Page 14 EX-27 2 EX27
5 1000 3-MOS DEC-31-1998 MAR-31-1998 134,302 0 322,727 (8,463) 8,543 520,680 1,099,785 (725,384) 920,616 397,676 15,100 0 0 71,715 178,761 920,616 0 545,648 0 530,848 481 0 995 14,319 7,302 7,017 0 0 0 7,017 0.30 0.29
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