-----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, Uvy/IPweJNd02xxIkUtTdq2CstanH1tv82b1NMrT/Sk0QyqX6brdY9SdhpKKASBr qa0Zxloaa7R8nh2dgYzfdQ== 0001022581-98-000010.txt : 19980813 0001022581-98-000010.hdr.sgml : 19980813 ACCESSION NUMBER: 0001022581-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 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: 98683474 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 June 30, 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 July 31, 1998: 23,048,754 Page 1 CONSOLIDATED FREIGHTWAYS CORPORATION FORM 10-Q Quarter Ended June 30, 1998 _____________________________________________________________________ _____________________________________________________________________ INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 3 Statements of Consolidated Income - Three and Six Months Ended June 30, 1998 and 1997 5 Statements of Consolidated Cash Flows - Six Months Ended June 30, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to Vote of Security Holders 14 Item 5. Stockholder Proposals 14 Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 Page 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 1998 1997 . (Dollars in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 149,990 $ 107,721 Trade accounts receivable, net of allowances 305,493 310,601 Other receivables 6,362 10,300 Operating supplies, at lower of average cost or market 9,193 8,741 Prepaid expenses 53,056 39,696 Deferred income taxes 12,064 16,554 Total Current Assets 536,158 493,613 PROPERTY, PLANT AND EQUIPMENT, at cost Land 78,361 78,227 Buildings and improvements 343,613 342,413 Revenue equipment 558,125 559,610 Other equipment and leasehold improvements 118,916 116,390 1,099,015 1,096,640 Accumulated depreciation and amortization (734,750) (713,653) 364,265 382,987 OTHER ASSETS Deposits and other assets 13,636 9,468 Deferred income taxes 16,774 11,728 30,410 21,196 TOTAL ASSETS $ 930,833 $ 897,796 The accompanying notes are an integral part of these statements. Page 3 CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, December 31, 1998 1997 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 77,117 $ 83,127 Accrued liabilities 234,520 212,644 Accrued claims costs 76,409 82,023 Federal and other income taxes 12,027 7,706 Total Current Liabilities 400,073 385,500 LONG-TERM LIABILITIES Long-term debt 15,100 15,100 Accrued claims costs 110,973 112,173 Employee benefits 116,418 115,220 Other liabilities and deferred credits 32,597 26,356 Total Liabilities 675,161 654,349 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 71,485 71,461 Accumulated other comprehensive income (8,862) (6,572) Retained earnings 193,063 178,573 Treasury stock (18,151 shares) (245) (245) Total Shareholders' Equity 255,672 243,447 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 930,833 $ 897,796 The accompanying notes are an integral part of these statements. Page 4
CONSOLIDATED FREIGHTWAYS CORPORATION STATEMENTS OF CONSOLIDATED INCOME (Dollars in thousands except per share amounts) For the Three Months Ended For the Six Months Ended June 30, June 30, 1998 1997 1998 1997 REVENUES $ 551,841 $ 578,623 $1,097,489 $1,124,256 COSTS AND EXPENSES Salaries, wages and benefits 357,115 378,483 710,686 736,480 Operating expenses 88,225 88,243 176,545 178,985 Purchased transportation 48,485 45,591 94,421 88,928 Operating taxes and licenses 17,215 18,557 34,318 36,598 Claims and insurance 12,857 17,561 26,141 31,360 Depreciation 12,438 13,512 25,072 26,692 536,335 561,947 1,067,183 1,099,043 OPERATING INCOME 15,506 16,676 30,306 25,213 OTHER INCOME (EXPENSE) Investment income 1,463 237 2,415 431 Interest expense (972) (871) (1,967) (1,170) Miscellaneous, net (440) (711) (878) (1,144) 51 (1,345) (430) (1,883) Income before income taxes 15,557 15,331 29,876 23,330 Income taxes 8,084 8,413 15,386 13,158 NET INCOME $ 7,473 $ 6,918 $ 14,490 $ 10,172 Basic average shares outstanding 23,048,519 22,025,323 23,039,159 22,025,323 Diluted average shares outstanding 24,325,142 22,052,864 24,221,957 22,090,741 Basic Earnings per Share: $ 0.32 $ 0.31 $ 0.63 $ 0.46 Diluted Earnings per Share: $ 0.31 $ 0.31 $ 0.60 $ 0.46 The accompanying notes are an integral part of these statements. Page 5
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS Six Months Ended June 30, 1998 1997 (Dollars in thousands) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 107,721 $ 48,679 CASH FLOWS FROM OPERATING ACTIVITIES Net income 14,490 10,172 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,961 27,574 Increase (decrease) in deferred income taxes (556) 1,969 Gains from property disposals, net (10) (804) Changes in assets and liabilities: Receivables 9,046 (37,410) Prepaid expense (13,360) (6,444) Accounts payable (6,010) (10,206) Accrued liabilities 21,876 31,488 Accrued claims costs (6,814) (5,117) Income taxes 4,321 8,726 Employee benefits 1,198 1,877 Other (1,039) 324 Net Cash Provided by Operating Activities 49,103 22,149 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (7,191) (12,653) Proceeds from sales of property 357 1,626 Net Cash Used by Investing Activities (6,834) (11,027) Increase in Cash and Cash Equivalents 42,269 11,122 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 149,990 $ 59,801 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. Credit Facility 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 $150.0 million while letters of credit are limited to $100.0 million. The amendment reduced the interest rate on borrowings 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 June 30, 1998, the Company had no short-term borrowings and $98.1 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 Company is in compliance as of June 30, 1998 and expects to be in compliance with these covenants for the remainder of the year. Page 7 3. Earnings per Share The following charts reconcile basic to diluted earnings per share for the three and six months ended June 30, 1998 and 1997: (Dollars in thousands except per share amounts) Weighted Three Average Earnings Months Ended Net Income Shares Per Share June 30, 1998 Basic $7,473 23,048,519 $0.32 Dilutive effect of restricted stock -- 1,276,623 (0.01) Diluted $7,473 24,325,142 $0.31 June 30, 1997 Basic $6,918 22,025,323 $0.31 Dilutive effect of restricted stock -- 27,541 -- Diluted $6,918 22,052,864 $0.31 Weighted Six Average Earnings Months Ended Net Income Shares Per Share June 30, 1998 Basic $14,490 23,039,159 $0.63 Dilutive effect of restricted stock -- 1,182,798 (0.03) Diluted $14,490 24,221,957 $0.60 June 30, 1997 Basic $10,172 22,025,323 $0.46 Dilutive effect of restricted stock -- 65,418 -- Diluted $10,172 22,090,741 $0.46 Page 8 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 three and six months ended June 30, 1998 and 1997 is as follows: (Dollars in thousands) Three Six Months Ended Months Ended June 30, June 30, 1998 1997 1998 1997 Net Income $7,473 $6,918 $14,490 $10,172 Other Comprehensive Income: Foreign currency translation adjustments, net of taxes (1,367) (83) (1,374) (96) Comprehensive Income $6,106 $6,835 $13,116 $10,076 5. 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. The Company capitalized approximately $1.7 million of internal use software costs in the six months ended June 30, 1998. 6. Stock Compensation As of June 30, 1998, there were 2,144,122 granted but unissued shares remaining under the Company's Stock Option and Incentive Plan. The shares had an aggregate market value of $29.9 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 to employees 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 June 30, 1998, the Company would recognize a $9.0 million non-cash charge, net of related tax benefits Page 9 7. Recent Accounting Pronouncements The American Institute of Certified Public Accountants issued Statement of Position 98-5 "Reporting 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 issued Statement of Financial Accounting Standards 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 all fiscal quarters of all 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. 8. 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 financial position or results of operations. Page 10 CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues for the three and six months ended June 30, 1998 decreased 4.6% and 2.4%, respectively, from the prior year as the Company experienced lower year-over-year tonnage levels. Yield management programs, diversion of freight due to recent labor negotiations and softening industrial production contributed to the lower tonnage levels. Year-over-year total and higher rated less- than-truckload tonnage decreased 9.9% and 7.6%, respectively, for the three months ended June 30, 1998 and 8.1% and 5.9%, respectively, for the six months ended June 30, 1998. The Company continued to benefit from improved revenue yields. Net revenue per hundred weight in the three and six month periods increased 5.8% and 6.2%, respectively, over the prior year as a result of the 5.5% January rate increase and improved freight mix. Salaries, wages and benefits decreased 5.6% and 3.5% for the three and six month periods due to lower business volumes, continued cost savings from workers' compensation claims containment programs and increased efficiencies in cross-dock freight handling. Operating expenses remained flat as lower fuel prices and decreased fuel usage, due to lower business volumes and increased use of purchased transportation, were offset primarily by increased repair and maintenance on the Company's aging fleet and expenses from the Company's Year 2000 project, which totaled $2.7 million year-to-date. Purchased transportation increased 6.3% and 6.2% in the three and six month periods, respectively, as the Company continued to maximize use of lower cost rail services. Rail miles as a percentage of total inter-city miles increased from 26.4% to 27.0% in the three month period and from 26.0% to 26.9% in the six month period. The combination of lower business volumes and increased use of rail services also resulted in a 7.2% and 6.2% decrease in operating taxes and licenses in the three and six month periods, respectively. Claims and insurance decreased 26.8% and 16.6%, respectively, due to lower business volumes and improved claims experience over last year. Depreciation continues to decline year-over-year as more the of Company's fleet becomes fully depreciated. The above factors resulted in operating income of $15.5 million in the three months ended June 30, 1998, a $1.2 million decrease from prior year. The operating ratio remained essentially flat at 97.2% versus 97.1% in the prior year. Operating income for the six months ended June 30, 1998 increased $5.1 million to $30.3 million with the operating ratio improving to 97.2% from 97.8%. Other expense, net for the six month period decreased 77.2% from the prior year due to increased investment income on the Company's short-term investments. Page 11 The Company's effective income tax rates differ from the statutory Federal rate due to foreign taxes and non-deductible items. As noted above, tonnage levels were adversely affected throughout the second quarter due to recent labor negotiations, despite ratification of the National Master Freight Agreement in April. Management is actively working to recapture only that freight which enhances the Company's profitability. Management will also continue to focus on yield enhancement and keeping expense levels in line with business volumes. As discussed in Footnote 6, the Company has a restricted stock program. If performance conditions are met in December 1998, approximately 1,072,000 shares of common stock will be issued to employees, and compensation recognized based on the then market price of the stock. Based on the market price of the stock at June 30, 1998, the Company would recognize a $9.0 million non-cash charge, net of related tax benefits. Management is 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 through mid-1999. 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. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1998, the Company had $150.0 million in cash and cash equivalents. Net cash flow from operations for the six months ended June 30, 1998 was $49.1 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 six months ended June 30, 1998 were $7.2 million compared with $12.7 million in the same period last year. Management expects capital expenditures to be approximately $64 million for the remainder of 1998, primarily for replacement of the Company's aging fleet of tractors and trailers. Approximately 540 new tractors and 485 trailers will come on line during the remainder of the year. Management expects to fund these expenditures with cash from operations supplemented by financing arrangements, if deemed appropriate. As discussed in Footnote 2, the Company amended its secured credit facility, reducing, among other things, the amount available for working capital and letter of credit needs from $225.0 million to $150.0 million. This decrease reflects the Company's improved liquidity since its spin-off in December 1996. As of June 30, 1998, the Company had no short-term borrowings and $98.1 million of letters of credit outstanding. Page 12 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. 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. Page 13 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 4. Submission of Matters to a Vote of Security Holders At the Annual Shareholders Meeting held May 11, 1998, the following matters were presented with the indicated voting results: For the purpose of electing members of the Board of Directors, the votes representing shares of Common stock were cast as follows: Nominee For Withheld Paul B. Guenther 21,060,921 49,081 William D. Walsh 21,057,888 52,114 The following directors did not stand for election and continued in office as directors after the Annual Shareholders Meeting: W. Roger Curry, G. Robert Evans, Robert W. Hatch, John M. Lillie, James B. Malloy and Raymond F. O'Brien. ITEM 5. Stockholder Proposals Pursuant to the Company's bylaws, stockholders who wish to bring matters or propose nominees for director at the Company's 1999 annual meeting of stockholders must provide specified information to the Company between February 10, 1999 and March 12, 1999 (unless such matters are included in the Company's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended). Page 14 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (10.1) Amendment No. 4, dated July 2, 1998, to the Loan and Security Agreement among Consolidated Freightways Corporation of Delaware,BankAmerica Business Credit Inc. and various other financial institutions. (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended June 30, 1998. Page 15 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) August 12, 1998 /s/David F. Morrison David F. Morrison Executive Vice President and Chief Financial Officer August 12, 1998 /s/Robert E. Wrightson Robert E. Wrightson Senior Vice President and Controller Page 16 EX-10 2 EXHIBIT 10.1 AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT This Amendment No. 4 to Loan and Security Agreement (this "Amendment") is made as of the 2nd day of July, 1998 by and among each of the undersigned and amends that certain Loan and Security Agreement, dated as of November 27, 1996 (as amended by Amendment No. 1 dated as of February 28, 1997, Amendment No. 2 dated as of June 27, 1997, Amendment No. 3 dated as of November 1, 1997 and by this Amendment, the "Loan Agreement"), among the financial institutions listed on the signature pages thereof as lenders (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), BankAmerica Business Credit, Inc., a Delaware corporation, as agent for the Lenders (in its capacity as agent, the "Agent"), NationsBank of Texas, N.A., as the L/C Issuer and as co-syndication agent for the Lenders, Credit Agricole Indosuez, as co-agent for the Lenders, Consolidated Freightways Corporation of Delaware, a Delaware corporation, (the "Borrower"), Consolidated Freightways Corporation (the "Parent"), Leland James Service Corporation ("Leland") and Redwood Systems, Inc. ("Redwood"). Capitalized terms used herein without definition have the meanings assigned thereto in the Loan Agreement. RECITALS A. The Borrower has requested that certain provisions of the Loan Agreement be amended as more fully described below. B. On the terms and subject to the conditions set forth in this Amendment, the parties to the Loan Agreement have agreed to amendments to the Loan Agreement, including, without limitation, (i) a reduction of the Total Facility from $225,000,000 to $150,000,000, (ii) a reduction of the interest rate payable on Revolving Loans, (iii) a reduction of the Letter of Credit Fee, (iii) a reduction of the Unused Line Fee, (iv) elimination of the early termination fee, (v) release of all Revenue Equipment from the Agent's Liens, (vi) modifications to the requirement of weekly delivery of Borrowing Base Certificates, (vii) modifications to various financial covenants, and (viii) various modifications relating to or corresponding to the foregoing, all as set forth more fully below. AGREEMENT In consideration of the foregoing, and for good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agree as follows: ARTICLE 1 AMENDMENTS TO LOAN AND SECURITY AGREEMENT 1.1 Amendments to Section 1.1 - Definitions. Each of the following definitions set forth in Section 1.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "`Availability' means at any time the lesser of: (a) the Total Facility or (b) the Net Amount of Eligible Accounts multiplied by the Account Advance Rate; Less, in the case of each of (a) and (b) above, the sum of (without duplication of amounts which have become ineligible): (A) the Aggregate Revolver Outstandings; (B) following the occurrence and during the continuance of any Event of Default, reserves for accrued interest on the Obligations; (C) the Environmental Compliance Reserve; (D) ACH Settlement Risk Reserve; and (E) all other reserves which the Agent deems necessary or desirable in the exercise of its reasonable credit judgment to maintain with respect to the Borrower's account, including, without limitation, reserves for any amounts which the Agent or any Lender may be obligated to pay in the future for the account of the Borrower." "`Borrowing Base Certificate' means the certificate by a Responsible Officer of the Borrower, substantially in the form of Exhibit A (or another form acceptable to the Agent) which (a) is required to be delivered pursuant to Section 6.7 (it being understood and agreed that if such certificate is required to be delivered on a weekly basis, information included therein with respect to the Accounts will be updated weekly, and that other information included therein with respect to Accounts of the type described in Accounts Dilution Rate will be updated as of the end of each month), (b) sets forth the calculation of the Availability, including a calculation of each component thereof, and is dated, as of the close of business on the last Business Day of the month (or the last Business Day of the week, if applicable) covered by the certificate, and (c) if required to be delivered weekly pursuant to Section 6.7, is to be delivered prior to the end of the third Business Day of the following week; all in such detail as shall be reasonably satisfactory to the Agent. All calculations of Availability in connection with the preparation of any Borrowing Base Certificate shall originally be made by the Borrower and certified to the Agent; provided, that the Agent shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation (1) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (2) to the extent that such calculation is not in accordance with this Agreement." "`Commitment' means, at any time with respect to a Lender, the principal amount set forth beside such Lender's name under the heading "Commitment" on the signature pages of Amendment No. 4 to this Agreement dated as of July 2, 1998 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.3, as such Commitment may be adjusted from time to time in accordance with the provisions of Section 13.3 or Section 2.1(b) and "Commitments" means, collectively, the aggregate amount of the commitments of all of the Lenders." "`Excluded Property' means Real Estate (and any fixtures and intangible property (such as permits, maintenance contracts, blueprints and designs) which are in each case directly and specifically related to the particular parcel of Real Estate if covered by a mortgage of such Real Estate), the Revenue Equipment and stock of Subsidiaries of the Borrower existing as of the Closing Date other than the 65% of the stock of Canadian Freightways Limited pledged to the Agent for the benefit of the Lenders pursuant to the Stock Pledge Agreement." "`Triggering Event' means the occurrence of any one of the following events: (a) an Event of Default, (b) Availability is $25,000,000 or less, (c) the average daily Dollar amount of Revolving Loans outstanding for the immediately preceding thirty (30) day period exceeds $20,000,000, or (d) the aggregate Dollar amount of Revolving Loans outstanding on any date exceeds $25,000,000." 1.2 Deletion of Definitions. Each of the following definitions set forth in Section 1.1 of the Loan Agreement is hereby deleted: "Applicable Margin" "Appraised Value of Revenue Equipment" "Eligible Revenue Equipment" "Eligible Revenue Equipment Value" "Fixed Charge Coverage Ratio" "Maximum Revolver Equipment Advance" "Revenue Equipment Advance Rate" 1.3 Amendment to Section 2.1 - Credit Facility. Section 2.1 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "2.1 Credit Facility. Subject to all of the terms and conditions of this Agreement, the Lenders severally agree to make available a total credit facility of up to $150,000,000 (the "Total Facility") for the Borrower's use from time to time during the term of this Agreement. The Total Facility shall be comprised of a revolving line of credit consisting of revolving loans and letters of credit, as described in Sections 2.2 and 2.3." 1.4 Amendment to Section 3.1(a) - Interest Rate on Revolving Loans. The fourth sentence of Section 3.1(a) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "Except as otherwise provided herein, the outstanding Obligations shall bear interest as follows: (i) for all Base Rate Revolving Loans and other Obligations (other than LIBOR Revolving Loans) at a fluctuating per annum rate equal to the Base Rate minus one-quarter of one percent (0.25%), and (ii) for all LIBOR Revolving Loans at a per annum rate equal to the LIBOR Rate plus seven-eighths of one percent (0.875%)." 1.5 Amendment to Section 3.5 - Unused Line Fee. The first sentence of Section 3.5 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "3.5 Unused Line Fee. Until the Obligations have been paid in full and the Agreement terminated, the Borrower agrees to pay, on the first day of each month and on the Termination Date, to the Agent, for the ratable account of the Lenders, an unused line fee (the "Unused Line Fee") equal to one-quarter of one percent (0.25%) per annum on the average daily amount by which the Total Facility exceeded the sum of the average daily outstanding amount of Revolving Loans and the undrawn face amount of all outstanding Letters of Credit, during the immediately preceding month or shorter period if calculated on the Termination Date." 1.6 Amendment to Section 3.6 - Letter of Credit Fee. The first sentence of Section 3.6 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "3.6 Letter of Credit Fee. The Borrower agrees to pay to the Agent, for the ratable account of the Lenders, for each Letter of Credit, a fee (the "Letter of Credit Fee") equal to seven-eighths of one percent (0.875%) per annum of the undrawn face amount of each Letter of Credit issued for the Borrower's account at the Borrower's request, plus all out-of-pocket costs, fees and expenses incurred by the Agent in connection with the application for, issuance of, or amendment to any Letter of Credit." 1.7 Amendment to Section 4.2 - Termination of Facility. Section 4.2 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "4.2 Termination of Facility. The Borrower may terminate this Agreement upon at least thirty (30) Business Days' notice to the Agent and the Lenders, upon (a) the payment in full of all outstanding Revolving Loans, together with accrued interest thereon, and the cancellation of all outstanding Letters of Credit, (b) the payment in full in cash of all other Obligations together with accrued interest thereon, and (c) with respect to any LIBOR Revolving Loans prepaid in connection with such termination prior to the expiration date of the Interest Period applicable thereto, the payment of the amounts described in Section 5.5." 1.8 Amendment to Section 6.2(b) - Perfection and Protection of Security Interests - Revenue Equipment. Section 6.2(b) of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "(b) Intentionally Omitted." 1.9 Amendment to Section 6.5 - Appraisals. Section 6.5 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "6.5 Intentionally Omitted." 1.10 Amendment to Section 6.7 - Collateral Reporting. Section 6.7 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "6.7 Collateral Reporting. The Borrower shall provide the Agent with the following documents at the following times in form satisfactory to the Agent: (a) if the daily average Availability for the preceding month is $25,000,000 or less or if a Default or Event of Default arising under Section 9.21, Section 9.22 or Section 9.23 has occurred and is continuing, on a weekly basis, a Borrowing Base Certificate and, at the same time, such supporting documentation as the Agent may request; (b) on a monthly basis, as of the end of each month, and received by the end of the 20th day of the following month, a Borrowing Base Certificate and, at the same time, such supporting documentation as the Agent may request; (c) on a monthly basis, as of the end of each month, and received by the Agent no later than the 20th day of the following month, an aging of the Borrower's Accounts, together with a reconciliation to the Borrower's general ledger, and the Borrower's computation of ineligible Accounts and reserves against Availability, certified as accurate and correct by a Responsible Officer of the Borrower; (d) on a monthly basis, as of the end of each month, and received by the Agent no later than the 20th day of the following month, an aging or open item listing of all Borrower's accounts payable to the fifteen Account Debtors with the highest amount of Accounts owed to the Borrower; provided that such accounts payable information shall not be required with respect to the Account Debtors to which the Borrower is indebted in an amount not in excess of $50,000; (e) such other reports as to the Collateral of the Borrower as the Agent shall reasonably request from time to time; and (f) with the delivery of each of the foregoing, a certificate of an officer of the Borrower certifying as to the accuracy and completeness of the foregoing. If any of the Borrower's records or reports of the Collateral are prepared by an accounting service or other agent, the Borrower hereby authorizes such service or agent to deliver such records, reports, and related documents to the Agent, for distribution to the Lenders. Any report required to be delivered pursuant to this Section 6.7 on a day that is not a Business Day may be delivered on the next Business Day after such report was due." 1.11 Amendment to Section 6.10 - Equipment. Section 6.10 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "6.10 Equipment. (a) The Borrower represents and warrants to the Agent and the Lenders and agrees with the Agent and the Lenders that all of the Equipment owned by the Borrower is and will be used or held for use in the Borrower's business, and is and will be fit for such purposes. The Borrower shall keep and maintain its Equipment in good operating condition and repair (ordinary wear and tear excepted) and shall make all necessary replacements thereof. (b) The Borrower shall promptly inform the Agent of any material additions to or deletions from the Equipment (other than Excluded Property). The Borrower will not, without the Agent's prior written consent, alter or remove any identifying manufacturers serial number, vehicle identification number or similar symbol or number on any of the Borrower's Equipment consisting of Collateral. (c) The Borrower shall not, without the Agent's prior written consent, sell, lease as a lessor, or otherwise dispose of any of the Borrower's Equipment (other than Excluded Revenue Equipment); provided, however, that the Borrower may dispose of Included Revenue Equipment as permitted by Section 6.10(d), and may dispose of obsolete or unusable Equipment other than Included Revenue Equipment which is obsolete or unusable and has a book value no greater than $2,000,000 in the aggregate in any Fiscal Year, or $6,000,000 in the aggregate during the term of this Agreement, without the Agent's consent. (d) The Borrower shall not, without the Agent's prior written consent, sell, lease as a lessor or otherwise dispose of any Included Revenue Equipment; provided, however, that so long as no Event of Default has occurred and is continuing, the Borrower may dispose of Included Revenue Equipment having an orderly liquidation value no greater than $4,000,000 in the aggregate in any month and no greater than $16,000,000 in the aggregate in any Fiscal Year, if such dispositions are made in the ordinary course of the Borrower's business and consistent with the Borrower's past practice." 1.12 Amendment to Section 9.21- Capital Expenditures. Section 9.21 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.21 Capital Expenditures. None of the Loan Parties shall make or incur any Capital Expenditure if, after giving effect thereto, the aggregate amount of all Capital Expenditures (net of proceeds from sales of fixed assets) by the Loan Parties on a consolidated basis would exceed $30,000,000 for Fiscal Year 1997 or $100,000,000 for each Fiscal Year thereafter until the Stated Termination Date; provided, however, that up to $15,000,000 of unused permitted Capital Expenditures in a given Fiscal Year may be carried over to the following Fiscal Year." 1.13 Amendment to Section 9.22 - Adjusted Net Earnings. Section 9.22 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.22 Adjusted Net Earnings. The Parent, the Borrower and their Subsidiaries on a consolidated basis will not permit the Adjusted Net Earnings for the fiscal period specified below, measured at the end of each fiscal quarter on a Fiscal Year to date basis for 1997 and on a rolling four quarter basis thereafter, to be less than the amount set forth below opposite such fiscal quarter: Period Amount March 1997 $5,000,000 June 1997 $15,000,000 September 1997 $27,000,000 December 1997 $40,000,000 March 1998 $43,000,000 June 1998 $50,000,000 September 1998 $52,000,000 December 1998 $55,000,000 March 1999 $54,000,000 June 1999 $56,000,000 September 1999 $58,000,000 December 1999 and $60,000,000 thereafter 1.14 Amendment to Section 9.23 - Adjusted Tangible Net Worth. Section 9.23 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.23 Adjusted Tangible Net Worth. The Parent, the Borrower and their Subsidiaries on a consolidated basis will not permit Adjusted Tangible Net Worth calculated without regard to the increase, not to exceed $10,000,000 (after giving effect to income taxes), in the worker's compensation accrual reserve over and above the level of such reserve reflected in the Latest Projections dated September 9, 1996 and delivered to the Agent, to be less than the following amounts: Period Amount December 1996 $210,000,000 March 1997 through $195,000,000 December 1997 March 1998 $190,000,000 June 1998 through $220,000,000 September 1998 December 1998 and $225,000,000 thereafter 1.15 Amendment to Section 9.24 - Fixed Charge Coverage Ratio. Section 9.24 of the Loan Agreement is hereby amended and restated to read in its entirety as follows: "9.24 Intentionally Omitted." 1.16 Amendment to Section 13.2(h) - Amendments and Waivers. Section 13.2(h) of the Loan Agreement (which relates to definitions which cannot be amended without the consent of each Lender) is hereby amended and restated to delete references to definitions which have been deleted, and shall read in its entirety as follows: "(h) increase the "Account Advance Rate," "Maximum Revolver Amount," "Total Facility" or "Unused Letter of Credit Facility"." 1.17 Amendment of Borrowing Base Certificate. Exhibit A of the Loan Agreement is hereby amended and restated and shall read in its entirety as Exhibit A attached hereto. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Each Loan Party warrants and represents to the Agent and the Lenders that: 2.1 Representations and Warranties True and Correct. The representations and warranties contained in the Agreement and the other Loan Documents are correct in all material respects on and as of the date hereof except to the extent the Agent and the Lenders have been notified by the Borrower that any representation or warranty is not correct and the Majority Lenders have explicitly waived in writing compliance with such representation or warranty; and except with respect to Schedules 8.3, 8.5, 8.9, 8.15, 8.17, 8.18, 8.29 and 8.32 to the Loan Agreement to the extent that the Borrower has submitted to the Agent, the L/C Issuer and each Lender an update thereto. 2.2 No Default or Event of Default. No event has occurred and is continuing which constitutes a Default or an Event of Default. ARTICLE 3 CONSENT TO RELEASE OF COLLATERAL 3.1 Consent to Release of Revenue Equipment Collateral. By its signature below, each Lender consents to the release of all Collateral which consists of Revenue Equipment and authorizes and directs the Agent to release such Collateral and take all actions necessary in connection therewith and reasonably incidental thereto. ARTICLE 4 MISCELLANEOUS 4.1 Effective Date. This Amendment shall be effective as of the date when the Agent has received a duly executed counterpart of this Amendment from each of the parties to the Loan Agreement; provided that the changes to the pricing terms contained in Sections 1.3, 1.4, 1.5 and 1.6 of this Amendment shall be effective on July 1, 1998. 4.2 Governing Law. This Amendment shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the internal laws (as opposed to the conflict of laws provisions) of the State of California. 4.3 Counterparts. This Amendment may be executed in any number of counterparts, and by the Agent, the L/C Issuer, each Lender, the Borrower, Parent, Leland and Redwood in separate counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement. IN WITNESS WHEREOF, the parties have entered into this Amendment on the date first above written. "BORROWER" Consolidated Freightways Corporation of Delaware, a Delaware corporation By: /s/David F. Morrison Name: David F. Morrison Title: Executive Vice President and CFO "PARENT" Consolidated Freightways Corporation, a Delaware corporation By: /s/David F. Morrison Name: David F. Morrison Title: Executive Vice President and CFO "LELAND" Leland James Service Corporation, a Delaware corporation By: /s/David F. Morrison Name: David F. Morrison Title: Executive Vice President and CFO "REDWOOD" Redwood Systems, Inc., a Delaware corporation By: /s/David F. Morrison Name: David F. Morrison Title: Executive Vice President and CFO "AGENT" BankAmerica Business Credit, Inc., as the Agent By: /s/Gary P. Riley Name: Gary P. Riley Title: Vice President "LENDERS" Commitment: $63,333,333.34 BankAmerica Business Credit, Inc., as a Lender By: /s/Gary P. Riley Name: Gary P. Riley Title: Vice President Commitment: $23,333,333.33 NationsBank of Texas, N.A., as a Lender By: /s/Stacy Wills Name: Stacy Wills Title: Assistant Vice President Commitment: $13,333,333.33 Credit Agricole Indosuez, as a Lender By: /s/Marcy Lyons Name: Marcy Lyons Title: First Vice President Commitment: $23,333,333.33 Transamerica Business Credit Corporation, as a Lender By: /s/Robert L Heinz Name: Robert L. Heinz Title: Senior Vice President Commitment: $16,666,666.67 Congress Financial Corporation (Western), as a Lender By: /s/Gregg Corey Name: Gregg Corey Title: Vice President Commitment: $10,000,000.00 PNC Bank, National Association, as a Lender By:/s/ Michael Shover Name: Michael Shover Title: Bank Officer "L/C ISSUER" NationsBank of Texas, N.A., as L/C Issuer By: /s/Stacy Wills Name: Stacy Wills Title: Assistant Vice President EX-27 3 EXHIBIT 27
5 1000 6-MOS DEC-31-1998 JUN-30-1998 149,990 0 319,563 (7,708) 9,193 536,158 1,099,015 (734,750) 930,833 400,073 15,100 0 0 71,716 183,956 930,833 0 1,097,489 0 1,067,183 430 0 1,967 29,876 15,386 14,490 0 0 0 14,490 0.63 0.60
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