-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, XBtJMu08oMI97uN/YW9ispTQHVj1wvlQjIm41tL/dGM/j0mE5PCgpmaUxBbxjSO4 W7kWwZUdgGXRyhMs/sDQBg== 0000023675-94-000005.txt : 19940509 0000023675-94-000005.hdr.sgml : 19940509 ACCESSION NUMBER: 0000023675-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940330 FILED AS OF DATE: 19940506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC CENTRAL INDEX KEY: 0000023675 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 941444798 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05046 FILM NUMBER: 94526393 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO A LTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154942900 10-Q 1 MARCH 1994 10-Q PAGE 1 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, 1994 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 132-3 CONSOLIDATED FREIGHTWAYS, INC. Incorporated in the State of Delaware I.R.S. Employer Identification No. 94-1444798 3240 Hillview Avenue, Palo Alto, California 94304 Telephone Number (415) 494-2900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes xx No Number of shares of Common Stock, $.625 par value, outstanding as of March 31, 1994: 36,134,432 PAGE 2 CONSOLIDATED FREIGHTWAYS, INC. FORM 10-Q Quarter Ended March 31, 1994 _________________________________________________________________ _________________________________________________________________ INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1994 and December 31, 1993 3 Statements of Consolidated Income - Three Months Ended March 31, 1994 and 1993 5 Statements of Consolidated Cash Flows - Three Months Ended March 31, 1994 and 1993 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 PAGE 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1994 1993 (In thousands) ASSETS CURRENT ASSETS Cash and temporary cash investments $ 120,222 $ 139,044 Trade accounts receivable, net of allowances 521,464 508,669 Other accounts and notes receivable 28,860 35,714 Operating supplies, at lower of average cost or market 34,585 34,940 Prepaid expenses 101,939 69,009 Deferred income taxes 106,975 108,458 Total Current Assets 914,045 895,834 PROPERTY, PLANT AND EQUIPMENT, at cost Land 152,417 152,402 Buildings and improvements 493,909 488,292 Revenue equipment 951,637 935,482 Other equipment and leasehold improvements 355,207 347,601 1,953,170 1,923,777 Accumulated depreciation and amortization (1,039,940) (1,013,333) 913,230 910,444 OTHER ASSETS Cost in excess of net assets of businesses acquired, net of accumulated amortization 351,463 354,076 Operating rights, net of accumulated amortization 8,921 9,129 Long-term receivables 6,600 6,600 Marketable securities at lower of cost or market 14,704 13,727 Restricted funds 15,385 13,954 Deferred charges and other assets 110,683 102,889 507,756 500,375 TOTAL ASSETS $2,335,031 $2,306,653 The accompanying notes are an integral part of these statements. PAGE 4 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 1994 1993 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 658,091 $ 634,107 Accrued claims costs 132,838 138,242 Current maturities of long-term debt and capital leases 39,183 39,246 Federal and other income taxes 3,864 6,158 Total Current Liabilities 833,976 817,753 LONG-TERM LIABILITIES Long-term debt and guarantees 296,963 297,215 Long-term obligations under capital leases 111,236 111,194 Deferred income taxes 15,819 22,085 Accrued claims costs 174,049 173,999 Other liabilities and deferred credits 262,637 261,032 Total Liabilities 1,694,680 1,683,278 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized 5,000,000 shares: Series A, designated 600,000 shares; none issued -- -- Series B, 8.5% cumulative, convertible, $.01 stated value; designated 1,100,000 shares; issued 967,179 and 968,655 shares, respectively 10 10 Series C, 8.738% cumulative, convertible, $.01 stated value; designated and issued 690,000 shares 7 7 Additional paid-in capital, preferred stock 264,957 265,182 Deferred TASP compensation (126,801) (129,276) Total Preferred Shareholders' Equity 138,173 135,923 Common stock, $.625 par value; authorized 100,000,000 shares; issued 43,764,559 and 43,340,801 shares, respectively 27,355 27,090 Additional paid-in capital, common stock 110,708 104,666 Cumulative translation adjustment (1,088) 1,229 Retained Earnings 553,333 542,811 Cost of repurchased common stock (7,630,127 and 7,638,809 shares, respectively) (188,130) (188,344) Total Common Shareholders' Equity 502,178 487,452 Total Shareholders' Equity 640,351 623,375 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,335,031 $2,306,653 The accompanying notes are an integral part of these statements. PAGE 5 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (Dollars in thousands except per share amount) Three Months Ended March 31, REVENUES 1994 1993 CF MotorFreight $ 532,383 $ 520,162 Con-Way Transportation Services 230,408 187,967 Emery Worldwide 340,430 284,852 1,103,221 992,981 COSTS AND EXPENSES CF MotorFreight Operating Expenses 447,155 432,770 Selling and Administrative Expenses 61,567 56,738 Depreciation 19,748 20,537 528,470 510,045 Con-Way Transportation Services Operating Expenses 173,773 138,384 Selling and Administrative Expenses 27,656 25,525 Depreciation 8,055 8,148 209,484 172,057 Emery Worldwide Operating Expenses 275,242 238,169 Selling and Administrative Expenses 48,190 45,998 Depreciation 6,351 5,362 329,783 289,529 1,067,737 971,631 OPERATING INCOME (LOSS) CF MotorFreight 3,913 10,117 Con-Way Transportation Services 20,924 15,910 Emery Worldwide 10,647 (4,677) 35,484 21,350 OTHER INCOME (EXPENSE) Investment income 515 1,506 Interest expense (6,876) (7,707) Miscellaneous, net (365) 332 (6,726) (5,869) Income Before Income Taxes 28,758 15,481 Income Taxes 13,502 7,213 Net Income 15,256 8,268 Preferred Stock Dividends 4,734 4,749 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 10,522 $ 3,519 Primary average shares outstanding (1) 37,159,645 36,015,495 PRIMARY EARNINGS PER COMMON SHARE: $ 0.28 $ 0.10 FULLY DILUTED EARNINGS PER COMMON SHARE: $ 0.25 $ 0.09 (1) Includes the dilutive effect of stock options. The accompanying notes are an integral part of these statements. PAGE 6 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS Three Months Ended March 31, 1994 1993 (In thousands) CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD $ 139,044 $ 152,064 CASH FLOWS FROM OPERATING ACTIVITIES Net income 15,256 8,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,749 36,800 Decrease in deferred income taxes (5,345) (522) (Gains) losses from property disposals, net 4 (234) Changes in assets and liabilities: Receivables (10,787) (17,624) Notes receivable from sale of trade accounts -- 21,879 Accrued claims costs (5,354) (4,363) Accounts payable (9,997) (20,657) Income taxes 3,569 5,837 Accrued liabilities, deferred charges and other (4,763) 13,948 Net Cash Provided by Operating Activities 19,332 43,332 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (38,177) (38,514) Purchases of marketable securities (977) (32,632) Proceeds from sale of property 758 2,241 Net Cash Used by Investing Activities (38,396) (68,905) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term debt and capital lease obligations (273) (107) Proceeds from issuance of common stock 6,297 683 Payments of preferred dividends (5,782) (5,800) Net Cash Provided (Used) by Financing Activities 242 (5,224) Decrease in Cash and Temporary Cash Investments (18,822) (30,797) CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 120,222 $ 121,267 The accompanying notes are an integral part of these statements. PAGE 7 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying consolidated financial statements of Consolidated Freightways, Inc. 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 1993 Annual Report to Shareholders. There have been no significant changes in the accounting policies of the Company. There were no significant changes in the Company's commitments and contingencies as previously described in the 1993 Annual Report to Shareholders and related annual report to the Securities and Exchange Commission on Form 10-K, except as discussed in Item 2, "Management's Discussion and Analysis of Results of Operations." 2. In November 1993, the Accounting Standards Division of the AICPA issued Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans" (SOP 93-6). This statement changes the recognition of compensation for stock allocated to employee accounts to satisfy plan benefits, settlement of plan liabilities and changes the inclusion in earnings per share of shares held in trust by ESOPs. As provided for under this statement, the Company is not required to adopt this method of accounting as its existing ESOP (TASP) was established before December 31, 1992. Had this statement been adopted January 1, 1994, both the primary and fully diluted earnings per share for the quarter ended March 31, 1994 would have been $.28. 3. 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 impact on the Company's financial position or results of operations. PAGE 8 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Total Company revenues for the first quarter of 1994 increased 11.1% to $1.1 billion from the same period last year. This substantial increase is due to the continued success of the Con-Way group and Emery, which posted a significant increase in revenue in what is traditionally a slow quarter for the air freight business. CF MotorFreight earned slightly higher revenues as a January 1, 1994 discount rate rollback was substantially retained. First quarter operating income increased $14.1 million or 66.2% over the same period last year as the Con-Ways posted another quarter of record operating profits and Emery realized an operating profit in the first quarter, a period in which it has historically incurred losses. The success of these two groups more than offset the decline in CF MotorFreight. All three groups were affected by the severe cold and wet winter weather and the Los Angeles-area earthquake. Significant variations in segment revenue and operating income are as follows: CF MOTORFREIGHT CF MotorFreight's (CFMF) revenues for the first quarter of 1994 increased $12.2 million or 2.4% over the prior year, due primarily to the 3% discount rate rollback effective January 1, 1994. Total tonnage was essentially unchanged while the higher rated less-than-truckload (LTL) tonnage decreased 1%. This decline reflects loss of shipments due to the harsh winter weather conditions and the Los Angeles-area earthquake, as well as market dilution from non-traditional competitors and changes in distribution patterns by customers. However, CFMF was showing signs of improvement, as LTL tonnage per day in March 1994 was up 0.8%, the first year-to-year increase since December 1992. Operating income for the quarter declined 61.3% from the comparable 1993 quarter reflecting an increase in labor costs, expenses related to the weather and earthquake and a substantial erosion in yields. The yield erosion abated in the first quarter of 1994 with substantial retention of the January 1994 discount rollback. PAGE 9 CFMF expects to report a loss in the second quarter due to a three week work stoppage that ended April 29, 1994. On April 6 CFMF's contractual employees, represented primarily by the International Brotherhood of Teamsters (IBT), went on strike after the IBT leadership rejected Trucking Management Inc.'s contractual offer. After negotiations, a tentative agreement was reached on April 29, 1994. Although the contractual employees have returned to work, the IBT membership needs to ratify the contract in May. The Company expects to report a substantial loss for the quarter due to fixed costs continuing during the strike and start up of business activities since the strike. CFMF's management does not expect business volumes to be restored to levels prior to the strike. However, at this time management cannot reliably predict how much of such business will be permanently lost to competitors. To minimize the ongoing costs associated with the strike, management is considering various options to optimize the freight-flow infrastructure. This involves sizing the system in line with various levels of reduced business to minimize linehaul and freight handling costs and increase direct loading. CON-WAY TRANSPORTATION SERVICES Con-Way Transportation Services (CTS) revenue increased $42.4 million or 22.6% over the same period last year, setting a new first quarter revenue record, as total revenue for the quarter exceeded $200 million. Expansion into new markets, primarily Missouri and Florida in late 1993 and the northeast in early 1994, has yielded substantial increases in shipment levels. Total tonnage increased 24.5% while the higher rated LTL tonnage increased 23.1% over the same period last year. Operating profits for the first quarter of 1994 improved $5.0 million or 31.5% over the same period last year. Despite incurring start up costs related to market expansions and significant costs as a result of bad winter weather and the Los Angeles-area earthquake, margins still increased from 8.5% in the first quarter of 1993 to 9.1% in 1994. The Con-Ways expect to continue their pattern of growth through expansion into new geographic markets, utilization of its joint service agreements and continued growth in its existing markets. These joint service agreements augment business levels by allowing the companies to service customer requirements in these competitive markets. The Con-Way's business volumes have benefited significantly from the Teamster strike of the unionized sector of the LTL industry in April 1994. PAGE 10 EMERY WORLDWIDE Emery's first quarter 1994 revenues of $340.4 million represent an increase of 19.5% over 1993. All of the revenue increase is attributable to commercial business with North American and international weight increasing 33% and 29%, respectively. Revenue under the new U.S. Postal Service contract is 26% lower than in 1993. The new USPS contract provides for revenue of $880 million over 10 years with an additional $26.9 million annually as reimbursement of certain costs. Operating income was $10.6 million, an increase of $15.3 million from a loss of $4.7 million last year. Emery's profit improvement in both the domestic and international markets is attributable to stringent cost control measures implemented in 1992, growth in volumes resulting from increasing customer confidence and marketplace acceptance of Emery's successful strategy of offering flexible service solutions. Emery plans to continue the strategies which have successfully increased business levels while containing costs. In March, Emery announced it was leasing 9 DC-8 jet freighters with delivery occurring through the fourth quarter. The additions will allow Emery to efficiently service current business levels and handle anticipated increases as the peak shipping season approaches. Although the DC-8s replace short- term leased planes, their utilization will increase dedicated lift capacity by 25%. The Company will continue to optimize its freight flow infrastructure to maximize operating margins as commercial business volumes continue to increase both domestically and internationally. Emery's business volumes have also benefited significantly in April 1994 as a result of the Teamster strike of the unionized sector of the LTL industry. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1994 the Company had $120.2 million in cash and cash equivalents and $14.7 million in long term investments. Cash flow from operations of $19.3 million was primarily the result of income from operations and significant depreciation and amortization. The Company incurred $38.2 million in capital expenditures during the quarter. As a result of the strike by the Teamsters, the Company has canceled plans for CFMF 1994 capital expenditures of approximately $50 million for over-the road equipment, such as tractors and trailers, city pick up and delivery trucks and dock equipment, as well as terminal expansion. The Company expects to satisfy the capital expenditure requirements of its regional trucking and airfreight operations with cash from operations and by leasing. PAGE 11 In 1993, Emery entered into a $75 million receivable sale facility with several banks. The agreement involves the sale of eligible air freight subsidiary receivables to a special purpose corporation for use as cash or non-transferable promissory notes and related letters of credit. At March 31, 1994, $72 million of letters of credit were issued and secured with Emery receivables. To allow for future letter of credit requirements, Emery is currently negotiating an increase in this facility to $100 million. Also in 1993, the Company entered into a $250 million unsecured credit facility to provide standby availability for the Company's letter of credit and working capital needs. A second related agreement provides for letters of credit up to $110 million. Letters of credit of $121 million are outstanding under these two facilities. The combined cash borrowings and outstanding letters of credit under these two agreements may not exceed $250 million. To satisfy working capital needs, during the work stoppage and for the time required to restore business levels at CFMF, the Company has available unused credit of $130 million at March 31, 1994. OTHER The Company's operations necessitate the storage of fuel in underground tanks as well as the disposal of substances regulated by various federal and state laws. The Company adheres to a stringent site-by-site tank testing and maintenance program performed by a qualified independent party to protect the environment and comply with regulations. Where the need for clean-up is necessary, the Company takes appropriate action. PAGE 12 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings As previously reported, the Company has been designated a Potentially Responsible Party (PRP) by the EPA with respect to the disposal of hazardous substances at various sites. The Company expects its share of the total cleanup costs of all sites to be immaterial. Certain legal matters are discussed in Note 3 in the Notes to Consolidated Financial Statements in Part I of this form. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Per Share Earnings (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1994. 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, INC. (Registrant) May 6, 1994 /s/Gregory L. Quesnel Gregory L. Quesnel Executive Vice President - Chief Financial Officer May 6, 1994 /s/Robert E. Wrightson Robert E. Wrightson Vice President and Controller EX-11 2 MARCH 1994 EX-11 COMPUTATION OF PER SHARE EARNINGS The following is the computation of fully-diluted earnings per share: Three Months Ended March 31 1994 1993 (Dollars in thousands) Earnings: Net Income $ 15,256 $ 8,268 Preferred dividends 4,734 4,749 Net income available to common shareholders 10,522 3,519 Non-discretionary adjustments under the if-converted method: Addback: Series B, preferred dividends, net of tax benefits 2,078 2,093 Less: Replacement of funding adjustment, net of tax benefits (1) (2,078) (2,093) $ 10,522 $ 3,519 WEIGHTED AVERAGE SHARES OUTSTANDING: Common shares 35,962,606 35,360,163 Equivalents - stock options 1,197,039 655,332 Series B, preferred stock - if converted method 4,124,274 4,440,790 41,283,919 40,456,285 FULLY-DILUTED EARNINGS PER SHARE $ 0.25 $ 0.09 (1) Additional payment to the TASP to replace the funding lost under the if-converted method. -----END PRIVACY-ENHANCED MESSAGE-----