-----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, BIh89D+EwHw7BTIMT2oXy0HlxXnjmJq9e1DhlH6576Z9b6MFyrJFJ6/J27+ebZBq C6/7xRaaJMuoouK9WGWbsg== 0000023675-96-000011.txt : 19961118 0000023675-96-000011.hdr.sgml : 19961118 ACCESSION NUMBER: 0000023675-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED FREIGHTWAYS INC CENTRAL INDEX KEY: 0000023675 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [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: 96664291 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO A LTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154942900 10-Q 1 10-Q 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 September 30, 1996 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 1-5046 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 October 31, 1996: 44,037,941 PAGE 2 CONSOLIDATED FREIGHTWAYS, INC. FORM 10-Q Quarter Ended September 30, 1996 ___________________________________________________________________________ ___________________________________________________________________________ INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3 Statements of Consolidated Income - Three and Nine Months Ended September 30, 1996 and 1995 5 Statements of Consolidated Cash Flows - Nine Months Ended September 30, 1996 and 1995 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 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16 PAGE 3 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (Dollars in thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 114,409 $ 86,345 Trade accounts receivable, net of allowances 840,823 762,134 Other receivables 49,308 53,784 Operating supplies, at lower of average cost or market 50,539 45,890 Prepaid expenses 73,269 69,374 Deferred income taxes 134,248 134,035 Total Current Assets 1,262,596 1,151,562 PROPERTY, PLANT AND EQUIPMENT, at cost Land 181,427 177,614 Buildings and improvements 596,697 562,760 Revenue equipment 1,134,973 1,073,505 Other equipment and leasehold improvements 411,434 377,644 2,324,531 2,191,523 Accumulated depreciation and amortization (1,174,285) (1,115,538) 1,150,246 1,075,985 OTHER ASSETS Restricted funds 14,232 11,189 Deposits and other assets 104,225 88,573 Unamortized aircraft maintenance, net 122,417 114,636 Costs in excess of net assets of businesses acquired, net of accumulated amortization 301,122 308,141 541,996 522,539 TOTAL ASSETS $2,954,838 $2,750,086 The accompanying notes are an integral part of these statements. PAGE 4 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 281,791 $ 269,203 Accrued liabilities 530,586 474,028 Accrued claims costs 162,516 150,643 Current maturities of long-term debt and capital leases 3,208 2,412 Short-term borrowings 150,000 50,000 Federal and other income taxes 12,218 12,938 Total Current Liabilities 1,140,319 959,224 LONG-TERM LIABILITIES Long-term debt and guarantees 381,425 384,545 Long-term obligations under capital leases 110,914 110,965 Accrued claims costs 165,086 166,442 Employee benefits 226,520 236,131 Other liabilities and deferred credits 111,692 93,685 Deferred income taxes 80,630 76,734 Total Liabilities 2,216,586 2,027,726 SHAREHOLDERS' EQUITY Preferred stock, no par value; authorized 5,000,000 shares: Series B, 8.5% cumulative, convertible, $.01 stated value; designated 1,100,000 shares; issued 943,794 and 954,412 shares, respectively 9 10 Additional paid-in capital, preferred stock 143,542 145,156 Deferred TASP compensation (110,298) (114,896) Total Preferred Shareholders' Equity 33,253 30,270 Common stock, $.625 par value; authorized 100,000,000 shares; issued 51,512,452 and 51,451,490 shares, respectively 32,196 32,157 Additional paid-in capital, common stock 240,536 239,696 Cumulative translation adjustment (1,411) (2,028) Retained earnings 618,129 608,399 Cost of repurchased common stock (7,480,893 and 7,549,174 shares, respectively) (184,451) (186,134) Total Common Shareholders' Equity 704,999 692,090 Total Shareholders' Equity 738,252 722,360 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,954,838 $2,750,086 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 amounts) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 REVENUES CF MotorFreight $ 644,956 $ 593,710 $ 1,826,539 $ 1,801,227 Con-Way Transportation Services 331,090 294,751 949,584 857,763 Emery Worldwide 497,860 434,318 1,420,788 1,280,462 1,473,906 1,322,779 4,196,911 3,939,452 COSTS AND EXPENSES CF MotorFreight Operating Expenses 562,538 523,770 1,617,058 1,565,465 Selling and Administrative Expenses 65,365 58,661 190,638 178,802 Depreciation 15,653 16,899 48,335 50,129 643,556 599,330 1,856,031 1,794,396 Con-Way Transportation Services Operating Expenses 245,261 227,916 708,746 647,794 Selling and Administrative Expenses 43,056 33,207 123,775 100,267 Depreciation 13,588 10,500 37,489 29,488 301,905 271,623 870,010 777,549 Emery Worldwide Operating Expenses 399,529 349,745 1,148,930 1,042,379 Selling and Administrative Expenses 68,788 57,898 196,810 167,384 Depreciation 8,013 6,939 23,368 20,247 476,330 414,582 1,369,108 1,230,010 1,421,791 1,285,535 4,095,149 3,801,955 OPERATING INCOME (LOSS) CF MotorFreight 1,400 (5,620) (29,492) 6,831 Con-Way Transportation Services 29,185 23,128 79,574 80,214 Emery Worldwide 21,530 19,736 51,680 50,452 52,115 37,244 101,762 137,497 OTHER INCOME (EXPENSE) Investment income 43 158 266 680 Interest expense (10,134) (9,342) (30,124) (24,760) Miscellaneous, net (661) 1,443 (1,547) 1,999 (10,752) (7,741) (31,405) (22,081) Income Before Income Taxes 41,363 29,503 70,357 115,416 Income Taxes 21,509 13,988 36,567 53,508 Net Income 19,854 15,515 33,790 61,908 Preferred Stock Dividends 2,141 2,155 6,458 8,620 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 17,713 $ 13,360 $ 27,332 $ 53,288 Primary average shares outstanding (1) 44,659,341 44,561,758 44,846,589 44,362,108 PRIMARY EARNINGS PER SHARE $ 0.40 $ 0.30 $ 0.61 $ 1.25 FULLY DILUTED EARNINGS PER SHARE $ 0.37 $ 0.28 $ 0.59 $ 1.17 (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 Nine Months Ended September 30, 1996 1995 (Dollars in thousands) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 86,345 $ 95,711 CASH FLOWS FROM OPERATING ACTIVITIES Net income 33,790 61,908 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 119,027 108,963 Increase in deferred income taxes 3,683 5,218 Gains from property disposals, net (3,395) (2,423) Changes in assets and liabilities: Receivables (74,213) (133,795) Prepaid expenses (3,895) (6,205) Accounts payable 12,588 19,940 Accrued claims costs 10,517 3,229 Income taxes (720) 5,190 Accrued liabilities 56,558 29,074 Other (29,845) (31,432) Net Cash Provided by Operating Activities 124,095 59,667 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (183,186) (219,340) Proceeds from sales of property 11,011 8,704 Net Cash Used by Investing Activities (172,175) (210,636) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt -- 98,890 Repayment of long-term debt and capital lease obligations (2,375) (942) Net borrowings under revolving lines of credit 100,000 80,000 Proceeds from issuance of common stock 947 3,126 Payments of common dividends (13,199) (12,332) Payments of preferred dividends (9,229) (11,529) Net Cash Provided by Financing Activities 76,144 157,213 Increase in Cash and Cash Equivalents 28,064 6,244 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 114,409 $ 101,955 The accompanying notes are an integral part of these statements. PAGE 7 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation 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 1995 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 1995 Annual Report to Shareholders and related annual report to the Securities and Exchange Commission on Form 10-K. 2. Dispositions On August 26, 1996, the Company's Board of Directors approved proceeding with the distribution to the Company's shareholders of its long- haul trucking business, subject to certain customary conditions (the Distribution). Consummation of the Distribution would create two separate, publicly traded companies, each offering a variety of premium freight transportation services. On November 7, 1996, the Company's Board of Directors approved the Distribution effective December 2, 1996, to holders of record of the Company's common stock at the close of business on November 15, 1996. Pursuant to the Board's approval, the Company will distribute all of the outstanding capital stock of its newly created wholly- owned subsidiary, Consolidated Freightways Corporation (CFC), which consists of Consolidated Freightways Corporation of Delaware and its nationwide long-haul motor carrier CF MotorFreight (CFMF) and its Canadian operations, including Canadian Freightways, Ltd., Epic Express, Milne & Craighead, Canadian Sufferance Warehouses and other related businesses as well as the Leland James Service Corporation (LJSC), an administrative service provider. In connection with the Distribution, the Company will seek shareholder approval to change its name to CNF Transportation, Inc. (CNF) at its next annual meeting of shareholders. CNF will consist of Emery Worldwide, the international air and ocean freight carrier; Con-Way Transportation Services, including its three regional less-than-truckload carriers and Con- Way Truckload Services; Menlo Logistics, a third-party logistics management firm; Road Systems, a trailer manufacturer; and VantageParts, a retail distributor of truck parts and supplies. PAGE 8 The historical consolidated financial statements of the Company include the results of operations and financial position of the businesses which will constitute CFC. The unaudited pro forma condensed consolidated income statements for each of the three quarters and the nine months ended September 30, 1996, and each of the four quarters and for the year ended December 31, 1995, have been prepared assuming the Distribution occurred as of January 1, 1996 and 1995, respectively. The unaudited pro forma condensed consolidated income statements represent the pro forma results of continuing operations only and are based upon available information and upon certain assumptions that the Company believes are reasonable. This pro forma data does not purport to be indicative of the consolidated results of operations that would have occurred had the Distribution occurred on the dates indicated, or which may be attained in the future. Adjustments made to the pro forma data (which adjustments are discussed in greater detail in exhibit 99 included herein) primarily include the addback of intercompany revenue and expense between Menlo Logistics, Road Systems and VantageParts with CFCD which were previously eliminated; the elimination of intercompany interest income from interest formerly charged on advances payable by CFCD to the Company and the tax effects of these adjustments. In connection with the Distribution, the Company anticipates incurring costs directly related to the disposition that will be reported as loss on disposal of discontinued operations in the consolidated statement of income in the fourth quarter of 1996. The following unaudited pro forma condensed consolidated statements of income should be read in conjunction with, and are qualified in their entirety by reference to, the pro forma condensed consolidated financial statements (including notes thereto) included as exhibit 99 herein. Unaudited Pro Forma Condensed Consolidated Statements of Income Continuing Operations of the Company (In millions, except per share data) Nine Months _______Three Months Ended___ Ended Mar 31, June 30, Sept 30, Sept 30, 1996 1996 1996 1996 REVENUES Con-Way Transportation Services $301.8 $316.7 $331.1 $ 949.6 Emery Worldwide 446.6 476.3 497.9 1,420.8 Other 99.4 101.4 106.8 307.6 $847.8 $894.4 $935.8 $2,678.0 OPERATING INCOME Con-Way Transportation Services $ 20.4 $ 30.0 $ 29.2 $ 79.6 Emery Worldwide 11.5 18.7 21.5 51.7 Other 3.5 4.1 3.8 11.4 35.4 52.8 54.5 142.7 OTHER INCOME (EXPENSE) Investment income - .1 - .1 Interest expense (9.7) (9.9) (9.9) (29.5) Miscellaneous, net .1 (1.6) (2.4) (3.9) (9.6) (11.4) (12.3) (33.3) Income before income taxes 25.8 41.4 42.2 109.4 Income taxes 11.4 18.3 18.8 48.5 Net Income 14.4 23.1 23.4 60.9 Preferred Stock Dividends 2.1 2.2 2.2 6.5 Net income available to common shareholders $ 12.3 $ 20.9 $ 21.2 $ 54.4 Primary earnings per share $ 0.28 $ 0.46 $ 0.47 $ 1.20 Fully diluted earnings per share $ 0.26 $ 0.43 $ 0.44 $ 1.12 PAGE 9 Year _______ Three Months Ended _____ Ended Mar 31, June 30, Sept 30, Dec 31, Dec 31, 1995 1995 1995 1995 1995 REVENUES Con-Way Transportation Services $274.9 $288.1 $294.8 $294.4 $1,152.2 Emery Worldwide 412.8 433.4 434.3 485.8 1,766.3 Other 88.2 83.3 107.5 92.6 371.6 $775.9 $804.8 $836.6 $872.8 $3,290.1 OPERATING INCOME Con-Way Transportation Services $ 28.8 $ 28.2 $ 23.2 $ 16.4 $ 96.6 Emery Worldwide 13.1 17.7 19.6 31.3 81.7 Other 3.7 1.7 2.5 1.0 8.9 45.6 47.6 45.3 48.7 187.2 OTHER INCOME (EXPENSE) Investment income - .3 (.2) - .1 Interest expense (6.5) (8.5) (9.1) (9.3) (33.4) Miscellaneous, net (.4) 1.2 .2 (1.5) (.5) (6.9) (7.0) (9.1) (10.8) (33.8) Income before income taxes 38.7 40.6 36.2 37.9 153.4 Income taxes 16.9 17.7 15.8 16.5 66.9 Net Income 21.8 22.9 20.4 21.4 86.5 Preferred Stock Dividends 4.3 2.1 2.2 2.2 10.8 Net income available to common shareholders $ 17.5 $ 20.8 $ 18.2 $ 19.2 $ 75.7 Primary earnings per share $ 0.44 $ 0.46 $ 0.41 $ 0.43 $ 1.74 Fully diluted earnings per share $ 0.41 $ 0.43 $ 0.38 $ 0.40 $ 1.62 3. Contingencies The Company and its subsidiaries are defendants in various lawsuits incidental to their businesses. It is the opinion of management that the ultimate outcome of these actions will not have a material adverse effect on the Company's consolidated financial position or results of operations. PAGE 10 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On August 26, 1996, the Company's Board of Directors approved proceeding with the distribution to the Company's shareholders of its long- haul trucking business, subject to certain customary conditions (the Distribution). Consummation of the Distribution would create two separate, publicly traded companies, each offering a variety of premium freight transportation services. On November 7, 1996, the Company's Board of Directors approved the Distribution effective December 2, 1996, to holders of record of the Company's common stock at the close of business on November, 15, 1996. Pursuant to the Board's approval, the Company will distribute all of the outstanding capital stock of its newly created wholly- owned subsidiary, Consolidated Freightways Corporation (CFC), which consists of Consolidated Freightways Corporation of Delaware and its nationwide long-haul motor carrier CF MotorFreight (CFMF) and its Canadian operations, including Canadian Freightways, Ltd., Epic Express, Milne & Craighead, Canadian Sufferance Warehouses and other related businesses as well as the Leland James Service Corporation (LJSC), an administrative service provider. The CF MotorFreight segment, as historically presented and as presented herein, consisted primarily of Consolidated Freightways Corporation of Delaware and subsidiaries, but also included Menlo Logistics and several small non-carrier operations that will be retained by the Company. General Total Company revenues in the third quarter of 1996 increased 11.4% over the same quarter last year with revenue increases at all three of the Company's reported business segments. Revenues for the nine months ended September 30, 1996 were up 6.5% and also reflect increased revenues at all three segments. Each of the three business segments experienced a significant increase in revenue late in the second quarter and these levels generally continued throughout the third quarter. Operating income for the third quarter increased 39.9% and represents increased operating income at all three reported business segments over the same quarter last year. Con-Way and Emery posted strong gains over last year's third quarter following a decline in the year-to-year comparisons for the first half of 1996. The CFMF segment reported its first quarter of operating income since the implementation of its freight system reorganization (Business Accelerator System (BAS)) beginning in October 1995. Nine-month operating income was down 26.0% as a result of operating losses incurred by CFMF in the first half of this year and lower operating income for Con-Way and Emery in the first quarter of this year. PAGE 11 Other expense, net increased in the third quarter compared to the third quarter last year due primarily to increased interest expense on additional borrowings under the Company's unsecured credit facilities and because of gains on sales of properties recognized in miscellaneous, net in the third quarter of the prior year. Other expense, net for the nine-month period increased compared with the same period in the prior year due primarily to increased interest expense on additional borrowings under the unsecured credit facilities and the $100 million 7.35% Notes issued in June of 1995. The effective income tax rate for the third quarter and nine months ended September 30, 1996, of approximately 52%, increased from the approximate rates of 47% and 46% for the third quarter and nine months in 1995, respectively, due to a relatively higher proportion of non-deductible items to taxable income compared with the prior year. Significant variations in segment revenues and operating income are as follows: CF MotorFreight CF MotorFreight revenues for the third quarter of 1996 increased 8.6% on a tonnage increase of 7.0%, while nine-month revenues increased 1.4% on a tonnage decline of 2.6%. The quarterly less-then-truckload (LTL) tonnage increased 7.6% over last year while the nine-month LTL tonnage was down .4%. The revenue improvements for the quarter and nine-months reflect increased acceptance of CFMF's improved service, a slow but gradual lessening of excess industry capacity, and some signs that pricing declines are stabilizing although prices are still below prior year levels. Contributing to increased revenues for the quarter and nine months are increased revenues from Menlo Logistics which is included with CFMF for reporting purposes. CFMF's quarterly operating income of $1.4 million is a $7.0 million improvement over a $5.6 million operating loss in the prior-year quarter. This represents CFMF's third consecutive quarterly improvement of operating results since the implementation of BAS in October 1995 and the first year- to-year improvement since then. The 1996 nine-month operating loss of $29.5 million is $36.3 million below the operating income in the same period in 1995 as a result of operating losses in the first-half of 1996 following implementation of BAS. Higher fuel prices contributed to the operating losses in the first six months of this year whereas third quarter fuel price increases were offset in part by fuel surcharges. The quarterly and nine-month operating results of 1996 include $5.5 million and $15.0 million of operating income, respectively, from Menlo Logistics and CFMF's Canadian subsidiaries compared with $4.2 million and $10.7 million, respectively, in the same periods last year. With revenues recovered to levels above the first nine months of the prior year, management will continue to focus on reducing expenses and improving customer service through increased productivity. Productivity improvements will continue to have two objectives: namely, improving the consistency of customer service, while managing expense levels. Management will seek to reduce expenses by improving load factor, reducing linehaul costs with efficient rail usage, reducing freight handling, and continued efforts to reduce other operating expenses. PAGE 12 Con-Way Transportation Services Con-Way revenues for the third quarter of 1996 were 12.3% above the same quarter last year and for the nine months ended September 30, 1996, were 10.7% above the same period last year. The improved revenues were primarily attributable to increased tonnage levels of 10.3% and 7.9% for the third quarter and nine-month period, respectively, with LTL tonnage up 7.9% and 6.6% for these same periods compared with the prior year. The revenue gains are also attributed to Con-Way's enhanced service offerings, modest economic expansion, and reduced discounting pressure from competitors. Operating income was up 26.2% for the quarter, but for the nine months of 1996 was slightly below last year's level. The third quarter's improvement was the result of improved revenue levels combined with the implementation of fuel surcharges late in the second quarter, successful cost control measures, and some restraint on industry-wide discounting. Increased fuel costs adversely impacted operating results for the first half of this year when no surcharge was in place and, combined with a weak first quarter due in part to weather related factors, caused 1996 nine- month operating income to be slightly below the prior year. Management believes the fuel surcharge should help to protect against expected winter fuel price increases. Going forward, efforts will be focused on continuing joint service product offerings and improved productivity in the operations to further constrain costs. Emery Worldwide Third-quarter 1996 revenues for Emery increased 14.6% from the same quarter last year while nine-month revenues were up 11.0%. The increased revenue levels came from domestic tonnage increases of 20.1% in the third quarter and 15.9% in the nine months compared with the same periods last year. International growth also continued to be strong relative to international economic conditions with a quarterly tonnage increase of 10.7% and a nine-month tonnage improvement of 10.6% over the respective periods in the prior year. Although price deterioration was not as strong in the third quarter compared with the nine-month period, pricing levels continued to be below those of last year. Emery's third-quarter 1996 operating income exceeded the same quarter last year by 9.1% while the nine-month improvement was 2.4% over the first nine months of the prior year. The operating results improved in both periods despite being adversely impacted by higher jet fuel costs and the reinstatement of the federal cargo excise tax on August 26, 1996. Management is seeking to increase revenues through improved customer service, new service offerings, and better system utilization. Some of the service offerings include, among others, the opening of the Emery Global Logistics warehouse at Emery's Dayton Hub, new and expanded agent locations in key international markets, and the expansion of Emery's global industry- specific groups. In response to cost increases of jet fuel, management announced a fuel index fee effective November 1, 1996. PAGE 13 LIQUIDITY AND CAPITAL RESOURCES At September 30, 1996, the Company had $114.4 million in cash and cash equivalents. Net cash flow from operations during the nine months ended September 30, 1996, of $124.1 million was primarily the result of income from operations and depreciation and amortization offset in part by increased accounts receivable levels. Included in other receivables at September 30, 1996, was approximately $21 million of reimbursement for aircraft maintenance performed in connection with certain aircraft lease agreements, compared with approximately $43 million at September 30, 1995, of refundable deposits on equipment to be financed through leasing agreements. Capital expenditures for the nine months ended September 30, 1996, were $183.2 million, a decrease of $36.2 million from the same period in 1995. Debt repayment and preferred dividend requirements during the nine months of 1996 were $11.6 million. During 1996, the Company increased its borrowings under various bank lines by $100 million, bringing total borrowings under these unsecured lines of credit to $150 million at September 30, 1996. The Company intends to fund the remaining capital expenditure requirements for 1996 with cash from operations supplemented by financing arrangements. At September 30, 1996, $136.5 million of letters of credit were outstanding under the Company's $300 million unsecured credit facility. In addition, $31.6 million of letters of credit were outstanding and secured with Emery trade receivables under the $35 million Emery receivables facility. The facility was reduced from $100 million to $35 million during the quarter, consistent with lower letter of credit requirements at Emery. Also at September 30, 1996, $24.1 million of letters of credit were outstanding under several unsecured letter of credit facilities. Under the above facilities and other offered lines of credit, the Company has $96.9 million available for additional borrowings and letter of credit needs. OTHER The Company's operations necessitate the storage of fuel in underground tanks as well as the disposal of substances regulated by various federal and state laws. The Company adheres to a stringent site-by- site tank testing and maintenance program performed by qualified independent parties to protect the environment and comply with regulations. Where clean-up is necessary, the Company takes appropriate action. Certain statements included herein constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to a number of risks and uncertainties. In that regard, the following factors, among others, could cause actual results and other matters to differ materially from those in such statements: changes in general business and economic conditions; increasing domestic and international competition and pricing pressure; changes in fuel prices; uncertainty regarding the Company's ability to improve results of operations; labor matters, including changes in labor costs, renegotiation of labor contracts and the risk of work stoppages or strikes; changes in governmental regulation; environmental and tax matters; and the effects of the anticipated spin-off of certain businesses as described herein. As a result of the foregoing, no assurance can be given as to future results of operations or financial condition. PAGE 14 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings As previously reported, 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 Response Compensation and Liability Act (CERCLA) or other Federal and state environmental statues at several hazardous waste sites. Under CERCLA, PRP's are jointly and severally liable for all site remediation and expenses. After investigating the Company's or its subsidiaries involvement in waste disposal and waste generation at such sites, the Company has either agreed to de minimis settlements or, based upon cost studies performed by independent third parties, believes its obligations with respect to such sites would not have a material adverse effect on the Company's financial position or results of operations. Certain legal matters are discussed in Note 3 in the Notes to Consolidated Financial Statements in Part I of this form. ITEM 5. Other Information On November 7, 1996, the Company's Board of Directors set a record date of November 15, 1996, and a distribution date of December 2, 1996, for the spin-off transaction that will split the Company as described in Note 2 to the financial statements. All of the Company's shareholders of record on November 15, 1996, will receive one share of CFC stock for every two shares of the Company's common stock owned. As presented in Exhibit 99 to this Form 10-Q, the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996, has been prepared assuming the Distribution occurred as of that date. The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 1996 and year ended December 31, 1995, have been prepared assuming the spin-off and distribution occurred as of January 1, 1996 and 1995, respectively. The pro forma adjustments are based upon available information and upon certain assumptions that the Company and CFC believe are reasonable which are described in the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements. These pro forma financial statements do not purport to be indicative of the consolidated results of operations or financial position that would have existed had the distribution of shares occurred on the dates indicated, or which may be attained in the future. PAGE 15 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Computation of Per Share Earnings (12) Computation of Ratios of Earnings to Fixed Charges (27) Financial Data Schedule (99) Consolidated Freightways Inc., Pro Forma Condensed Consolidated Financial Information. Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 Pro Forma Condensed Consolidated Statement of Income for the Nine Months Ended September 30, 1996 Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 1995 (b) Reports on Form 8-K A Form 8-K, dated September 6, 1996, was filed under Item 5, Other Events, to report the anticipated spin-off of the Company's less-than- truckload subsidiary, Consolidated Freightways Corporation of Delaware and its subsidiaries. Included in the filing was Unaudited Pro Forma Condensed Consolidated Financial Information of Consolidated Freightways, Inc., including an Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996, an Unaudited Pro Forma Condensed Consolidated Statement of Income for the Six Months Ended June 30, 1996 and an Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 1995. PAGE 16 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) November 14, 1996 /s/Gregory L. Quesnel Gregory L. Quesnel Executive Vice President and Chief Financial Officer November 14, 1996 /s/Gary D. Taliaferro Gary D. Taliaferro Vice President and Controller EX-11 2 EXHIBIT 11 Exhibit 11
CONSOLIDATED FREIGHTWAYS, INC. COMPUTATION OF PER SHARE EARNINGS The following is the computation of fully diluted earnings per share: Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 (Dollars in thousands except per share amounts) Net income available to common shareholders $ 17,713 $ 13,360 $ 27,332 $ 53,288 Non-discretionary adjustments under the if-converted method: Addback: Series C, preferred dividends - - - 2,207 Addback: Series B, preferred dividends, net of tax benefits 2,141 2,155 6,458 6,413 Less: Replacement of funding adjustment, net of tax benefits (1) (1,721) (1,662) (5,022) (5,008) Net income available to common shareholders $ 18,133 $ 13,853 $ 28,768 $ 56,900 WEIGHTED AVERAGE SHARES OUTSTANDING: Common shares 44,023,076 43,508,226 43,992,127 43,400,950 Equivalents - stock options 953,101 1,053,533 953,101 1,041,316 Series B, Preferred stock if-converted method 4,259,321 4,229,925 4,259,321 4,229,925 49,235,498 48,791,684 49,204,549 48,672,191 FULLY DILUTED EARNINGS PER SHARE $ 0.37 $ 0.28 $ 0.59 $ 1.17 (1) Additional payment to the Company's Thrift and Stock Plan (TASP) to replace the funding lost under if-converted method.
EX-12 3 EXHIBIT 12 Exhibit 12
CONSOLIDATED FREIGHTWAYS, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Nine Months Ended September 30, Year Ended December 31, 1996 1995 1995 1994 1993 1992 1991 (Dollars in thousands) Fixed Charges: Interest Expense $ 30,124 $ 24,760 $ 34,325 $ 27,945 $ 30,333 $ 38,893 $ 46,703 Capitalized Interest 1,861 678 1,092 1,042 1,224 543 1,703 Preferred Dividends 9,481 9,617 12,419 12,475 12,551 12,618 12,691 Total Interest 41,466 35,055 47,836 41,462 44,108 52,054 61,097 Interest Component of Rental Expense 54,181 53,560 73,004 62,304 57,585 55,773 58,052 Total Fixed Charges 95,647 88,615 120,840 103,766 101,693 107,827 119,149 Less: Capitalized Interest 1,861 678 1,092 1,042 1,224 543 1,703 Preferred Dividends 9,481 9,617 12,419 12,475 12,551 12,618 12,691 Net Fixed Charges $ 84,305 $ 78,320 $ 107,329 $ 90,249 $ 87,918 $ 94,666 $ 104,755 Earnings: Income (Loss) Before Income Taxes $ 70,357 $ 115,416 $ 110,873 $ 111,920 $ 91,441 $ (10,733) $ (43,337) Add: Net Fixed Charges 84,305 78,320 107,329 90,249 87,918 94,666 104,755 Total Earnings $ 154,662 $ 193,736 $ 218,202 $ 202,169 $ 179,359 $ 83,933 $ 61,418 Ratio of Earnings to Fixed Charges: Total Earnings $ 154,662 $ 193,736 $ 218,202 $ 202,169 $ 179,359 $ 83,933 $ 61,418 Fixed Charges (1) 95,647 88,615 120,840 103,766 101,693 107,827 119,149 Ratio 1.6 x 2.2 x 1.8 x 1.9 x 1.8 x 0.8 x(2) 0.5 x(2) (1) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest, dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes issued by the Company's Thrift and Stock Plan and the applicable portion of the consolidated rent expense which approximates the interest portion of lease payments. (2) Earnings were inadequate to cover fixed charges for the periods shown; the deficiency was $23.9 million and $57.7 million for the years ended December 31, 1992 and 1991, respectively.
EX-27 4 EXHIBIT 27
5 1000 9-MOS DEC-31-1996 SEP-30-1996 114,409 0 860,531 (19,708) 50,539 1,262,596 2,324,531 (1,174,285) 2,954,838 1,140,319 492,339 0 143,551 272,732 321,969 2,954,838 0 4,196,911 0 4,095,149 31,405 0 30,124 70,357 36,567 33,790 0 0 0 27,332 .61 .59
EX-99 5 EXHIBIT 99 EXHIBIT 99 Consolidated Freightways, Inc. Pro Forma Condensed Consolidated Balance Sheet September 30, 1996 (In thousands) (Unaudited)
Consolidated Consolidated Eliminate Pro Forma Freightways, Inc. Freightways, Inc. CFCD & LJSC (a) Adjustments Pro Forma CURRENT ASSETS Cash and cash equivalents $ 114,409 $ (32,825) $ 59 (b) $ 81,643 Receivables, net of allowances 890,131 (313,536) - 576,595 Operating supplies, at lower of average cost or market 50,539 (16,767) 4,701 (b) 38,473 Prepaid expenses 73,269 (36,353) 1,316 (b) 38,232 Deferred income taxes 134,248 (55,405) 78,843 TOTAL CURRENT ASSETS 1,262,596 (454,886) 6,076 813,786 Property, plant and equipment, net 1,150,246 (485,651) 19,336 (b) 723,656 39,725 (c) OTHER ASSETS Costs in excess of net assets of businesses acquired, net of accumulated amortization 301,122 (2,792) 298,330 Restricted funds 14,232 14,232 Deposits and other assets 104,225 (11,553) 5,660 (b) 98,332 Unamortized aircraft maintenance, net 122,417 122,417 541,996 (14,345) 5,660 533,311 TOTAL ASSETS $ 2,954,838 $ (954,882) $ 70,797 $ 2,070,753 The accompanying notes are an integral part of this statement.
Consolidated Freightways, Inc. Pro Forma Condensed Consolidated Balance Sheet September 30, 1996 (In thousands) (Unaudited)
Consolidated Consolidated Eliminate Pro Forma Freightways, Inc. Freightways, Inc. CFCD & LJSC(a) Adjustments Pro Forma LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 812,377 $ (295,940) $ 11,740 (b) $ 528,177 Accrued claims costs 162,516 (87,646) 74,870 Current maturities of long-term debt and capital leases 3,208 3,208 Short-term borrowings 150,000 150,000 Federal and other income taxes payable 12,218 (258) 11,960 TOTAL CURRENT LIABILITIES 1,140,319 (383,844) 11,740 768,215 Long-term debt, guarantees and capital leases 492,339 (15,100) 477,239 Accrued claims costs 165,086 (102,801) 62,285 Employee benefits and other liabilities 338,212 (132,982) 205,230 Deferred income taxes 80,630 (35,276) 482 (b) 47,326 1,490 (c) TOTAL LIABILITIES 2,216,586 (670,003) 13,712 1,560,295 TOTAL SHAREHOLDERS' EQUITY 738,252 (284,879) 18,850 (b) 510,458 38,235 (c) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,954,838 $ (954,882) $ 70,797 $ 2,070,753 The accompanying notes are an integral part of this statement.
CONSOLIDATED FREIGHTWAYS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended September 30, 1996 (In thousands, except per share data) (Unaudited)
Consolidated Consolidated Eliminate Pro Forma Freightways, Inc. Freightways, Inc. CFCD & LJSC(d) Adjustments Pro Forma Results REVENUES CF MotorFreight $ 1,826,539 $ (1,592,146) $ 73,234 (f) $ 307,627 Con-Way Transportation Services 949,584 949,584 Emery Worldwide 1,420,788 1,420,788 4,196,911 (1,592,146) 73,234 2,677,999 COSTS AND EXPENSES CF MotorFreight 1,856,031 (1,632,671) (e) 72,868 (f)(g) 296,228 Con-Way Transportation Services 870,010 870,010 Emery Worldwide 1,369,108 1,369,108 4,095,149 (1,632,671) 72,868 2,535,346 (l) OPERATING INCOME (LOSS) CF MotorFreight (29,492) 40,525 366 11,399 Con-Way Transportation Services 79,574 79,574 Emery Worldwide 51,680 51,680 101,762 40,525 366 142,653 OTHER INCOME (EXPENSE) Investment income 266 (214) - 52 Interest expense (30,124) 626 (29,498) Miscellaneous, net (1,547) 2,586 (4,806) (h) (3,767) (31,405) 2,998 (4,806) (33,213) Income (Loss) Before Income Taxes 70,357 43,523 (4,440) 109,440 Income Taxes (Benefits) 36,567 13,700 (1,732) (i) 48,535 Net Income (Loss) 33,790 29,823 (2,708) 60,905 Preferred Stock Dividends 6,458 6,458 NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 27,332 $ 29,823 $ (2,708) $ 54,447 AVERAGE COMMON SHARES OUTSTANDING: Primary (j) 44,847 45,302 Fully Diluted (k) 49,205 49,735 EARNINGS PER SHARE FROM CONTINUING OPERATIONS: Primary (j) $ 0.61 $ 1.20 Fully Diluted (k) $ 0.59 $ 1.12 The accompanying notes are an integral part of this statement.
CONSOLIDATED FREIGHTWAYS, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME For the Year Ended December 31, 1995 (In thousands, except per share data) (Unaudited) Consolidated Consolidated Eliminate Pro Forma Freightways, Inc. Freightways, Inc. CFCD & LJSC(d) Adjustments Pro Forma Results REVENUES CF MotorFreight $ 2,362,619 $ (2,106,529) $ 115,522 (f) $ 371,612 Con-Way Transportation Services 1,152,164 1,152,164 Emery Worldwide 1,766,301 1,766,301 5,281,084 (2,106,529) 115,522 3,290,077 COSTS AND EXPENSES CF MotorFreight 2,397,025 (2,149,315) (e) 115,034 (f)(g) 362,744 Con-Way Transportation Services 1,055,591 1,055,591 Emery Worldwide 1,684,567 1,684,567 5,137,183 (2,149,315) 115,034 3,102,902(l) OPERATING INCOME (LOSS) CF MotorFreight (34,406) 42,786 488 8,868 Con-Way Transportation Services 96,573 96,573 Emery Worldwide 81,734 81,734 143,901 42,786 488 187,175 OTHER INCOME (EXPENSE) Investment income 841 (756) - 85 Interest expense (34,325) 918 - (33,407) Miscellaneous, net 456 850 (1,729) (h) (423) (33,028) 1,012 (1,729) (33,745) Income (Loss) Before Income Taxes 110,873 43,798 (1,241) 153,430 Income Taxes (Benefits) 53,508 13,889 (484) (i) 66,913 Net Income (Loss) 57,365 29,909 (757) 86,517 Preferred Stock Dividends 10,799 10,799 NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 46,566 $ 29,909 $ (757) $ 75,718 AVERAGE COMMON SHARES OUTSTANDING: Primary (j) 44,362 44,812 Fully Diluted (k) 48,724 49,244 EARNINGS PER SHARE FROM CONTINUING OPERATIONS: Primary (j) $ 1.10 $ 1.74 Fully Diluted (k) $ 1.04 $ 1.62 The accompanying notes are an integral part of this statement.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) Represents the elimination of the historical assets and liabilities of CFCD and LJSC. (b) Represents the transfers of certain assets and liabilities from LJSC in connection with the transfer of certain administrative service departments from LJSC to a subsidiary of the Company. (c) Represents the transfer of certain real properties from CFCD to a subsidiary of the Company, some of which may be leased back under short-term operating leases. (d) Represents the elimination of the historical operating results of CFCD and LJSC. (e) The historical financial statements include an allocation of corporate overhead costs incurred by the Company using both incremental and proportional methods on a revenue and capital basis. Although management believes the allocation methods used provide CFCD with a reasonable share of such expenses, there can be no assurance that these costs will not increase after the spin-off. (f) To reflect intercompany sales and expenses between certain subsidiaries of the Company and CFCD previously eliminated in the historical consolidated financial statements of the Company. Such sales are expected to continue after the spin-off, but there can be no assurance that they will. (g) To adjust for the effects on depreciation expense and sub-lease rental income from third parties, resulting from the pro forma transfers of certain real properties from CFCD to a subsidiary of the Company. (h) To eliminate intercompany interest income, net, earned on balances receivable from CFCD. (i) To reflect the income tax effects of the pro forma adjustments using an estimated marginal tax rate of 39%. (j) Includes the dilutive effect of stock options and, in pro forma, the conversion into common stock of Series B Thrift and Stock Plan (TASP) convertible preferred shares for CFCD participants in the Company's TASP. Also included in the year ended December 31, 1995, is an addback to earnings of $2.2 million, which represents the Series C preferred stock dividend as such shares converted to common stock. (k) Includes the dilutive effect of stock options and Series B TASP preferred shares and in pro forma, a change in conversion rate on certain Series B TASP preferred shares. The nine months ended September 30, 1996 computation includes an addback to earnings of $1.4 million and the year ended December 31, 1995 includes an addback to earnings of $1.8 million representing the Series B convertible preferred stock dividend net of required replacement funding. Also included in the year ended December 31, 1995, is an addback to earnings of $2.2 million, which represents the Series C preferred stock dividend as such shares converted to common stock. (l) The Company's pro forma costs and expenses include depreciation and amortization of approximately $72 million and $84 million for the nine months ended September 30, 1996 and the year ended December 31, 1995, respectively. Also includes rental expense of approximately $132 million and $169 million for the same respective periods. -----END PRIVACY-ENHANCED MESSAGE-----