-----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, Bl6mL5aBu96XhXSutVEnP8hBNB7HRVNfDx1iboTTvZOp/+zKmj1Oud0W+4ZHMwFC UAMuoU87R+kIwOGn81BLXA== 0000023675-96-000003.txt : 19960328 0000023675-96-000003.hdr.sgml : 19960328 ACCESSION NUMBER: 0000023675-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05046 FILM NUMBER: 96539142 BUSINESS ADDRESS: STREET 1: 3240 HILLVIEW AVE CITY: PALO A LTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154942900 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1995 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 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered Common Stock ($.625 par value) New York Stock Exchange Pacific Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: 9-1/8% Notes Due 1999 Medium-Term Notes, Series A 7.35% Notes Due 2005 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_______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ______ No ___X___ Aggregate market value of voting stock held by persons other than Directors, Officers and those shareholders holding more than 5% of the outstanding voting stock, based upon the closing price per share Composite Tape on January 31, 1996: $646,431,951 Number of shares of Common Stock outstanding as of January 31, 1996: 43,935,181 DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV Consolidated Freightways, Inc. 1995 Annual Report to Shareholders (only those portions referenced herein are incorporated in this Form 10-K). Part III Proxy Statement dated March 22, 1996, (only those portions referenced herein are incorporated in this Form 10-K). PAGE 2 CONSOLIDATED FREIGHTWAYS, INC. FORM 10-K Year Ended December 31, 1995 ___________________________________________________________________________ INDEX Item Page PART I 1. Business 3 2. Properties 11 3. Legal Proceedings 13 4. Submission of Matters to a Vote of Security Holders 13 PART II 5. Market for the Company's Common Stock and Related Security Holder Matters 13 6. Selected Financial Data 14 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 8. Financial Statements and Supplementary Data 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 PART III 10. Directors and Executive Officers of the Company 14 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management 16 13. Certain Relationships and Related Transactions 16 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16 SIGNATURES 17 INDEX TO FINANCIAL INFORMATION 20 PAGE 3 CONSOLIDATED FREIGHTWAYS, INC. FORM 10-K Year Ended December 31, 1995 ___________________________________________________________________________ PART I ITEM 1. BUSINESS (a) General Development of Business Consolidated Freightways, Inc. is a company which participates through subsidiaries in various forms of nationwide and regional trucking, truckload and intermodal rail, domestic and international air cargo services, ocean forwarding, contract logistics and related transportation activities. These operations are organized into three primary business groups: nationwide, full-service trucking (CF MotorFreight), regional trucking and full-service truckload (Con-Way Transportation Services), and air freight and ocean forwarding (Emery Worldwide). Consolidated Freightways, Inc. was incorporated in Delaware in 1958 as a successor to a business originally established in 1929. It is herein referred to as the "Registrant" or "Company". (b) Financial Information About Industry Segments The operations of the Company are primarily conducted in the U.S. and Canada and to a lesser extent in major foreign countries. An analysis by industry group of revenues, operating income (loss), depreciation and capital expenditures for the years ended December 31, 1995, 1994 and 1993, and identifiable assets as of those dates is presented in Note 12 on pages 33 and 34 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. Geographic group information is also presented therein. Intersegment revenues and earnings thereon have been eliminated. (c) Narrative Description of Business The Company, for reporting purposes, has designated three principal operating groups: the CF MotorFreight Group provides intermediate and long-haul, less-than-truckload freight services throughout the U.S. and in Canada and on a limited basis in Mexico, the Caribbean area, Central and South America, Europe and the Pacific Rim; the Con-Way Transportation Services Group provides one- and two-day, less-than-truckload service as well as highway, rail and multi-modal logistics services; and the Emery Worldwide Group is responsible for all domestic and international air freight activities and ocean forwarding services. The Company also provides full-service contract logistics through its subsidiary, Menlo Logistics, which is included in the CF MotorFreight Group for reporting purposes only. CF MOTORFREIGHT CF MotorFreight(CFMF), the Company's largest single operating unit in terms of revenues, is based in Menlo Park, California. The CFMF group is composed of Consolidated Freightways Corporation of Delaware (CFCD) PAGE 4 and Canadian operating units, and three non-carrier operations. Its carrier group provides general freight services nationwide and in Canada and on a limited basis in Mexico, the Caribbean area, Central and South America, Europe and the Pacific Rim. Operations consist of an extensive transportation network that typically moves shipments of manufactured or non-perishable processed products having relatively high value and requiring expedited service, compared to the bulk raw materials characteristically transported by railroads, pipelines and water carriers. The basic business of the general freight industry is to transport freight that is less-than-truckload (LTL), an industry designation for shipments weighing less than 10,000 pounds. CFMF is one of the nation's largest LTL motor carriers in terms of 1995 revenues. Competition continues to increase in the industry with trends toward regionalization, continued pricing pressures and new competitors moving into the small shipment segment of the business. To address this, CFMF made major changes to its line-haul operations in the fourth quarter of 1995. This change of operations, called the Business Accelerator System (BAS), replaces CFMF's traditional hub-and-spoke network with one that moves freight directly from point-to-point and streamlines the freight network. BAS has the effect of reducing miles and handling, thereby reducing transit times and costs as well as rationalizing system capacity. As a large carrier of LTL general commodity freight, at December 31, 1995, CFMF operated approximately 39,200 vehicle units including pick-up and delivery fleets in each area served, and a fleet of intercity tractors and trailers. At December 31, 1995, it had a network of 380 U.S. and Canadian freight terminals, metro centers and regional consolidation centers. Under BAS, several regional consolidation centers have become metro centers. The metro centers reduce freight handling through more direct city to city service, thereby improving productivity. CFMF operations are supported by a sophisticated data processing system for the control and management of the business. There is a broad diversity in the customers served, size of shipments, commodities transported and length of haul. No single customer or commodity accounted for more than a small fraction of total revenues. CFMF operates daily schedules utilizing relay drivers who drive approximately eight to ten hours each day and an increasing number of sleeper teams which in December 1995 approximated 20% of all linehaul miles. Road equipment consists of one tractor pulling two 28-foot double trailers or, to a limited extent, one semi-trailer or three 28-foot trailers. CFMF generally utilizes trailer equipment that is 102 inches in width. The Company believes that trailers in double or triple combination are more efficient and economical, and safer, than a tractor and single semi-trailer combination. In 1995, the Company operated in excess of 477 million linehaul miles in North America, about 90% of which was conducted by equipment in doubles and triples configuration. The accident frequency of the triples configuration was lower than all other types of vehicle combinations used by CFMF. CFCD and several Canadian subsidiaries serve Canada through terminals in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Nova PAGE 5 Scotia, Ontario, Quebec, Saskatchewan and in the Yukon Territory. The Canadian operations utilize a fleet of over 1,100 trucks, tractors and trailers. Employees At December 31, 1995, approximately 84% of CFMF's domestic employees were represented by various labor unions, primarily the International Brotherhood of Teamsters (IBT). CFMF and the IBT are parties to a National Master Freight Agreement. The current agreement with the IBT expires in April, 1998. Labor costs, including fringe benefits, averaged approximately 67% of CFMF's 1995 revenues. CFMF's domestic employment has declined to 19,200 employees at December 31, 1995 from approximately 20,700 at December 31, 1994, primarily the result of the implementation of the BAS. CFMF had approximately 21,000 employees at December 31, 1993. Fuel Fuel prices have steadily declined during the last three years. CFMF's average annual diesel fuel cost per gallon (without tax) declined from $.621 in 1993 to $.578 and $.573 in 1994 and 1995, respectively. Most of these savings have been mitigated by increases in fuel taxes. Federal and State Regulation Regulation of motor carriers has changed substantially in recent years. The process started with the Motor Carrier Act of 1980, which allowed easier access to the industry by new trucking companies, removed many restrictions on expansion of services by existing carriers, and increased price competition by narrowing the antitrust immunities available to the industry's collective ratemaking organizations. This deregulatory trend was continued by subsequent legislation in 1982, 1986, 1993 and 1994. The process culminated with federal pre-emption of most economic regulation of intrastate trucking regulatory bodies effective January 1, 1995, and with legislation to terminate the Interstate Commerce Commission (ICC) effective January 1, 1996. Currently, the motor carrier industry is subject to federal regulation by the Federal Highway Administration (FHWA) and the Surface Transportation Board (STB), both of which are units of the United States Department of Transportation (DOT). The FHWA performs certain functions inherited from the ICC relating chiefly to motor carrier registration, cargo and liability insurance, extension of credit to motor carrier customers, and leasing of equipment by motor carriers from owner-operators. In addition, the FHWA enforces comprehensive trucking safety regulations relating to driver qualifications, drivers' hours of service, safety-related equipment requirements, vehicle inspection and maintenance, recordkeeping on accidents, and transportation of hazardous materials. As pertinent to the general freight trucking industry, the STB has authority to resolve certain types of pricing disputes and authorize certain types of intercarrier agreement under jurisdiction inherited from the ICC. At the state level, federal preemption of economic regulation does not prevent the states from regulating motor vehicle safety on their highways. PAGE 6 In addition, federal law allows all states to impose insurance requirements on motor carriers conducting business within their borders, and empowers most states to require motor carriers conducting interstate operations through their territory to make annual filings verifying that they hold appropriate registrations from FHWA. Motor carriers also must pay state fuel taxes and vehicle registration fees, which normally are apportioned on the basis of mileage operated in each state. Canadian Regulation The provinces in Canada have regulatory authority over intra-provincial operations of motor carriers and have been delegated the federal authority to regulate inter-provincial motor carrier activity. Federal legislation to phase in deregulation of the inter-provincial motor carrier industry took effect January 1, 1988. The new legislation relaxes economic regulation of inter-provincial trucking by easing market entry regulations, and implements effective safety regulations of trucking services under federal jurisdiction. The Company wrote off substantially all of the unamortized cost of its Canadian operating authority in 1992. Menlo Logistics Menlo Logistics, Inc. (MLI), founded in 1990, provides full-service contract logistics services for manufacturing, industrial and retail businesses. These services include transportation management, dedicated contract warehousing, dedicated contract carriage, just-in-time delivery programs, customer order processing and freight bill payment and auditing. MLI has approximately 750 employees. As contract logistics is a relatively new industry, competition is expected to come from new entrants into the markets it serves. MLI addresses the increased competition by utilizing technologies and its established experience. Refer to the CF MotorFreight section for discussion of federal and state regulation affecting the transportation activities of MLI. Other Operations Two non-carrier operations within the CF MotorFreight Group, for reporting purposes only, generate a majority of their sales from other subsidiaries of the Company. Road Systems, Inc. primarily manufactures and rebuilds trailers, converter dollies and other transportation equipment. VantageParts, Inc. serves as a distributor and remanufacturer of vehicle component parts and accessories to all segments of the heavy-duty truck and trailer industry, as well as the maritime, construction, aviation and other industries. CON-WAY TRANSPORTATION SERVICES Con-Way Transportation Services, Inc. (CTS) is an operating company with business units that provide regional LTL freight trucking; full-service truckload freight delivery utilizing highway over-the-road and intermodal rail stack train resources for regional, inter-regional and transcontinental transportation; local and interstate container drayage and international shipping. CTS has four operating units and at December 31, 1995 had approximately 12,400 employees. The regional trucking companies face intensive competition as national LTL companies extend into regional markets, and acquire and combine formerly independent regional carriers PAGE 7 into inter-regional groups. New service offerings, continued expansion of regional carrier networks, extension of next-day and second-day service and enhanced inter-regional network capabilities are positioning CTS for growth opportunities. Refer to the CF MotorFreight section for a discussion of federal and state regulations. Con-Way Regional Carriers CTS has three regional motor carrier units, each of which operates dedicated regional trucking networks principally serving core geographic territories with next-day and second-day service. The regional carriers serve manufacturing, industrial, commercial and retail business-to-business customers with a fleet of approximately 20,500 trucks, tractors and trailers at December 31, 1995. Con-Way Western Express (CWX) was founded in May 1983 and today operates in 13 western states and serves Canada and Mexico. In January 1995, CWX expanded operations into Oregon, Washington, Idaho, Alaska and Vancouver, British Columbia. At December 31, 1995, CWX operated 95 service centers. Con-Way Central Express (CCX) was founded in June 1983 and today serves 23 states of the central and northeast U.S., and Ontario, Canada. In February 1995, CCX expanded into New Jersey and began providing service for metropolitan New York City in addition to launching joint service with Con- Way Southern Express. At December 31, 1995 CCX operated 204 service centers Con-Way Southern Express and Con-Way Southwest Express were founded in April 1987 and November 1989, respectively. In December 1994, the two carriers were combined into a single operating unit under the Con-Way Southern Express (CSE) name serving a 14-state southern market from Texas to the Carolinas and Florida, and encompassing Puerto Rico and Mexico. CSE operated 98 service centers at December 31, 1995. CTS has completed certain regional service expansions that allow the regional carriers to provide next-day and second-day freight delivery between their principal geographic regions, utilizing existing infrastructure. CTS can now provide full regional service throughout the United States and parts of Canada. The regional service expansion generates additional business by allowing each regional carrier to compete for new traffic and provide coverage of regional market lanes not individually serviced as part of the regional carrier's core territory. Con-Way Truckload Services Con-Way Truckload Services (CWT), formerly known as Con-Way Intermodal, is a full-service, multi-modal truckload company. CWT provides door-to-door transcontinental movement of truckload shipments by rail container stack train and rail trailer, utilizing nationwide operating alliances with major railroads. It also provides expedited inter-regional and regional over-the- road truckload service with a fleet of company-owned trucks and trailers. Additionally, CWT provides rail freight forwarding with domestic intermodal marketing services, assembly and distribution services, and local and interstate container drayage. PAGE 8 EMERY WORLDWIDE Emery Worldwide (EWW), the Company's air freight unit, was formed when the Company purchased Emery Air Freight Corporation in April 1989 and merged it with its own pre-existing air freight operation, CF AirFreight, Inc. The combined companies expanded EWW's ability to deliver air freight within North America and to 90 countries worldwide. EWW provides global air cargo services through an integrated, combination carrier, freight system designed for the movement of parcels and packages of all sizes and weights. In North America, EWW provides these services through a system of sales offices and service centers, and overseas through foreign subsidiaries, branches and agents. EWW provides door-to-door service within North America by using its own airlift system, supplemented with commercial airlines. International services are performed by operating primarily as an air freight forwarder using commercial airlines, and with controlled lift used only when necessary. Emery also operated approximately 2,000 trucks, vans and tractors at December 31, 1995. As of December 31, 1995, EWW utilized a fleet of 70 aircraft, 46 of which are leased on a long-term basis, 11 are owned and 13 are contracted on a short-term basis to supplement nightly volumes and to provide feeder services. The nightly lift capacity of the aircraft fleet, excluding charters, is approximately 4 million pounds. EWW's hub-and-spoke system is centralized at the Dayton, Ohio International Airport where a leased air cargo facility (Hub) and related support facilities are located. The Hub handles all types of shipments, ranging from small packages to heavyweight cargo, with a total effective sort capacity of approximately 1.2 million pounds per hour. The operation of the Hub in conjunction with EWW's airlift system enables it to maintain a high level of service reliability. Through a separate subsidiary of the Company, Emery Worldwide Airlines, Inc. (EWA), the Company provides nightly cargo airline services under a contract with the U.S. Postal Service (USPS) to carry Express and Priority Mail, using 24 aircraft, of which 4 are leased on a long-term basis and 20 are owned. The original contract for this operation was awarded to EWA in 1989 and was renewed and extended through early January 1994. A ten year USPS contract was awarded to EWA during 1993 with service beginning in January 1994. The Company has recognized approximately $108 million, $112 million and $138 million of revenue in 1995, 1994 and 1993, respectively, from contracts to carry Express and Priority Mail for the U.S. Postal Service. In 1995, Emery Ocean Services consolidated its services with those of CTS. Capitalizing on its international growth and experience, Emery Ocean Services, a global freight forwarder and non-vessel operating common carrier, provides full and less-than-container load service. In addition, EWW established a new subsidiary, Emery Expedite!, which specializes in urgent, door-to-door delivery of shipments in North America and overseas. Emery's logistics subsidiary, recently renamed Emery Global Logistics, continues to expand its service capabilities. It now operates warehouse and distribution centers for customers in five countries. PAGE 9 Technology Equally important to the movement of goods is the rapid movement of information to track freight, optimize carrier selections, interlink and analyze customer data. EWW plans to invest more than $70 million in technology over the next two years to upgrade its entire hardware and software systems architecture including the tracking system at its Hub in Dayton, Ohio. The system is expected to provide instant tracking information for shipments to reduce missorts, potential overloads and to signal freight with specialized handling requirements. Customers EWW services, among others, the automotive, aviation, machinery, metals, electronic and electrical equipment, chemical, apparel, film and technology industries. Service industries and governmental entities also utilize EWW's services. Both U.S. and international operations of EWW have a wide variety of customers. Competition The heavy air-freight market within North America is highly competitive and price sensitive. In 1995, EWW had the largest market share, based on revenues, in the North American heavy air-freight segment. EWW competes with other integrated air freight carriers as well as freight forwarders. The North Atlantic market is especially price sensitive due to the abundant airlift capacity. Competition in international markets is also service and price sensitive. In these markets, which are more fragmented than the North American market, EWW competes with international airlines and air freight forwarders. Customers favor companies such as EWW with combined integrated carrier and freight forwarding capabilities for flexible, cost effective service. EWW believes this infrastructure and the convenience of its extensive network of worldwide terminal, agent and service locations are its principal methods of competing for customers seeking the service described above. Regulation of Air Transportation The air transportation industry is subject to federal regulation by the Federal Aviation Act of 1958, as amended (Aviation Act) and regulations issued by the Department of Transportation (DOT) pursuant to the Aviation Act. EWW, as an air freight forwarder, and EWA, as an airline, are subject to different regulations. Air freight forwarders are exempted from most DOT economic regulations and they are not subject to Federal Aviation Administration (FAA) safety regulations, except security-related rules. Airlines are subject to economic regulation by the DOT and maintenance, operating and other safety-related regulation by the FAA. Thus, EWA and other airlines conducting operations for EWW are subject to DOT and FAA regulation while EWW, itself, is not covered by most DOT and FAA regulations. PAGE 10 Regulation of Ground Transportation When EWW provides ground transportation of cargo having prior or subsequent air movement, the ground transportation is exempt from the motor carrier registration requirements and economic regulations which were inherited from the ICC by FHWA and STB, respectively. Such ground transportation, however, is subject to comprehensive trucking safety regulation by FHWA as described in the CF MotorFreight section. In addition, EWW does hold FHWA motor carrier registrations which can be utilized in providing non-exempt ground transportation. For description of applicable state regulations, refer to discussion in the CF MotorFreight section. Environmental Matters During recent years, operations at several airports have been subject to restrictions or curfews on arrivals or departures during certain night-time hours designed to reduce or eliminate noise for surrounding residential areas. None of these restrictions have materially affected EWW's operations. If such restrictions were to be imposed with respect to the airports at which EWW's activities are centered and no alternative airports were available to serve the affected areas, EWW's operations could be more adversely affected. As provided in the Aviation Act, the FAA is authorized to establish aircraft noise standards. Under the National Emission Standards Act of 1967, as amended, the administrator of the EPA is authorized to issue regulations setting forth standards for aircraft emissions. EWW believes that its present fleet of owned, leased or chartered aircraft is operating in compliance with currently applicable noise and emission laws. The Aviation Noise and Capacity Act of 1990 establishes a national aviation noise policy. The FAA has promulgated regulations under this Act regarding the phase-in requirements for compliance. This legislation and the related regulations will require all of EWW's and EWA's owned and leased aircraft eligible for operation in the contiguous United States to either undergo modifications or otherwise comply with Stage 3 noise restrictions by year- end 1999. Fuel and Supplies Cost EWW purchases substantially all of its jet fuel from major oil companies, refiners and trading companies on annual contracts with prepayment and/or volume discounts. These contract purchases are supplemented by spot purchases. The price of domestic jet fuel declined in 1994 and 1993, respectively, but increased slightly in 1995. The 1995 weighted average domestic cost per gallon was approximately $.60 compared with 1994 and 1993 weighted average prices of approximately $.59 and $.64 per gallon, respectively. EWW believes that it has the flexibility to continue its operations without material interruption unless there are significant curtailments of its jet fuel supplies. Neither EWW nor the operators of the aircraft it charters have experienced or anticipate any fuel supply problems. There is a four million gallon fuel storage facility at the Hub. PAGE 11 Employees As of December 31, 1995, EWW had approximately 9,000 full-time and regular part-time employees as compared to 8,000 at December 31, 1994 and 7,500 at December 31, 1993. Approximately 17% of these employees are covered by union contracts. GENERAL The research and development activities of the Company are not significant. During 1995, 1994 and 1993 there was no single customer of the Company that accounted for more than 10% of consolidated revenues. The total number of employees is presented in the "Ten Year Financial Summary" on pages 36 and 37 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. 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 clean-up cost will not have a material adverse effect on the Company. The Company expects the costs of complying with existing and future federal, state and local environmental regulations to continue to increase. On the other hand, it does not anticipate that such cost increases will have a materially adverse effects on the Company. (d) Financial Information About Foreign and Domestic Operations and Export Sales Information as to revenues, operating income (loss) and identifiable assets for each of the Company's business segments and for its foreign operations for 1995, 1994 and 1993 is contained in Note 12 on page 33 and 34 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 2. PROPERTIES The following summarizes the terminals and freight service centers operated by the Company at December 31, 1995: Owned Leased Total CF MotorFreight 227 153 380 Con-Way Transportation Services 51 364 415 Emery Worldwide 9 184 193 PAGE 12 The following table sets forth the location and square footage of the Company's principal freight handling facilities: Location Square Footage CFMF - motor carrier LTL system service centers: Mira Loma, CA 280,672 Chicago, IL 231,159 Carlise, PA 151,100 * Columbus, OH 118,774 Memphis, TN 118,745 Nashville, TN 118,622 * Indianapolis, IN 109,460 Orlando, FL 101,557 * Minneapolis, MN 94,890 Charlotte, NC 89,204 St. Louis, MO 88,640 Chicopee, MA 85,164 Akron, OH 82,494 Sacramento, CA 81,286 Atlanta, GA 77,920 Houston, TX 77,346 Dallas, TX 75,358 * Fremont, IN 73,760 * Peru, IL 73,760 Buffalo, NY 73,380 Milwaukee, WI 70,661 Salt Lake City, UT 68,480 Seattle, WA 59,720 Kansas City, MO 55,288 Portland, OR 47,824 Phoenix, AZ 20,237 CTS - freight assembly centers Chicago, IL 113,116 Des Plains, IL 100,440 Oakland, CA 85,600 Dallas, TX 82,000 Atlanta, GA 56,160 Cincinnati, OH 55,618 Columbus, OH 48,527 Detroit, MI 46,240 Santa Fe Springs, CA 45,936 Aurora, IL 44,235 Ft. Wayne, IN 35,400 Pontiac, MI 34,450 St. Louis, MO 29,625 Milwaukee, WI 22,940 PAGE 13 Location Square Footage EWW - facilities * Dayton, OH 620,000 Los Angeles, CA 78,264 Chicago, IL 59,976 Boston, MA 42,236 Indianapolis, IN 38,500 * Facility partially or wholly financed through the issuance of industrial revenue bonds. Principal amount of debt is secured by the property. ITEM 3. LEGAL PROCEEDINGS The legal proceedings of the Company are summarized in Note 11 on page 33 of the 1995 Annual Report to Shareholders and are incorporated herein by reference. Discussions of certain environmental matters are presented in Item 1 and Item 7. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's common stock is listed for trading on the New York and Pacific Stock Exchanges. The Company's Common Stock Price is included in Note 13 on page 35 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. Cash dividends on common shares had been paid in every year from 1962 to 1990. In June 1990 the Company's Board of Directors suspended the quarterly dividend. In December 1994, the Board of Directors reinstated a $.10 per share quarterly cash dividend on common stock. The amounts of quarterly dividends declared on common stock for the last two years are included in Note 13 on page 35 of the 1995 Annual Report to Shareholders and are incorporated herein by reference. Under the terms of the restructured TASP Notes, as set forth on page 27 and 28 of the 1995 Annual Report to Shareholders, the Company is restricted from paying dividends in excess of $10 million plus one half of the cumulative net income applicable to common shareholders since the commencement of the agreement. Effective March 15, 1995, all of the 690,000 shares of the Company's Series C Preferred Stock converted to 6,900,000 shares of Common Stock. PAGE 14 As of December 31, 1995, there were 15,980 holders of record of the common stock ($.625 par value) of the Company. The number of shareholders is also presented in the "Ten Year Financial Summary" on pages 36 and 37 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data is presented in the "Ten Year Financial Summary" on pages 36 and 37 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations is presented in the "Financial Review and Management Discussion" on pages 16 through 18, inclusive, of the 1995 Annual Report to Shareholders and is incorporated herein by reference. Certain statements included and incorporated by reference herein, including certain statements under "Financial Review and Management Discussion" referred to above, 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 through, among other things, implementation of BAS at CFMF; labor matters, including changes in labor costs, renegotiation of labor contracts and the risk of work stoppages or strikes; changes in governmental regulation; and environmental and tax matters. As a result of the foregoing, no assurance can be given as to future results of operations or financial condition. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and Auditors' Report are presented on pages 19 through 37, inclusive, of the 1995 Annual Report to Shareholders and are incorporated herein by reference. The unaudited quarterly financial data is included in Note 13 on page 35 of the 1995 Annual Report to Shareholders and is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The identification of the Company's Directors is presented on pages 3 through 8, inclusive, of the Proxy Statement dated March 22, 1996 and those pages are incorporated herein by reference. PAGE 15 The Executive Officers of the Company, their ages at December 31, 1995 and their applicable business experience are as follows: Donald E. Moffitt, 63, Chairman, President and Chief Executive Officer of the Company. Mr. Moffitt joined Consolidated Freightways Corporation of Delaware, the Company's nationwide, full-service trucking subsidiary, as an accountant in 1955 and advanced to Vice President - Finance in 1973. In 1975, he transferred to the Company as Vice President - Finance and Treasurer and in 1981, was elected Executive Vice President - Finance and Administration. In 1983, he assumed the additional duties of President, CF International and Air, Inc., where he directed the Company's international and air freight businesses. Mr. Moffitt was elected Vice Chairman of the Board of the Company in 1986. He retired as an employee and as Vice Chairman of the Board of Directors in 1988 and returned to the Company as Executive Vice President - Finance and Chief Financial Officer in 1990. Mr. Moffitt was named President and Chief Executive Officer of the Company and was elected to the Board of Directors in 1991. In 1995, Mr. Moffitt was named Chairman of the Board of Directors. Mr. Moffitt serves on the Executive Committee of the Board of Directors of the Highway Users Federation and is a member of the Board of Directors of the Bay Area Council, the Automotive Safety Foundation and the American Red Cross. He is a member of the California Business Roundtable and a member of the Business Advisory Council of the Northwestern University Transportation Center. Mr. Moffitt is Chairman of the Executive Committee and serves on the Director Affairs Committee of the Company. W. Roger Curry, 57, President and Chief Executive Officer of Consolidated Freightways Corporation of Delaware and Senior Vice President of the Company. Mr. Curry joined CFCD in 1969 as a Systems Analyst and became Coordinator, On-Line Systems of the Company in 1970. In 1972, he was named Director of Terminal Properties for CFCD. He became President of CF AirFreight in 1975 and Chief Executive Officer in 1984. Mr. Curry relinquished both offices with CF AirFreight in 1986 when he was elected Senior Vice President - Marketing of the Company. In 1991, he was elected President of Emery Air Freight Corporation, relinquishing the position in 1994 to become President of CFCD. David I. Beatson, 48, President and Chief Executive Officer of Emery Air Freight Corporation and Senior Vice President of the Company. Mr. Beatson joined CF AirFreight in 1977, advancing through several increasingly responsible positions to Vice President of National Accounts. After leaving the Company for a time, he returned to EWW in 1991 as Vice President of Sales and Marketing. He became President and Chief Executive Officer of Emery Air Freight Corporation in 1994. Gregory L. Quesnel, 47, Executive Vice President and Chief Financial Officer of the Company. Mr. Quesnel joined Consolidated Freightways Corporation of Delaware in 1975 as Director of Financial Accounting. Through several increasingly responsible financial positions, he advanced to become the top financial officer of CFCD. In 1989, he was elected Vice President-Accounting for the Company and in 1990, was named Vice President and Treasurer. Mr. Quesnel became Senior Vice President-Finance and Chief Financial Officer of the Company in 1991 and Executive Vice President and Chief Financial Officer in 1993. Robert T. Robertson, 54, President and Chief Executive Officer of Con-Way Transportation Services, Inc. and Senior Vice President of the Company. Mr. Robertson joined CFCD in 1970 as a sales representative and advanced to PAGE 16 Manager of Eastern Area Sales by 1973. He transferred to Texas in 1976 where he became involved in CFCD's operations and was promoted to Division Manager in 1978. In 1983, he was named Vice President and General Manager of Con-Way Transportation Services, Inc. In 1986, Mr. Robertson was elected President of CTS. Eberhard G.H. Schmoller, 52, Senior Vice President and General Counsel of the Company. Mr. Schmoller joined CFCD in 1974 as a staff attorney and in 1976 was promoted to CFCD assistant general counsel. In 1983, he was appointed Vice President and General Counsel of CF AirFreight and assumed the same position with EWW after the acquisition in 1989. Mr. Schmoller was named Senior Vice President and General Counsel of the Company in 1993. ITEM 11. EXECUTIVE COMPENSATION The required information for Item 11 is presented on pages 12 through 15, inclusive, of the Proxy Statement dated March 22, 1996, and those pages are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The required information for Item 12 is included on pages 9, 10 and 23, of the Proxy Statement dated March 22, 1996 and is incorporated herein by reference. Information concerning the disclosure of delinquent filers under Section 16(a) of the Exchange Act appears on page 24 of the Proxy Statement dated March 22, 1996, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements and Exhibits Filed 1. Financial Statements See Index to Financial Information. 2. Financial Statement Schedules See Index to Financial Information. 3. Exhibits See Index to Exhibits. (b) Reports on Form 8-K There were no reports on Form 8-K filed for the three months ended December 31, 1995. PAGE 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED FREIGHTWAYS, INC. (Registrant) March 25, 1996 /s/Donald E. Moffitt Donald E. Moffitt Chairman, President and Chief Executive Officer March 25, 1996 /s/Gregory L. Quesnel Gregory L. Quesnel Executive Vice President and Chief Financial Officer March 25, 1996 /s/Gary D. Taliaferro Gary D. Taliaferro Vice President and Controller PAGE 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. March 25, 1996 /s/Donald E. Moffitt Donald E. Moffitt Chairman of the Board, President and Chief Executive Officer March 25, 1996 /s/Robert Alpert Robert Alpert, Director March 25, 1996 /s/Earl F. Cheit Earl F. Cheit, Director March 25, 1996 /s/Richard A. Clarke Richard A. Clarke, Director March 25, 1996 /s/G. Robert Evans G. Robert Evans, Director March 25, 1996 /s/Margaret G. Gill Margaret G. Gill, Director March 25, 1996 /s/Robert Jaunich II Robert Jaunich II, Director March 25, 1996 /s/Richard B. Madden Richard B. Madden, Director March 25, 1996 /s/Ronald E. Poelman Ronald E. Poelman, Director PAGE 19 SIGNATURES March 25, 1996 /s/Robert D. Rogers Robert D. Rogers, Director March 25, 1996 /s/William D. Walsh William D. Walsh, Director March 25, 1996 /s/Robert P. Wayman Robert P. Wayman, Director PAGE 20 CONSOLIDATED FREIGHTWAYS, INC. FORM 10-K Year Ended December 31, 1995 ___________________________________________________________________________ INDEX TO FINANCIAL INFORMATION Consolidated Freightways, Inc. and Subsidiaries The following Consolidated Financial Statements of Consolidated Freightways, Inc. and Subsidiaries appearing on pages 19 through 37, inclusive, of the Company's 1995 Annual Report to Shareholders are incorporated herein by reference: Report of Independent Public Accountants Consolidated Balance Sheets - December 31, 1995 and 1994 Statements of Consolidated Income - Years Ended December 31, 1995, 1994 and 1993 Statements of Consolidated Cash Flows - Years Ended December 31, 1995, 1994 and 1993 Statements of Consolidated Shareholders' Equity - Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements In addition to the above, the following consolidated financial information is filed as part of this Form 10-K: Page Consent of Independent Public Accountants 21 Report of Independent Public Accountants 21 Schedule II - Valuation and Qualifying Accounts 22 The other schedules have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto. PAGE 21 SIGNATURE CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 2- 81030, 33-29793, 33-52599, 33-60619 and 33-60625 /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California March 25, 1996 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Consolidated Freightways, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Consolidated Freightways, Inc.'s 1995 Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 26, 1996. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule on page 22 is the responsibility of the Company's management and is presented for the purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP ARTHUR ANDERSEN LLP San Francisco, California January 26, 1996 PAGE 22 SCHEDULE II CONSOLIDATED FREIGHTWAYS, INC. VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1995 (In thousands) DESCRIPTION ALLOWANCE FOR DOUBTFUL ACCOUNTS ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD 1995 $26,938 $13,343 $ - $(14,062)(a) $26,219 1994 $29,780 $ 6,676 $ - $ (9,518)(a) $26,938 1993 $26,198 $27,127 $ - $(23,545)(a) $29,780 a) Accounts written off net of recoveries. PAGE 23 INDEX TO EXHIBITS ITEM 14(a)(3) Exhibit No. (3) Articles of incorporation and by-laws: 3.1 Consolidated Freightways, Inc. Certificates of Incorporation, as amended. (Exhibit 3(a)(2) to the Company's Quarterly Report Form 10-Q for the quarter ended March 31, 1987*) 3.2 Consolidated Freightways, Inc. By-laws, as amended, December 4, 1995 (4) Instruments defining the rights of security holders, including debentures: 4.1 Consolidated Freightways, Inc. Stockholder Rights Plan. (Exhibit 1 on Form 8-A dated October 27, 1986*) 4.2 Certificate of Designations of the Series B Cumulative Convertible Preferred Stock. (Exhibit 4.1 as filed on Form SE dated May 25, 1989*) 4.3 Indenture between the Registrant and Security Pacific National Bank, trustee, with respect to 9-1/8% Notes Due 1999 and Medium- Term Notes, Series A. (Exhibit 4.1 as filed on Form SE dated March 20, 1990*) 4.4 Form of Security for 9-1/8% Notes Due 1999 issued by Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE dated August 25, 1989*) 4.5 Officers' Certificate dated as of August 24, 1989 establishing the form and terms of debt securities issued by Consolidated Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated August 25, 1989*) 4.6 Form of Security for Medium-Term Notes, Series A to be issued by Consolidated Freightways, Inc. (Exhibit 4.1 as filed on Form SE dated September 18, 1989*) 4.7 Officers' Certificate dated September 18, 1989, establishing the form and terms of debt securities to be issued by Consolidated Freightways, Inc. (Exhibit 4.2 as filed on Form SE dated September 19, 1989*) 4.8 Indenture between the Registrant and The First National Bank of Chicago Bank, trustee, with respect to the registration of various debt and equity securities. (Exhibit 4(b) as filed on Form S-3 dated June 27, 1995*) 4.9 Indenture between the Registrant and Bank One, Columbus, NA, trustee, with respect to the registration of various debt and equity securities. (Exhibit 4(e) as filed on Form S-3 dated June 27, 1995*) 4.10 Form of Security for 7.35% Notes due 2005 issued by Consolidated Freightways, Inc. (Exhibit 4.4 as filed on Form S-4 dated June 27, 1995*) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. PAGE 24 Instruments defining the rights of security holders of long-term debt of Consolidated Freightways, Inc., and its subsidiaries for which financial statements are required to be filed with this Form 10-K, of which the total amount of securities authorized under each such instrument is less than 10% of the total assets of Consolidated Freightways, Inc. and its subsidiaries on a consolidated basis, have not been filed as exhibits to this Form 10-K. The Company agrees to furnish a copy of each applicable instrument to the Securities and Exchange Commission upon request. Exhibit No. (10) Material contracts: 10.1 Consolidated Freightways, Inc. Long-Term Incentive Plan of 1978, as amended through Amendment No. 4. (Exhibit 10(e) to the Company's Form 10-K for the year ended December 31, 1983*#) 10.2 Amendments 5, 6 and 7 to the Consolidated Freightways, Inc. Long-Term Incentive Plan of 1978, as amended through Amendment No. 4. (Exhibit 10.1 as filed on Form SE dated March 25, 1991*#) 10.3 Consolidated Freightways, Inc. Long-Term Incentive Plan of 1988. (Exhibit 10(g) to the Company's Form 10-K for the year ended December 31, 1987*#) 10.4 Amendment 3 to the Consolidated Freightways, Inc. Long-Term Incentive Plan of 1988. (Exhibit 10.2 as filed on Form SE dated March 25, 1991*#) 10.5 Consolidated Freightways, Inc. Stock Option Plan of 1978, as amended through Amendment No. 1. (Exhibit 10(e) to the Company's Form 10-K for the year ended December 31, 1981*#) 10.6 Consolidated Freightways, Inc. Stock Option Plan of 1988 as amended. (Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1987 as amended in Form S-8 dated December 16, 1992*#) 10.7 Forms of Stock Option Agreement (with and without Cash Surrender Rights) under the Consolidated Freightways, Inc. Stock Option Plan of 1988. (Exhibit 10(j) to the Company's Form 10-K for the year ended December 31, 1987*#) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. # Designates a contract or compensation plan for Management or Directors. PAGE 25 Exhibit No. 10.8 Form of Consolidated Freightways, Inc. Deferred Compensation Agreement. (Exhibit 10(i) to the Company's Form 10-K for the year ended December 31, 1981*#) 10.9 Consolidated Freightways, Inc. Retirement Plan (formerly Emery Air Freight Corporation Pension Plan), as amended effective through January 1, 1985, and amendments dated as of October 30, 1987. (Exhibit 4.22 to the Emery Air Freight Corporation Quarterly Report on Form 10-Q dated November 16, 1987**) 10.10 Emery Air Freight Plan for Retirees, effective October 31, 1987. (Exhibit 4.23 to the Emery Air Freight Corporation Quarterly Report on Form 10-Q dated November 16, 1987**) 10.11 Consolidated Freightways, Inc. Common Stock Fund (formerly Emery Air Freight Corporation Employee Stock Ownership Plan, as effective October 1, 1987 ("ESOP"). (Exhibit 4.33 to the Emery Air Freight Corporation Annual Report on Form 10-K dated March 28, 1988**) 10.12 Employee Stock Ownership Trust Agreement, dated as of October 8, 1987, as amended, between Emery Air Freight Corporation and Arthur W. DeMelle, Daniel J. McCauley and Daniel W. Shea, as Trustees under the ESOP Trust. (Exhibit 4.34 to the Emery Air Freight Corporation Annual Report on Form 10-K dated March 28, 1988**) 10.13 Amended and Restated Subscription and Stock Purchase Agreement dated as of December 31, 1987 between Emery Air Freight Corporation and Boston Safe Deposit and Trust Company in its capacity as successor trustee under the Emery Air Freight Corporation Employee Stock Ownership Plan Trust ("Boston Safe"). (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated January 11, 1988**) 10.14 Supplemental Subscription and Stock Purchase Agreement dated as of January 29, 1988 between Emery Air Freight Corporation and Boston Safe. (Exhibit B to the Emery Air Freight Corporation Current Report on Form 8-K dated February 12, 1988**) 10.15 Trust Indenture, dated as of November 1, 1988, between City of Dayton, Ohio and Security Pacific National Trust Company (New York), as Trustee and Bankers Trust Company, Trustee. (Exhibit 4.1 to Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**) * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. ** Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893. # Designates a contract or compensation plan for Management or Directors. PAGE 26 Exhibit No. 10.16 Bond Purchase Agreement dated November 7, 1988, among the City of Dayton, Ohio, the Emery Air Freight Corporation and Drexel Burnham Lambert Incorporated. (Exhibit 28.7 to the Emery Air Freight Corporation Current Report on Form 8-K dated December 2, 1988**) 10.17 Lease agreement dated November 1, 1988 between the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to the Emery Air Freight Corporation Annual Report on Form 10-K for the year ended December 31, 1988**) 10.18 Credit Agreement dated January 14, 1993, by and among Emery Receivables Corporation as the borrower, Emery Air Freight Corporation, Consolidated Freightways, Inc., individually and as Servicer and various financial institutions. (Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1992*). 10.19 Purchase and Sale Agreement, dated January 14, 1993, among Emery Air Freight Corporation and Emery Distribution Systems, Inc., as Originators, Emery Receivables Corporation, and Consolidated Freightways, Inc., as Servicer. (Exhibit 10.20 to the Company's Form 10-K for the year ended December 31, 1992*). 10.20 Consolidated Freightways, Inc. Directors' Election Form for deferral payment of director's fees. # 10.21 Consolidated Freightways, Inc. 1993 Executive Deferral Plan. (Exhibit 10.22 to the Company's Form 10-K for the year ended December 31, 1992*#). 10.22 $300 million Amended and Restated Credit Agreement dated January 10, 1995 among Consolidated Freightways, Inc. and various financial institutions. (Exhibit 10.27 to the Company's Form 10-K for the year ended December 31, 1994*) 10.23 Official Statement of the Issuer's Special Facilities Revenue Refunding Bonds, 1993 Series E and F dated September 29, 1993 among the City of Dayton, Ohio and Emery Air Freight Corporation. (Exhibit 10.1 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). 10.24 Trust Indenture, dated September 1, 1993 between the City of Dayton, Ohio and Banker's Trust Company as Trustee. (Exhibit 10.2 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). 10.25 Supplemental Lease Agreement dated September 1, 1993 between the City of Dayton, Ohio, as Lessor, and Emery Air Freight Corporation, as Lessee. (Exhibit 10.3 to the Company's Form 10-Q for the quarterly period ended September 30, 1993*). * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. ** Incorporated by reference to indicated reports filed under the Securities Act of 1934, as amended, by Emery Air Freight Corporation File No. 1-3893. # Designates a contract or compensation plan for Management or Directors. PAGE 27 Exhibit No. 10.26 Supplemental Retirement Plan dated January 1, 1990. (Exhibit 10.31 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.27 Directors' 24-Hour Accidental Death and Dismemberment Plan. (Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.28 Executive Split-Dollar Life Insurance Plan dated January 1, 1994. (Exhibit 10.33 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.29 Board of Directors' Compensation Plan dated January 1, 1994. (Exhibit 10.34 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.30 Excess Benefit Plan dated January 1, 1987. (Exhibit 10.35 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.31 Directors' Business Travel Insurance Plan. (Exhibit 10.36 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.32 Deferred Compensation Plan for Executives dated October 1, 1993. (Exhibit 10.37 to the Company's Form 10-K for the year ended December 31, 1993*#) 10.33 Amended and Restated 1993 Nonqualified Employee Benefit Plans Trust Agreement dated January 1, 1995. (Exhibit 10.38 to the Company's Form 10-K for the year ended December 31, 1994.*#) 10.34 Consolidated Freightways, Inc. Equity Incentive Plan for Non- Employee Directors. (Attachment to the Company's 1994 Proxy Statement dated March 18, 1994.*#) 10.35 Amended and Restated Retirement Plan for Directors of Consolidated Freightways, Inc. dated January 1, 1994. (Exhibit 10.40 to the Company's Form 10-K for the year ended December 31, 1994.*#) 10.36 Consolidated Freightways, Inc. 1996 Return on Equity Plan dated March 4, 1996. # * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. # Designates a contract or compensation plan for Management or Directors. PAGE 28 Exhibit No. (12) Computation of ratios of earnings to fixed charges (13) Annual report to security holders: Consolidated Freightways, Inc. 1995 Annual Report to Shareholders (Only those portions referenced herein are incorporated in this Form 10-K. Other portions such as "Letter to Shareholders" are not required and, therefore, are not "filed" as part of this Form 10-K.) (21) Significant Subsidiaries of the Company. (27) Financial Data Schedule (99) Additional documents: 99.1 Consolidated Freightways, Inc. 1996 Notice of Annual Meeting and Proxy Statement dated March 22, 1996. (Only those portions referenced herein are incorporated in this Form 10-K. Other portions are not required and, therefore, are not "filed" as a part of this Form 10-K.*) 99.2 Note Agreement dated as of July 17, 1989, between the ESOP, Consolidated Freightways, Inc. and the Note Purchasers named therein. (Exhibit 28.1 as filed on Form SE dated July 21, 1989*) 99.3 Guarantee and Agreement dated as of July 17, 1989, delivered by Consolidated Freightways, Inc. (Exhibit 28.2 as filed on Form SE dated July 21, 1989*). 99.4 Form of Restructured Note Agreement between Consolidated Freightways, Inc., Thrift and Stock Ownership Trust as Issuer and various financial institutions as Purchasers named therein, dated as of November 3, 1992. (Exhibit 28.4 to the Company's Form 10-K for the year ended December 31, 1992*). 99.5 Form of Restructured Guarantee and Agreement between Consolidated Freightways, Inc., as Issuer and various financial institutions as Purchasers named therein, dated as of November 3, 1992. (Exhibit 28.5 to the Company's Form 10-K for the year ended December 31, 1992*). The remaining exhibits have been omitted because either (1) they are neither required nor applicable or (2) the required information has been included in the consolidated financial statements or notes thereto. * Previously filed with the Securities and Exchange Commission and incorporated herein by reference. # Designates a compensation plan for Management or Directors. EX-3 2 EXHIBIT 3.2 Exhibit 3.2 CONSOLIDATED FREIGHTWAYS, INC. BY-LAWS As Amended December 4, 1995 ARTICLE I OFFICES SECTION 1. Registered Office. The registered office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. Other Offices. The Corporation shall also have and maintain a principal office or place of business at such place as may be fixed by the Board of Directors, and may also have other offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS SECTION 1. Place of Meetings. Meetings of the stockholders of the Corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors or, if not so designated, then at the principal office of the Corporation. SECTION 2. Annual Meetings. The annual meetings of the stockholders of the Corporation for the purpose of election of directors and for such other business as may lawfully come before the meetings shall be held on a date and at a time designated from time to time by the Board of Directors, or, if not so designated, then at 10:00 a.m. on the last Monday in April in each year, if not a legal holiday, or, if a legal holiday at the same hour and place on the next succeeding day not a holiday. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must have been (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary, Consolidated Freightways, Inc. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter that the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and record address of the stockholder proposing such business, (c) the class and number of shares of the Corporation that are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 3. Special Meetings. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, by the Chief Executive Officer or the Board of Directors at any time. Upon written request of any stockholder or stockholders holding in the aggregate a majority of the voting power of all stockholders, the Secretary shall call a special meeting of stockholders to be held at a place in San Francisco, California specified in the request for call, at such time as the Secretary may fix, such meeting to be held not less than ten nor more than 60 days after the receipt of the request, and if the Secretary shall neglect or refuse to call the meeting, the stockholder or stockholders making the request may do so. SECTION 4. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten nor more than 50 days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the Corporation; said notice to specify the place, date and hour and purpose or purposes of the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. SECTION 5. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by the By-Laws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting shall not be counted to determine a quorum at said meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these By-Laws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the Corporation. SECTION 6. Voting Rights. Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the Corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the Corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period. SECTION 7. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 8. Action Without Meeting. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or of the Certificate of Incorporation, the meeting and vote of stockholders may be dispensed with: (1) if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or (2) if the Certificate of Incorporation authorizes the action to be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than such percentage of the number of votes as may be authorized in the Certificate of Incorporation; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. SECTION 9. Rules of Conduct. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE III DIRECTORS SECTION 1. Powers. The powers of the Corporation shall be exercised, its business conducted and its property controlled by the Board of Directors. SECTION 2. Number, Qualifications and Classification. (a) A majority of the directors holding office may by resolution increase or decrease the number of directors, provided, however, that the number thereof shall never be less than twelve nor greater than fifteen. A director need not be a stockholder. The directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as the then total number of directors permits. At the 1985 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1986, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors, including any vacancy that results from an increase in the number of directors, may be filled by a majority of the Board of Directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy shall have the same remaining term as that of his predecessor. (b) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to these By-Laws unless expressly provided by such terms. (c) Any amendment, change or repeal of this Section 2 of Article III, or any other amendment to these By-Laws that will have the effect of permitting circumvention of or modifying this Section 2 of Article III, shall require the favorable vote, at a stockholders' meeting, of the holders of at least 80 of the then-outstanding shares of stock of the Corporation entitled to vote. SECTION 3. Special Elections. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, it may be elected as soon thereafter as is convenient at a special meeting of the stockholders called for that purpose in the manner provided in these By-Laws. SECTION 4. Vacancies. A vacancy in the Board of Directors shall be deemed to exist in the case of the death, resignation or removal of any director, or if the number of directors constituting the whole Board be increased, or if the stockholders, at any meeting of stockholders at which directors are to be elected, fail to elect the number of directors then constituting the whole Board. SECTION 5. Resignations. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. SECTION 6. Meetings. (a) The annual meeting of the Board of Directors shall be held not later than the tenth day following the annual stockholders meeting at such time and place as the Board may determine. No notice of the annual meeting of the Board of Directors shall be necessary if such meeting is held immediately after the annual stockholders meeting and at the place where such stockholders meeting is held. If the annual meeting of the Board of Directors is held on a different date, or at a different time or place, notice of the date, time and place of such annual meeting of the Board of Directors shall be furnished to each director in accordance with the procedures of Article III, Section 6(c) of these By-Laws. The annual meeting of the Board of Directors shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular meetings of the Board of Directors shall be held at such place within or without the State of Delaware, and at such times as the Board may from time to time determine, and if so determined no notice thereof need be given. (c) Special meetings may be called at any time and place within or without the State of Delaware upon the call of the Chief Executive Officer or Secretary or any two directors. Notice of the date, time, place and purposes of each special meeting, and notice of the date, time and place of each annual and regular meeting for which notice is required to be given, shall be sent by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each director. Notice of any special meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. SECTION 7. Quorum and Voting. (a) A majority of the whole Board of Directors shall constitute a quorum for all purposes, provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time and place to place, within or without the State of Delaware, without notice other than by announcement at the meeting. (b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law or by the Certificate of Incorporation. SECTION 8. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 9. Fees and Compensation. Directors shall not receive any stated salary for their services as directors, but, by resolution of the Board, compensation in a reasonable amount may be fixed by the Board, including, without limitation, compensation in the form of an annual retainer, a fee for each Board or Board Committee meeting attended, reimbursement for expenses of attendance at any such meeting, or any combination of any of the foregoing. Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor. SECTION 10. Maximum Age of Directors. Directors who have attained the age of 72 years shall be ineligible to stand for election or re-election as a director. Except as may otherwise be determined by the Board of Directors, a director who has attained the age of 72 years whose term as a director continues beyond the annual meeting of shareholders next following attainment of 72 years shall retire and resign as a director at the first directors meeting following such annual meeting of shareholders. Unless otherwise determined by the Board of Directors in accordance with the preceding sentence, for this purpose such resignation will be automatic and need not meet the requirements for resignation set forth in Section 5 of this Article III. SECTION 11. Nominations of Persons for Election to the Board of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the Corporation who is entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 11. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary, Consolidated Freightways, Inc. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 30 days nor more than 60 days prior to the meeting; provided, however, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation that are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14a under the Securities Exchange Act of 1934; and (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder and (ii) the class and number of shares of the Corporation that are beneficially owned by the stockholder. A signed written consent of each proposed nominee to serve as a director of the Corporation shall be appended to the stockholder's notice. The Corporation may require any proposed nominee to furnish any other information that may reasonably be required by the Corporation to determine the qualifications of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of Preferred Stock. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE IV OFFICERS AND COMMITTEES SECTION 1. Officers Designated. The executive officers of the Corporation shall be chosen by the Board of Directors and shall be the Chairman of the Board, the President, one or more Vice Presidents, the Secretary, one or more Assistant Secretaries, the Treasurer, one or more Assistant Treasurers, and such other executive officers as the Board of Directors from time to time may designate. The Board of Directors shall designate either the Chairman of the Board or the President as the Chief Executive Officer of the Corporation. The officer so designated shall have charge of the actual conduct and operation of the business of the Corporation, subject to the control and direction of the Board of Directors. The Chief Executive Officer shall, with the consent of the Board of Directors, assign such additional titles to Vice Presidents as he shall deem appropriate and designate the succession of officers to act in his stead in his absence or disability. He may appoint additional Vice Presidents who shall not, however, be executive officers. He shall assign all duties not otherwise specified by these By-Laws to all officers and employees of the Corporation. SECTION 2. Election, Qualification, Tenure of Office, and Duties of Executive Officers and Other Officers. (a) At the annual meeting of the Board of Directors following their election by the stockholders, the directors shall elect all executive officers of the Corporation. Any one person may hold any number of offices of the Corporation at any one time unless specifically prohibited therefrom by law. The Chairman of the Board shall be a director but no other officer need be a director. (b) Each executive officer shall hold office from the date of his election either until the date of his voluntary resignation, or death, or until the next annual meeting of the Board of Directors and until a successor shall have been duly elected and qualified, whichever shall first occur; provided that any such officer may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby, and the Board may elect another in the place and stead of the person so removed. (c) Chairman of the Board: The Chairman of the Board shall preside at all meetings of the stockholders, of the Board of Directors, and of the Executive Committee. He shall have the responsibility of keeping the directors informed on all policy matters, and shall have such other powers and perform such other duties as may be prescribed by the Board. (d) President: The President shall, in the absence of the Chairman of the Board preside at all meetings of the stockholders, the Board of Directors and the Executive Committee. He shall exercise all of the powers and discharge all of the other duties of the Chairman of the Board in the absence of the Chairman of the Board. He shall perform such other duties as may be prescribed by the Chairman of the Board. (e) Vice Presidents: The Vice Presidents shall have such duties and have such other powers as shall be prescribed by the Chief Executive Officer. Such Vice President as may be designated by the Board of Directors or the Chairman of the Board shall preside at all meetings of the stockholders. (f) Secretary: The Secretary shall record all the proceedings of the meetings of the Corporation and of the directors in a book or books kept for that purpose. He shall attend to the giving and serving of all notices on behalf of the Corporation. He shall have the custody of the corporate seal and affix the same to such instruments as may be required. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (g) Assistant Secretaries: Assistant Secretaries shall assist the Secretary in the performance of his duties and any one of the Assistant Secretaries may perform all of the duties of the Secretary if at any time he shall be unable to act. Assistant Secretaries shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (h) Treasurer: The Treasurer shall have charge of the custody, control and disposition of all funds of the Corporation and shall account for same. He shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. (i) Assistant Treasurers: Assistant Treasurers shall assist the Treasurer in the performance of his duties and any one of the Assistant Treasurers may perform all of the duties of the Treasurer if at any time he shall be unable to act. Assistant Treasurers shall have such other powers and perform such other duties as may be prescribed by the Chief Executive Officer. SECTION 3. Committees. (a) Executive Committee. The Board of Directors shall, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than three members, all of whom shall be directors. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. It shall be the duty of the Secretary of the Corporation to record the minutes of all actions of the Executive Committee. (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. The Chief Executive Officer may appoint such other committees as he finds necessary to the conduct of the Corporation's business. Such other committees appointed by the Board of Directors or the Chief Executive Officer shall have such powers and perform such duties as may be prescribed by the body or person appointing such committee. (c) Term; Number of Committee Members. The members of all committees of the Board of Directors shall serve a term co-existent with that member s remaining term as a member of the Board of Directors, or until such time as the Board of Directors shall replace that member on such committee or ask that member to accept another committee assignment in its stead. The Board, subject to the provisions of subsection (a) and (b) of this Section 3, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee, while it exists, shall consist of less than three members. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, to replace any absent or disqualified member at any meeting of the committee. If the qualified members of a committee, in attendance at a committee meeting, believe that the absence or disqualification of one or more members of that committee seriously impairs the function of that committee, such remaining qualified members, whether or not constituting a quorum, may by unanimous action appoint another member of the Board of Directors to act as a committee member at that meeting. (d) Notice of Committee Meetings. Notice of the date, time and place of each committee meeting shall be sent to each committee member by mail at least seventy-two hours in advance of the time of the meeting, or by telegram at least forty-eight hours in advance of the time of the meeting, or by facsimile at least twenty-four hours in advance of the time of the meeting, to the address or facsimile number (as applicable) of each committee member. ARTICLE V CAPITAL STOCK SECTION 1. Form and Execution of Certificates. Certificates for the shares of stock of the Corporation shall be in such form as are consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the Corporation. Where such certificate is countersigned by a transfer agent other than the Corporation or its employee, or by a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 3. Transfers. Transfers of record of shares of the capital stock of the Corporation shall be made upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by a properly endorsed stock power. SECTION 4. Fixing Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VI OTHER SECURITIES OF THE CORPORATION All bonds, debentures and other corporate securities of the Corporation, other than stock certificates, may be signed by the Chairman of the Board, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, or such other person as may be authorized by the Board of Directors; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by a trustee under an indenture pursuant to which such bond, debenture or other corporate securities shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the Corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any person who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be an officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the Corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the Corporation. ARTICLE VII SECURITIES OWNED BY THE CORPORATION Power to Vote. Unless otherwise ordered by the Board of Directors, the Chief Executive Officer, or any officer designated in writing by the Chief Executive Officer, shall have full power and authority in the name and on behalf of the Corporation, to vote and to act either in person or by proxy at any meeting of the holders of stock or securities in any corporation upon and in respect of any securities therein which the Corporation may hold, and shall possess and may exercise in the name of the Corporation any and all rights and powers incident to the ownership of such stock or securities which, as the owner thereof, the Corporation shall possess and might exercise including the right to give written consents in respect to action taken or to be taken. The Board of Directors may from time to time confer like powers upon any other person or persons. ARTICLE VIII CORPORATE SEAL The corporate seal shall consist of a die bearing the inscription, Consolidated Freightways, Inc. Corporate Seal Delaware. ARTICLE IX AMENDMENTS These By-Laws may be repealed, altered or amended or new By-Laws adopted by written consent of stockholders in the manner authorized by Section 8 of Article II or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these By-Laws or adopt new By-Laws by unanimous written consent or by the affirmative vote of a majority of the whole Board at any annual, regular, or special meeting subject to the power of the stockholders to change or repeal such By-Laws. ARTICLE X MISCELLANEOUS SECTION 1. Definitions. As used in these By-Laws and wherever the context shall require, the word person shall include associations, partnerships and corporations as well as individuals; words in the masculine gender shall include the feminine and associations, partnerships and corporations; words in the singular shall include the plural and words in the plural may mean only the singular, and words additional compensation shall mean and include all bonus, profit sharing, retirement, deferred compensation, and all other additional compensation plans or arrangements affecting persons individually or as a group. SECTION 2. Notices. Whenever, under any provisions of these By-Laws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the Corporation or its transfer agent. Any notice required to be given to any director may be given by the method hereinabove stated, by personal delivery, or by telegram, except that such notice, other than one which is delivered personally, shall be sent to such address as such director shall have filed in writing with the Secretary of the Corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the principal office of the Corporation. An affidavit of mailing, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram shall be deemed to have been given as at the sending time recorded by the telegraph company transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any directors may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these By-Laws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or By-Laws of the Corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. SECTION 3. Indemnification of Officers, Directors, Employees and Agents. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a Proceeding ), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than were permitted prior to amendment) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that except as to actions to enforce indemnification rights pursuant to paragraph (c) of this Section, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article shall be a contract right for the benefit of the Corporation's directors, officers, employees, and agents. (b) Authority to Advance Expenses. Expenses incurred (including attorneys' fees) by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such expenses shall be advanced only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article or otherwise. Such expenses incurred by other employees or agents of the Corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. (c) Right of Claimant to Bring Suit. If a claim under paragraph (a) or (b) of this Section is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (d) Provisions Nonexclusive. The rights conferred on any person by this Section shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. (e) Authority to Insure. The Corporation may purchase and maintain insurance to protect itself and any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability, expense, or loss asserted against or incurred by such person, whether or not the Corporation would have the power to indemnify him against such liability, expense, or loss under applicable law or the provisions of this Article. (f) Survival of Rights. The rights provided by this Section shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. (g) Effect of Amendment. Any amendment, repeal, or modification of this Section shall not (a) adversely affect any right or protection of any director, officer, employee, or agent existing at the time of such amendment, repeal, or modification, or (b) apply to the indemnification of any such person for liability, expense, or loss stemming from actions or omissions occurring prior to such amendment, repeal, or modification. CERTIFICATE The undersigned, Secretary of CONSOLIDATED FREIGHTWAYS, INC., does hereby certify that the foregoing is a true and correct copy of the By-Laws of CONSOLIDATED FREIGHTWAYS, INC., as amended to date hereof. In witness whereof the undersigned has hereunto set his hand and affixed the seal of said corporation this 4th day of December, 1995. Secretary of Consolidated Freightways, Inc. CONSOLIDATED FREIGHTWAYS, INC. INCORPORATED IN DELAWARE AUGUST 13, 1958 UNDER THE CORPORATE NAME OF CONSOLIDATED FREIGHTWAYS COMPANY BY-LAWS As Amended December 4, 1995 EX-10 3 EXHIBIT 10.20 EXHIBIT 10.20 CONSOLIDATED FREIGHTWAYS, INC. 1996 Director's Election Form Indicate amount of deferral under (A), timing of deferral under (B), or select (C) if no deferral is elected. In the event I earn any Consolidated Freightways, Inc. director's fees in 1996, I hereby elect to defer payment of such fees and any interest equivalent as follows: A. ( ) To defer annual retainer and all meeting fees and chair fees, if applicable. ( ) To defer the annual retainer portion of such fees. B. ( ) To be paid in the year following the year in which I cease to be a director of Consolidated Freightways, Inc. ( ) To be paid in equal annual installments for _____ year(s) but not to exceed five (5) years, commencing in the year following the year in which I cease to be a director of Consolidated Freightways, Inc. ( ) To be paid in the year following _____ year(s) (insert 1 or any multiple of years) after the year in which fees are deferred (but in no event later than the year following the year I cease to be a director of Consolidated Freightways, Inc.). ( ) To be paid in equal annual installments for _____ year(s) but not to exceed five (5) years, commencing in the year following _______ year(s) (insert 1 or any multiple of years) after the year in which fees are deferred (but in no event later than the year I cease to be a director of Consolidated Freightways, Inc.). I understand that payment of any amount deferred hereunder will be made by January 31st of the year in which such payment is to be made. I further understand that any amount deferred will be credited with interest equivalents at the end of each calendar quarter following the date of deferral and continuing until such deferred amount is paid to me. Interest equivalents shall be calculated at the published Bank of America NT & SA prime rate as of the date credited and shall be paid on prior interest equivalents credited on amounts deferred. I also understand that no trust is created hereby and that in the event of my death, any amounts unpaid shall be paid to my designated beneficiary in a lump sum. I designate as my beneficiary ________________________________________ C. ( ) I do not elect to defer payments of any fees earned in 1996. _____________________ _____________________ Date of this Election Signature of Director EX-10 4 EXHIBIT 10.36 Exhibit 10.36 CONSOLIDATED FREIGHTWAYS, INC. RETURN-ON-EQUITY PLAN CONSOLIDATED FREIGHTWAYS, INC. RETURN-ON-EQUITY PLAN TABLE OF CONTENTS Article I Purpose; Effective Date; Administration 1.1 Purpose 1.2 Effective Date 1.3 Administration Article II Award Cycles; Eligibility; Vesting 1 2.1 Award Cycles 1 2.2 Eligibility 1 2.3 ROE Units 1 2.4 Initial Value 2.5 End Value 2 2.6 Vesting 2 2.7 Change in Control 2.8 Dividends 3 Article III Awards 3.1 Equity Increase 3.2 Award Amount 3.3 Payment of Award 3.4 Amount and Form of Deferred Payment 5 3.5 Interest on Deferred Amounts 5 3.6 Payment to Beneficiary 5 3.7 Withdrawal of Deferred Amounts 6 Article IV Amendment; Termination 6 4.1 Amendment 6 4.2 Termination 7 Article V Claims Procedure 7 5.1 Submission of Claims 7 5.2 Initial Denial 7 5.3 Review of Denied Claim 7 5.4 Decision on Review 8 Article VI General Provisions 8 6.1 Attorneys Fees 8 6.2 Applicable Law 8 6.3 Notice 8 6.4 No Assignment or Alienation 8 6.5 Tax Withholding 9 6.6 Payment to Impaired Person 9 CONSOLIDATED FREIGHTWAYS, INC. RETURN-ON-EQUITY PLAN INDEX OF DEFINED TERMS Term Section Page Affiliate 2.2 1 Annual Percentage Increase 3.2 4 Award Cycle 2.1 1 Beneficiary 3.6 5 Change in Control 2.7 Committee 1.3 Dividends 2.8 3 End Value 2.5 2 Equity Increase 3.1 4 Initial Value 2.4 Participant 2.2 1 Payout Factor 3.2 ROE Units 2.3 Termination of Employment 3.3 Unforeseeable Financial Emergency 3.7 CONSOLIDATED FREIGHTWAYS, INC. RETURN-ON-EQUITY PLAN Article I Purpose; Effective Date; Administration 1.1 Purpose The purpose of the Plan is to provide eligible employees of Consolidated Freightways, Inc. (the Company) and its affiliates with long term compensation that is dependent on Company financial performance and thereby provide them with an incentive to maximize such performance. 1.2 Effective Date The Plan shall be effective January 1, 1996. 1.3 Administration The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall interpret the Plan and determine the amount, time and form of award payments based on such interpretations. Any decision by the Committee within its authority shall be final and binding on all parties. Article II Award Cycles; Eligibility; Vesting 2.1 Award Cycles "Award Cycle" means a period of three consecutive calendar years. Each Award Cycle shall be identified by its first calendar year. 2.2 Eligibility The Committee shall designate the employees eligible to participate in an Award Cycle, a list of which shall be attached as a schedule to the Plan. "Participant" means an employee of the Company or one of its Affiliates who is eligible to participate as designated by the Committee. Affiliate means a corporation or other entity that is designated as such by the Committee. The Participants in the 1996 Award Cycle are listed on the attached Schedule A. 2.3 ROE Units "ROE Units" means, for any Award Cycle, the units granted to Participants for purposes of measuring awards payable under the Plan for that Award Cycle. Each Participant in the 1996 Award Cycle is granted the number of ROE Units set out on Schedule A opposite the Participant's name. Each Participant in subsequent Award Cycles shall be granted a number of ROE Units fixed by the Committee. 2.4 Initial Value "Initial Value" means the book value per common share of the Company as of the December 31 preceding the first day of the Award Cycle, as reported in the Company's Monthly Financial Review financial statements for that date. If an event described in (a) or (b) below occurs during an Award Cycle, the Committee shall make an appropriate adjustment to the Initial Value for that Award Cycle so the result produced by the formula effectuates the purpose of the Plan. (a) The Company engages in a merger, spinoff, or other transaction that alters the equity value per share of the Company's common stock. (b) The Company has a recapitalization that changes the number of shares of its common stock outstanding, such as a stock split, a stock combination, a dividend or other distribution of additional common stock, conversion of convertible preferred stock into common, or a stock buy-back. 2.5 End Value "End Value" means the book value per common share of the Company on December 31 at the end of the Award Cycle, as reported in the Company's Monthly Financial Review; provided, however, if a Participant becomes vested earlier than the last day of the Award Cycle, because of the occurrence of one of the events set out in 2.6(a) through (d) below, the End Value shall be the book value per common share on the last day of the month in which the aforesaid event occurred, as reported in the Company's Monthly Financial Review. 2.6 Vesting A Participant shall become vested in the rights related to the ROE units granted to the Participant for an Award Cycle if the Participant is continuously employed by one or more of the Company and its Affiliates throughout the entire Award Cycle or until the occurrence of one of the events described in (a) through (d) below. A Participant who departs from such employment before the last day of an Award Cycle shall forfeit all rights related to the ROE Units granted to the Participant for that Award Cycle unless the departure coincides with one of the following (in which case the Participant's ROE Units shall vest): (a) The Participant's death. (b) The Participant's disability as defined in the Company's Extended Sick Pay Plan or a successor to that plan. (c) The Participant's early, normal or deferred retirement under the Company's tax qualified Retirement Plan. (d) The Participant's Termination of Employment within 24 months after a Change in Control of the Company. 2.7 Change in Control A "Change in Control" shall have occurred upon any of the following: (a) The Company ceases to be a publicly owned corporation having its outstanding common stock listed on a nationally recognized stock exchange or traded over the counter. (b) More than 25 percent of the Company's outstanding common stock, or the equivalent in voting power of any class or classes of outstanding securities of the Company ordinarily entitled to vote in the election of directors, shall be beneficially held or acquired by any corporation or person or by any group of persons acting in concert as described in Section 14(d)(2) of the Securities Exchange Act of 1934. (c) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute a majority thereof, unless the election, or nomination for election, by the Company's shareholders of each new director was approved by a vote of a majority of the directors then still in office who were directors at the beginning of such period. 2.8 Dividends "Dividends" means, for any Award Cycle, the total of all distributions for each share of the Company's common stock during that Award Cycle. Article III Awards 3.1 Equity Increase "Equity Increase" means the increase in the equity value per common share of the Company's stock during each Award Cycle plus Dividends for that Award Cycle, determined pursuant to the following formula: Equity Increase (EI) equals the End Value (EV) minus the Initial Value (IV) plus Dividends (D). Namely . . . EI = (EV - IV) + D 3.2 Award Amount A Participant shall receive an award amount under this Plan for each Award Cycle equal to the Participant's ROE Units for that Award Cycle that have become vested in accordance with 2.6 times the Equity Increase (EI) times the Payout Factor (PF): Award= ROE Units x EI x PF "Payout Factor" (PF) means a percentage based on the Annual Percentage Increase for the Award Cycle. Annual Percentage Increase" (API) means the annual percentage rate of increase that, when applied to the Initial Value with annual compounding, produces the Equity Increase. The Payout Factor shall be determined by the Committee for different rates of the API. 3.3 Payment of Award The Company shall pay a Participant's award for an Award Cycle to the Participant in a lump sum of cash within 60 days after the End Value is determined, except as follows. Any Participant may elect to defer payment of the award for any Award Cycle. Payment of the deferred award shall be made or shall commence upon the Participant's Termination of Employment, based upon the Participant's election. Such election shall apply only to the Award Cycle for which it is made. "Termination of Employment" occurs on the first date on which the Participant is no longer employed by the Company or an Affiliate, regardless of the reason employment ceases. An election to defer payment shall be effective if made in writing on a form furnished by the Committee for that purpose and returned to the Committee no later than the following dates: (a) For the 1996 Award Cycle, February 29, 1996. (b) For later Award Cycles, the December 31 preceding the first day of the Award Cycle. 3.4 Amount and Form of Deferred Payment In the election to defer payment the Participant shall choose between payment in a lump sum or in approximately equal quarterly installments over 5, 10, 15 or 20 years. A lump sum shall be paid within 60 days after the Termination of Employment. Installment payments shall be paid commencing with the first day of the second calendar quarter after the Termination of Employment and continuing on the first day of each subsequent calendar quarter until the period of the installments is exhausted. 3.5 Interest on Deferred Amounts If the Participant elects to defer payment, the deferred amount shall be credited with interest from the date on which payment would have been made if it had not been deferred. Interest shall accrue at a rate equal to the rate of return on the Moody's Seasoned Corporate Bond Rate (reset annually), or at such higher rate as the Committee shall determine in its sole discretion, and shall be compounded annually. Interest shall continue to be credited on the undistributed balance until the Participant's award is fully paid. The size of installments shall be based on an assumption made by the Committee as to the rate of future interest and may be adjusted by the Committee from time to time to reflect actual interest experience different from the assumption. 3.6 Payment to Beneficiary In the event of a Participant's death, the award payable to the Participant for an Award Cycle shall be paid to the Participant's Beneficiary. "Beneficiary" means the person or persons designated by Participant under this Plan, or if no person is specifically designated, as determined for the Participant under the beneficiary designation provisions of the Company's Executive Deferral Plan. If no designation is made under either Plan, then the award shall be paid to the Participant's estate. Payment to the Beneficiary shall be made at the same time and in the same form as payment would have been made to the Participant, except as follows: (a) If death occurs and the Participant had elected deferral with payment in quarterly installments, the Committee may, in its sole discretion, choose to make immediate payment to the Beneficiary in a lump sum. If the Committee does not so choose, payment shall be made to the Beneficiary in accordance with the installment schedule elected by the Participant. (b) If (a) does not apply, payment to the Beneficiary shall be made within 60 days after the later of the date the End Value for the Award Cycle is determined or the date of death. 3.7 Withdrawal of Deferred Amounts If a Participant who has elected to defer payment of the award for an Award Cycle has an Unforeseeable Financial Emergency, the Participant may withdraw part or all of the Participant's award after the end of the Award Cycle. The existence of an Unforeseeable Financial Emergency shall be determined by the Committee upon application by the Participant. "Unforeseeable Financial Emergency" means a severe financial hardship of the Participant resulting from: (a) A sudden and unexpected illness or accident of the Participant or a dependent of the Participant. (b) A loss of the Participant's property due to casualty. (c) Such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Article IV Amendment; Termination 4.1 Amendment The Committee may amend the Plan at any time by notice to the Participants, except as follows: (a) No amendment shall reduce the award determined for an Award Cycle that has ended before the date of the amendment. (b) No amendment shall reduce the award for an Award Cycle that is in progress below the amount determined under the formula in 3.2 with the End Value based on the book value per common share of the Company as of the date of the amendment. (c) No amendment shall reduce the rate of interest credited on deferral amounts after the deadline for a Participant's election to defer. 4.2 Termination The Committee may terminate the Plan at any time. The award for Award Cycles in progress shall be determined under the formula in 3.2 replacing End Value with the per share equity value of the Company's common stock as of the date of termination. Upon termination of the Plan, the award of each Participant shall be paid to the Participant or to a deceased Participant's Beneficiary as soon as practicable after the termination. If the date of payment upon Plan termination is after the date the Participant would have received payment in the absence of deferral, interest shall be included for the period between such dates. Article V Claims Procedure 5.1 Submission of Claims Any person claiming an award or requesting an interpretation, ruling or information under the Plan shall present the request in writing to the Committee, which shall respond in writing. 5.2 Initial Denial If the claim or request is denied, notice of the initial denial shall normally be given within 90 days of receipt of the claim or request. If special circumstances require an extension of time, the claimant shall be so notified and time limit shall be 180 days. The written notice of denial shall state the following: (a) The reasons for the denial, with specific reference to the Plan provisions on which the denial is based. (b) A description of any additional materials or information required and an explanation of why it is necessary. 5.3 Review of Denied Claim Any person whose claim or request is denied or who has not received a response within the time period described in 5.2 may request review by notice to the Committee. The original decision shall be reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. 5.4 Decision on Review The decision on review shall ordinarily be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant plan provisions. All decisions on review shall be final and bind all parties concerned. Article VI General Provisions 6.1 Attorneys Fees If suit or action is instituted to enforce any rights under this Plan, the prevailing party may recover from the other party reasonable attorneys' fees at trial and on any appeal. 6.2 Applicable Law This Plan shall be governed by and construed in accordance with the laws of the State of California, except as preempted by federal law. 6.3 Notice Any notice under this Plan shall be in writing and shall be effective when actually delivered or, if mailed, when deposited as first class mail postage prepaid. Mail to the Company shall be directed to 3240 Hillview Avenue, Palo Alto, CA 94304, or to such other address as the Company may specify by notice to all Participants. Mailed notices to a Participant shall be directed to the Participant's last known home address shown in the Company's records. Notices to the Committee shall be sent to the Company's address. 6.4 No Assignment or Alienation The rights of a Participant or Beneficiary under this Plan are personal. No interest of a Participant or Beneficiary may be directly or indirectly assigned, transferred, or encumbered. A Participant's or Beneficiary's rights to awards payable under this Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance. Such rights shall not be subject to the debts, contracts, liabilities, engagements or torts of the Participant of Beneficiary. 6.5 Tax Withholding The Company shall make any required withholding of income taxes and of the employee's share of FICA and any other applicable payroll taxes from payments made under this Plan. If such withholding is required before the date of payment of amounts deferred under this Plan, the Company shall pay the required amount and withhold it from other compensation payable to the Participant. 6.6 Payment to Impaired Person The Committee may decide that because of the mental or physical condition of a person entitled to payments, or because of other relevant factors, it is in the best interest to make payments to others for the benefit of the person entitled to payment. In that event, the Committee may in its discretion direct that payments be made to any of the following: (a) To a parent or spouse or a child of legal age. (b) To a legal guardian. (c) To one furnishing maintenance, support, or hospitalization. CONSOLIDATED FREIGHTWAYS, INC. By: /s/Eberhard G. H. Schmoller Name: Eberhard G.H. Schmoller Title: Senior Vice President - General Counsel Executed: March 4, 1996 EX-12 5 EXHIBIT 12 Exhibit 12 CONSOLIDATED FREIGHTWAYS, INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Year Ended December 31, 1995 1994 1993 1992 1991 (dollars in thousands) Fixed Charges: Interest Expense $ 34,325 $ 27,945 $ 30,333 $ 38,893 $ 46,703 Capitalized Interest 1,092 1,042 1,224 543 1,703 Preferred Dividends 12,419 12,475 12,551 12,618 12,691 Total Interest 47,836 41,462 44,108 52,054 61,097 Interest Component of Rental Expense 73,004 62,304 57,585 55,773 58,052 Fixed Charge 120,840 103,766 101,693 107,827 119,149 Less: Capitalized Interest 1,092 1,042 1,224 543 1,703 Preferred Dividends 12,419 12,475 12,551 12,618 12,691 Net Fixed Charges $ 107,329 $ 90,249 $ 87,918 $ 94,666 $104,755 Earnings: Income (Loss) Before Taxes $ 110,873 $111,920 $ 91,441 $(10,733) $ (43,337) Add: Net Fixed Charges 107,329 90,249 87,918 94,666 104,755 Total Earnings $ 218,202 $202,169 $179,359 $ 83,933 $ 61,418 Ratio of Earnings to Fixed Charges: Total Earnings $ 218,202 $202,169 $179,359 $ 83,933 $ 61,418 Fixed Charges (1) 120,840 103,766 101,693 107,827 119,149 Ratio 1.8 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 (the "TASP"), 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-13 6 EXHIBIT 13 Exhibit 13 PAGE 16 Financial Review and Management Discussion The Company's 1995 operating income increased marginally over the prior year despite competitive rate discounting that affected all three of the Company's operating units and costs incurred to improve CF MotorFreight's (CFMF) freight flow operations. Operating income at Emery Worldwide improved primarily due to significant international growth. Operating income at Con-Way Transportation Services (CTS) declined from 1994 levels primarily due to expansion costs. The 1994 results include significant losses incurred at CFMF and benefits realized by CTS and Emery from increased business during the strike of the unionized less-than- truckload (LTL) carriers. Despite these factors, the Company's 1994 operating profit increased 18.4% to $142.2 million from 1993. Revenue increases at all three of the Company's operating units contributed to a 12.8% increase from 1994 revenues to a record $5.3 billion. CTS and Emery revenues each grew over 12% due to growth in domestic and international markets, respectively. CFMF 1995 revenues increased from the strike- affected 1994 levels despite a reduction in revenues during the fourth quarter following the implementation of its freight flow improvement plan. In 1994, the Company's revenues increased 11.7% from 1993 to $4.7 billion due primarily to significant growth at CTS and Emery that offset the loss of business at CFMF during the strike. Significant variances in segment revenues and operating income are as follows. CF MotorFreight CFMF's 1995 revenues increased 12.8% over strike-affected 1994 levels, despite the loss of business in the fourth quarter following changes to its freight flow network. Total tonnage increased 6.4% with higher rated LTL tonnage increasing 10.6%. The revenue improvement is also attributable to an increase from Menlo Logistics' operations which are included in the CFMF segment. CFMF's 1994 revenues decreased 0.9% on a tonnage decline of 5.8%. Higher rated LTL tonnage declined 5.4% from 1993. CFMF's operating loss of $34.4 million included approximately $14.4 million of income from its Canadian subsidiaries and from logistics operations. The loss is a 26.2% improvement over that incurred in strike-affected 1994. The operating loss of $46.6 million in 1994 declined from a profit of $31.7 million in 1993, primarily due to losses incurred during the strike. The 1995 loss includes approximately $26 million of costs from the fourth quarter implementation of changes to freight flow operations called the "Business Accelerator System" (BAS). Implementation of BAS caused a decline in productivity in dock, city pick-up and delivery, and linehaul operations in the fourth quarter. Business levels also declined as shippers withheld freight during implementation of BAS. BAS replaces CFMF's traditional hub-and-spoke network in favor of one that moves freight directionally from point-to- point and streamlines the freight network. This reduces miles and handling, thereby reducing transit times and costs as well as rationalizes system capacity. With a competitive service offering, management believes it will be able to re- invigorate its sales and marketing efforts. In the short-term, management expects to incur additional losses as business levels and system productivity remain below expectations. However, in the long term, management believes that operating margins should improve as business levels, system productivity and utilization improve. Management announced a rate increase of between 5.5% and 6% effective January 1, 1996. Con-Way Transportation Services Revenues for 1995 increased 13.1% over 1994 with LTL and total tonnage increases of 6.7% and 6.4%, respectively. The higher revenue levels reflect CTS's continued expansion into new geographic markets, improved penetration in its traditional markets of overnight service and growth from its inter-regional business. CTS was not insulated from rate discounting in its traditional overnight markets. CTS revenues surpassed the billion- dollar milestone in 1994 with an increase of 24.5% from 1993 due to expansion and additional business gained during the strike of the unionized LTL carriers. CTS's operating income declined 13.2% from the record level in 1994 as its operating margin declined to 8.4% in 1995 from 10.9% in 1994. The decline is attributable to start-up costs and lower system utilization associated with expansion into new geographic areas and markets, relatively higher costs of inter-regional business and the absence of benefits received in 1994 during the strike of the unionized LTL PAGE 17 carriers. Operating income increased 54.8% in 1994 with an operating margin of 10.9% compared to 8.8% in 1993. CTS has completed its regional expansions, allowing for full regional service throughout the United States and parts of Canada. As business levels increase from new geographic and second-day markets, system utilization and productivity should improve. CTS also implemented a January 1996 rate increase of approximately 6%. Emery Worldwide Emery's revenues increased 12.7% from 1994 to a record $1.8 billion driven by 37.2% growth in international tonnage. Sluggish growth in certain industries and a slight decline in rates caused domestic revenue to increase only marginally. The 1994 results included the benefits of business gained during the strike of the unionized LTL carriers. Emery's 1994 revenues grew 24.3% from 1993, attributable to a 45.2% increase in international tonnage combined with a 30.2% increase in domestic tonnage. Operating income increased 5.3% from 1994 establishing a second consecutive record. However, the operating margin of 4.6% represents a decline from 5.0% in 1994 due to the increased proportion of international business. International freight yields a lower margin than domestic freight as Emery utilizes commercial lift, whereas domestically Emery operates a dedicated fleet. Operating income in 1994 represented a fourfold improvement from 1993 income of $16.6 million. Emery management will seek to improve margins by increasing efforts to gain additional domestic business and to continue the strong international growth. To this end, management has increased the sorting capacity at its Hub in Dayton and is adding additional warehouse space. Aircraft capacity has been added to better satisfy growing customer demands. Cost reductions are the focus of restoring margins amid periods of weaker demand. Other Income (Expense) Other net expense increased from 1994 primarily due to a 22.8% increase in interest expense from the $100 million of newly issued 10 year notes and borrowings under a $300 million credit facility. Gains from dispositions of properties and other miscellaneous income have in part offset the increase in interest expense. The net expense in 1994 increased marginally from 1993 because of a 60.5% decline in investment income from the liquidated portfolio offset in part by lower interest expense. Net Income Available to Common Shareholders Net income available to common shareholders was $46.6 million and $35.7 million in 1995 and 1994, respectively. The 1994 net income includes a $5.5 million charge for the write-off of intrastate operating rights. Excluding this charge, net income available to common shareholders improved 12.9% over 1994. The 1995 effective income tax rate exceeded the 1994 rate due to a higher foreign tax rate applied to higher foreign income. A higher effective income tax rate in 1994, versus 1993, was due primarily to restrictions on realizing tax benefits of operating losses in certain states and increased non-deductible expenses. The 1994 net income, excluding the $5.5 million charge, was a 30.5% improvement over the net income available to common shareholders in 1993 of $31.6 million. Liquidity and Capital Resources At December 31, 1995, the Company had $86.3 million in cash and cash equivalents. Net cash flow from operations during 1995 of $132.9 million was primarily the result of income from operations and depreciation and amortization, offset in part by increased accounts receivable levels. Since late 1994, the Company has been experiencing deterioration in the timeliness of receivables collection resulting in an increase in its working capital investment. To address this, the Company has initiated several programs to streamline its collection efforts and enhance communication with its customers. Capital expenditures for 1995 were $279.2 million, an increase of $97.3 million over 1994. The increase was due primarily to purchases of revenue equipment and real property by CFMF and CTS. Capital expenditures were financed by cash from operations and most of the proceeds from the issuance of long-term debt and short-term borrowings. The 1996 capital expenditure requirements are expected to be approximately $250 million. The Company intends to finance capital requirements for 1996 with cash from operations supplemented by financing arrangements. The Company issued $100 million of notes in June 1995 and subsequently, in September 1995, exchanged this privately PAGE 18 placed debt with registered debt having essentially the same terms. Separately, the Company increased borrowings under its $300 million unsecured credit facility to $40.0 million as of December 31, 1995. An additional $10.0 million was borrowed against other open lines of credit. The net proceeds from these sources were used for capital expenditures and general corporate purposes. Also in June 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission covering $150 million of debt and equity securities for future issuance with terms to be decided at the time of issuance. Proceeds will be used for general corporate purposes which may include repayment of indebtedness, capital expenditures and working capital needs. In the fourth quarter of 1994, the Company reinstated its quarterly cash dividend of $.10 per common share. The common dividend had been suspended in June 1990. A portion of the funds required to satisfy the dividend came from the absence of the Series C preferred stock dividend, which ended with their conversion into common stock in the first quarter of 1995. At December 31, 1995, $111.0 million of letters of credit were issued under the Company's $300 million unsecured credit facility. In addition, $78.4 million of letters of credit were issued and secured with Emery receivables under the $100 million Emery receivables sale facility. Also at December 31, 1995, $40.4 million of letters of credit were issued under several unsecured letter of credit facilities. At December 31, 1995, the Company's ratio of long-term debt obligations (including guarantees) to total capital (including long-term obligations) was 40.7% compared with 37.1% at year-end 1994. The ratio increase is primarily attributable to the issuance of the $100 million medium term notes in 1995. The current ratio was 1.2 to 1 at December 31, 1995 and 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 qualified independent third parties to protect the environment and comply with regulations. Where the need for environmental cleanup is necessary, the Company takes appropriate action. The Company has been designated a Potentially Responsible Party (PRP) by the U.S. Environmental Protection Agency with respect to the disposal of hazardous substances at various sites. However, based upon cost studies performed by independent parties, the Company expects its share of the cleanup costs to be minimal. PAGE 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of Consolidated Freightways, Inc. We have audited the accompanying consolidated balance sheets of Consolidated Freightways, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1995 and 1994, and the related statements of consolidated income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Freightways, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP San Francisco, California January 26, 1996 PAGE 20 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31 (Dollars in thousands) 1995 1994 ASSETS Current Assets Cash and cash equivalents $ 86,345 $ 95,711 Trade accounts receivable, net of allowances (Note 1) 762,134 659,191 Other accounts receivable 53,784 37,021 Operating supplies, at lower of average cost or market 45,890 41,719 Prepaid expenses 69,374 71,277 Deferred income taxes (Note 5) 134,035 126,546 Total Current Assets 1,151,562 1,031,465 Property, Plant and Equipment, at cost Land 177,614 163,965 Buildings and improvements 562,760 510,568 Revenue equipment 1,073,505 979,002 Other equipment and leasehold improvements 377,644 368,809 2,191,523 2,022,344 Accumulated depreciation and amortization (1,115,538) (1,077,752) 1,075,985 944,592 Other Assets Restricted funds 11,189 12,861 Deposits and other assets 88,573 80,626 Unamortized aircraft maintenance, net (Note 1) 114,636 81,010 Costs in excess of net assets of businesses acquired, net of accumulated amortization (Note 1) 308,141 322,169 522,539 496,666 Total Assets $2,750,086 $ 2,472,723 The accompanying notes are an integral part of these statements. PAGE 21 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994 Current Liabilities Accounts payable $ 296,203 $ 253,584 Accrued liabilities (Note 2) 474,028 474,854 Accrued claims costs 150,643 138,800 Current maturities of long-term debt and capital leases (Notes 3 and 4) 2,412 3,712 Short-term borrowings (Note 3) 50,000 - Federal and other income taxes (Note 5) 12,938 6,275 Total Current Liabilities 959,224 877,225 Long-Term Liabilities Long-term debt and guarantees (Note 3) 384,545 286,833 Long-term obligations under capital leases (Note 4) 110,965 111,024 Accrued claims costs 166,442 163,849 Employee benefits (Note 7) 236,131 216,853 Other liabilities and deferred credits 93,685 105,276 Deferred income taxes (Note 5) 76,734 38,034 Total Liabilities 2,027,726 1,799,094 Shareholders' Equity (Note 6) 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 954,412 and 962,748 shares, respectively 10 10 Series C, 8.738% cumulative, convertible, $.01 stated value; designated and issued none and 690,000 shares, respectively - 7 Additional paid-in capital, preferred stock 145,156 264,284 Deferred compensation (Note 8) (114,896) (120,646) Total Preferred Shareholders' Equity 30,270 143,655 Common stock, $.625 par value; authorized 100,000,000 shares; issued 51,451,490 and 43,955,510 shares, respectively 32,157 27,472 Additional paid-in capital, common stock 239,696 116,209 Cumulative translation adjustment (2,028) (1,170) Retained earnings 608,399 574,885 Cost of repurchased common stock (7,549,174 and 7,601,382 shares, respectively) (186,134) (187,422) Total Common Shareholders' Equity 692,090 529,974 Total Shareholders' Equity 722,360 673,629 Total Liabilities and Shareholders' Equity $2,750,086 $2,472,723 The accompanying notes are an integral part of these statements. PAGE 22 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME YEARS ENDED DECEMBER 31 (Dollars in thousands except per share data) 1995 1994 1993 REVENUES $5,281,084 $4,680,479 $4,191,811 COSTS AND EXPENSES Operating expenses 4,394,849 3,824,141 3,407,996 Selling and administrative expenses 606,217 580,370 528,022 Depreciation 136,117 133,734 135,636 5,137,183 4,538,245 4,071,654 OPERATING INCOME 143,901 142,234 120,157 OTHER INCOME (EXPENSE) Investment income 841 2,205 5,586 Interest expense (34,325) (27,945) (30,333) Miscellaneous, net 456 (4,574) (3,969) (33,028) (30,314) (28,716) Income before income taxes and extraordinary charge 110,873 111,920 91,441 Income taxes (Note 5) 53,508 51,625 40,867 Income before extraordinary charge 57,365 60,295 50,574 Extraordinary charge from write-off of intrastate operating rights, net of related income tax benefits of $4,056 - 5,522 - Net income 57,365 54,773 50,574 Preferred stock dividends 10,799 19,063 18,967 NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 46,566 $ 35,710 $ 31,607 Primary average shares (Note 1) 44,362,485 37,216,044 36,187,682 Fully diluted average shares (Note 1) 48,723,790 41,541,388 40,857,876 PRIMARY EARNINGS PER SHARE: (Note 1) Net income before extraordinary charge $ 1.10 $ 1.11 $ 0.87 Extraordinary charge - (0.15) - Net income $ 1.10 $ 0.96 $ 0.87 FULLY DILUTED EARNINGS PER SHARE (Note 1) $ 1.04 $ 0.87 $ 0.77 The accompanying notes are an integral part of these statements. PAGE 23 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS YEARS ENDED DECEMBER 31 (Dollars in thousands) 1995 1994 1993 Cash and Cash Equivalents, Beginning of Period $ 95,711 $ 139,044 $ 152,064 Cash Flows from Operating Activities Income before extraordinary charge 57,365 60,295 50,574 Adjustments to reconcile income to net cash provided by operating activities: Depreciation and amortization 148,050 145,765 146,297 Increase (decrease) in deferred income taxes 32,844 3,417 (20,298) Losses (gains) from property disposals (2,505) 1,147 (607) Changes in assets and liabilities: Receivables (119,706) (148,934) (194,320) Notes receivable from sale of trade receivables - - 166,399 Accrued claims costs 14,436 (9,592) (7,400) Accounts payable 15,619 46,557 17,225 Income taxes 6,663 (10,873) (9,871) Accrued incentive compensation (30,413) 27,074 7,396 Accrued liabilities and other 10,542 50,326 17,413 Net Cash Provided by Operating Activities 132,895 165,182 172,808 Cash Flows from Investing Activities Capital expenditures (279,215) (181,928) (201,210) Purchases of marketable securities - - (54,749) Sales of marketable securities - 13,727 88,887 Proceeds from sales of property 11,890 10,325 12,270 Net Cash Used by Investing Activities (267,325) (157,876) (154,802) Cash Flows from Financing Activities Proceeds from issuance of long-term debt 98,890 - 32,000 Repayment of long-term debt and capital lease obligations (2,537) (39,486) (45,236) Net short-term borrowings 50,000 - - Proceeds from issuance of common stock 10,460 11,949 5,387 Redemption of preferred stock purchase rights (435) - - Payments of common dividends (16,688) - - Payments of preferred dividends (14,626) (23,102) (23,177) Net Cash Provided (Used) by Financing Activities 125,064 (50,639) (31,026) Decrease in Cash and Cash Equivalents (9,366) (43,333) (13,020) Cash and Cash Equivalents, End of Period $ 86,345 $ 95,711 $ 139,044 Supplemental Disclosure Cash paid for income taxes $ 27,400 $ 56,679 $ 71,036 Cash paid for interest (net of amounts capitalized) $ 29,856 $ 24,401 $ 30,438 The accompanying notes are an integral part of these statements. PAGE 24 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in thousands)
Preferred Stock Series B Preferred Stock Series C Common Stock Number of Number of Number of Shares Amount Shares Amount Shares Amount Balance, December 31, 1992 974,152 $ 10 690,000 $ 7 43,016,319 $ 26,887 Exercise of stock options, net of tax benefits of $708 - - - - 324,482 203 Recognition of deferred compensation - - - - - - Repurchased common stock issued for conversion of preferred stock (5,497) - - - - - Net income - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $4,207 - - - - - - Series C, Preferred dividends ($15.40 per share) - - - - - - Translation adjustment - - - - - - Balance, December 31, 1993 968,655 10 690,000 7 43,340,801 27,090 Exercise of stock options, net of tax benefits of $2,400 - - - - 614,709 382 Recognition of deferred compensation - - - - - - Repurchased common stock issued for conversion of preferred stock (5,907) - - - - - Net income - - - - - - Common dividends declared ($.10 per share) - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $4,039 - - - - - - Series C, Preferred dividends ($15.40 per share) - - - - - - Translation adjustment - - - - - - Balance, December 31, 1994 962,748 10 690,000 7 43,955,510 27,472 Exercise of stock options, net of tax benefits of $1,122 - - - - 583,143 364 Conversion of Series C Preferred stock to Common stock - - (690,000) (7) 6,900,000 4,313 Issuance of restricted stock - - - - 12,837 8 Recognition of deferred compensation - - - - - - Redemption of preferred stock purchase rights (Note 6) - - - - - - Repurchased common stock issued for conversion of preferred stock (8,336) - - - - - Net income - - - - - - Common dividends declared ($.30 per share) - - - - - - Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,827 - - - - - - Series C, Preferred dividends ($3.20 per share) - - - - - - Translation adjustment - - - - - - Balance, December 31, 1995 954,412 $ 10 - $ - 51,451,490 $ 32,157 The accompanying notes are an integral part of these statements.
PAGE 25 STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
Cost of Additional Cumulative Repurchased Paid-in Translation Retained Common Deferred Capital Adjustment Earnings Stock Compensation Total Balance, December 31, 1992 $ 365,866 $ 2,927 $ 511,207 $(189,546) $(138,197) $ 579,161 Exercise of stock options, net of tax benefits of $708 5,184 - - - - 5,387 Recognition of deferred compensation - - - - 8,921 8,921 Repurchased common stock issued for conversion of preferred stock (1,202) - - 1,202 - - Net income - - 50,574 - - 50,574 Series B, Preferred dividends ($12.93 per share) net of tax benefits of $4,207 - - (8,343) - - (8,343) Series C, Preferred dividends ($15.40 per share) - - (10,627) - - (10,627) Translation adjustment - (1,698) - - - (1,698) Balance, December 31, 1993 369,848 1,229 542,811 (188,344) (129,276) 623,375 Exercise of stock options, net of tax benefits of $2,400 11,567 - - - - 11,949 Recognition of deferred compensation - - - - 8,630 8,630 Repurchased common stock issued for conversion of preferred stock (922) - - 922 - - Net income - - 54,773 - - 54,773 Common dividends declared ($.10 per share) - - (3,636) - - (3,636) Series B, Preferred dividends ($12.93 per share) net of tax benefits of $4,039 - - (8,436) - - (8,436) Series C, Preferred dividends ($15.40 per share) - - (10,627) - - (10,627) Translation adjustment - (2,399) - - - (2,399) Balance, December 31, 1994 380,493 (1,170) 574,885 (187,422) (120,646) 673,629 Exercise of stock options, net of tax benefits of $1,122 10,096 - - - - 10,460 Conversion of Series C Preferred stock to Common stock (4,306) - - - - - Issuance of restricted stock 292 - - - (300) - Recognition of deferred compensation - - - - 6,050 6,050 Redemption of preferred stock purchase rights (Note 6) (435) - - - - (435) Repurchased common stock issued for conversion of preferred stock (1,288) - - 1,288 - - Net income - - 57,365 - - 57,365 Common dividends declared ($.30 per share) - - (13,052) - - (13,052) Series B, Preferred dividends ($12.93 per share) net of tax benefits of $3,827 - - (8,592) - - (8,592) Series C, Preferred dividends ($3.20 per share) - - (2,207) - - (2,207) Translation adjustment - (858) - - - (858) Balance, December 31, 1995 $ 384,852 $ (2,028) $ 608,399 $(186,134) $(114,896) $ 722,360 The accompanying notes are an integral part of these statements.
PAGE 26 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Principal Accounting Policies Principles of Consolidation: The accompanying consolidated financial statements include the accounts of Consolidated Freightways, Inc. (the Company), its wholly owned subsidiaries and those of special-purpose financing corporations. Recognition of Revenues: Transportation freight charges are recognized as revenue when freight is received for shipment. The estimated costs of performing the total transportation service are then accrued. Cash and Cash Equivalents: The Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents. Trade Accounts Receivable, Net: Trade accounts receivable are net of allowances of $26,219,000 and $26,938,000 at December 31, 1995 and 1994, respectively. Property, Plant and Equipment: Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives, which are generally 25 years for buildings and improvements, 10 years or less for aircraft, 6 to 10 years for tractor and trailer equipment and 3 to 10 years for most other equipment. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the useful lives of the assets. Expenditures for equipment maintenance and repairs, except for aircraft, are charged to operating expenses as incurred; betterments are capitalized. Gains (losses) on sales of equipment are recorded in operating expenses. The costs to perform required maintenance inspections of engines and aircraft frames for leased and owned aircraft are capitalized and amortized to expense over the shorter of the period until the next scheduled maintenance or the remaining term of the lease agreement. Accordingly, the Company has recorded unamortized maintenance of $174,233,000 and $140,607,000 at December 31, 1995 and 1994, respectively. Under the Company's various aircraft lease agreements, the Company is expected to return the aircraft with a stipulated number of hours remaining on the aircraft and engines until the next scheduled maintenance. The Company has recorded $59,597,000 at December 31, 1995 and 1994 to accrue for this obligation and any estimated unusable maintenance at the date of lease return or other disposal. The net amount, which represents the difference between maintenance performed currently and that required or remaining at the expiration of the lease or other disposal, is classified as Unamortized Aircraft Maintenance, net, in the Consolidated Balance Sheets. Costs in Excess of Net Assets of Businesses Acquired: The costs in excess of net assets of businesses acquired (goodwill) are capitalized and amortized on a straight-line basis up to a 40-year period. Impairment is periodically reviewed based on a comparison of estimated, undiscounted cash flows from the underlying subsidiary to the related investment. Based on this review, management does not believe goodwill is impaired. Accumulated amortization at December 31, 1995 and 1994 was $69,581,000 and $59,995,000, respectively. Income Taxes: The Company follows the liability method of accounting for income taxes. Accrued Claims Costs: The Company provides for the uninsured costs of medical, casualty, liability, vehicular, cargo and workers' compensation claims. Such costs are estimated each year based on historical claims and unfiled claims relating to operations conducted through December 31. The actual costs may vary from estimates based on trends of losses for filed claims and claims estimated to be incurred but not filed. The long-term portion of accrued claims costs relate primarily to workers' compensation claims which are payable over several years. Earnings Per Share: Primary earnings per common share are based upon the weighted average number of common shares outstanding during each period after consideration of the dilutive effect of stock options. Fully diluted earnings per share are similarly computed, but include the dilutive effect of the Company's Thrift and Stock Plan (TASP) shares. The 1995 primary and fully diluted computations include the addback of $2,207,000 for the conversion of Series C preferred stock. The 1995 and 1994 fully diluted computations include addbacks to earnings of $1,849,000 and $478,000, respectively, representing the Series B preferred stock dividend net of replacement funding. In November 1993, the Accounting Standards Division of the AICPA issued Statement of Position 93-6, "Employers' Accounting for Employee PAGE 27 Stock Ownership Plans". The Company is not required to adopt this method of accounting as the TASP was established before December 31, 1992. If this statement had been adopted January 1, 1994, both the primary and fully diluted earnings per share for years ended December 31, 1995 and 1994 would have been $1.06 and $.94, respectively. Estimates: Management makes estimates and assumptions when preparing the financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the amounts reported in the accompanying financial statements and notes thereto. Actual results could differ from those estimates. Reclassification: Certain amounts in prior year's financial statements have been reclassified to conform to the current year presentation. 2. Accrued Liabilities Accrued liabilities consist of the following as of December 31: 1995 1994 (Dollars in thousands) Other accrued liabilities $184,297 $178,058 Accrued holiday and vacation pay 103,354 95,219 Accrued taxes other than income taxes 48,911 46,725 Wages and salaries 47,055 41,517 Estimated revenue adjustments 32,789 28,157 Accrued interest 23,593 20,216 Union pension, health and welfare 22,098 22,618 Accrued incentive compensation 11,931 42,344 Total accrued liabilities $474,028 $474,854 3. Debt and Guarantees As of December 31, long-term debt and guarantees consisted of the following: (Dollars in thousands) 1995 1994 9 1/8% Notes Due 1999 (interest payable semi-annually) $117,705 $117,705 7.35% Notes due 2005 (interest payable semi-annually) 100,000 -- 6.32% to 7.25% Industrial Revenue Bonds due through 2014 19,900 19,900 Medium-Term Notes -- 2,000 Other debt 290 876 TASP Notes guaranteed due through 2009 149,000 150,000 386,895 290,481 Less current maturities (2,350) (3,648) Total long-term debt and guarantees $384,545 $286,833 The 9 1/8% notes due in 1999 and the 7.35% notes due in 2005 contain certain covenants limiting the incurrence of additional liens. In June 1995, the Company filed a shelf registration statement with the Securities and Exchange Commission covering $150 million of debt and equity securities for future issuance with terms to be decided at the time of issuance. In January 1995, the Company entered into a $300 million unsecured credit facility to provide for the Company's letter of credit and working capital needs. Borrowings under the agreement, which expires in 1999, bear interest at a rate (6.45% at December 31, 1995) based upon LIBOR plus a margin dependent on the Company's credit rating. The agreement contains various restrictive covenants which limit the incurrence of additional indebtedness and require the Company to maintain minimum amounts of tangible net worth and fixed charge coverage. As of December 31, 1995, the Company had $40.0 million of short-term borrowings and $111.0 million of letters of credit outstanding under this agreement. In addition, the Company had $10.0 million of short-term borrowings under other open lines of credit. Of the $149 million TASP Notes, $116.4 million are subject to redemption at the option of the holders should a certain designated event occur or ratings by both Moody's and S&P of senior unsecured indebtedness PAGE 28 decline below investment grade. The remaining $32.6 million of the notes contain financial covenants including a common dividend restriction equal to $10.0 million plus one-half of the Company's earnings since inception of the agreement. The Company has a $100 million receivable sale facility under which $78.4 million of letters of credit were issued. The agreement, which expires in 1997 with an option to renew, involves the sale of eligible Emery receivables to a special-purpose corporation, Emery Receivables Corporation (ERC), for use as collateral for cash or non-transferable promissory notes and related letters of credit. The letters of credit may be issued only on behalf of Emery Air Freight Corporation and Emery Worldwide Airlines, Inc. for a term of one year with an option to renew. Under the terms of the agreement, ERC's assets will be available to satisfy its obligations prior to any distribution to its stockholders. The agreement contains various covenants, the most restrictive of which requires the participating companies to maintain specified amounts of tangible net worth. The aggregate annual maturities and sinking fund requirements of long- term debt for each of the next five years ending December 31 are: 1996, $2,350,000; 1997, $3,120,000; 1998, $4,220,000; 1999, $122,905,000; and 2000, $6,400,000. The Company's consolidated interest expense as presented in the Statements of Consolidated Income is net of interest capitalized of $1,092,000 in 1995, $1,042,000 in 1994 and $1,224,000 in 1993. 4. Leases The Company and its subsidiaries are obligated under various non- cancelable leases which expire at various dates through 2014. The principal capital lease covers a sorting facility in Dayton, Ohio (Facility) for a 30-year lease term. The Facility is financed by City of Dayton, Ohio revenue bonds. Of the total bonds, $46 million bear an effective rate of 8%, while the remaining $62 million bear variable rates of interest of approximately 4.5% at December 31, 1995. The bonds, due through 2009, have various call provisions and are secured by the underlying assets of the lease, a $7 million debt service fund, certain other Emery assets and irrevocable letters of credit. Included in property, plant and equipment is $44,986,000 of equipment and leasehold improvements, net, related to the facility. Future minimum lease payments under all leases with initial or remaining non-cancelable lease terms in excess of one year, at December 31, 1995, are as follows: Capital Operating (Dollars in thousands) Leases Leases Year ending December 31 1996 $9,018 $163,317 1997 9,018 118,143 1998 9,018 65,942 1999 10,298 52,417 2000 10,298 35,699 Thereafter 181,470 31,759 Total minimum lease payments 229,120 $467,277 Less amount representing interest (118,093) Present value of minimum lease payments 111,027 Less current maturities of obligations under capital leases (62) Long-term obligations under capital leases $110,965 Certain operating contain financial covenants equal to or less restrictive than covenants on debt. Certain leases, guaranteed by subsidiaries, contain restrictive covenants limiting additional debt and minimum tangible net worth and fixed charge coverage of the respective subsidiaries. Rental expense for operating leases is comprised of the following: 1995 1994 1993 (Dollars in thousands) Minimum rentals $231,069 $195,507 $185,425 Less: Sublease rentals (10,273) (6,811) (10,886) Amortization of deferred gains (1,785) (1,785) (1,785) $219,011 $186,911 $172,754 PAGE 29 5. Income Taxes The components of pretax income and income taxes are as follows: 1995 1994 1993 (Dollars in thousands) Pretax income U.S. corporations $ 94,097 $ 99,848 $ 84,700 Foreign corporations 16,776 12,072 6,741 Total pretax income $110,873 $111,920 $ 91,441 Income taxes (benefits) Current U.S. federal $ 4,804 $ 37,643 $ 63,956 State and local 3,418 6,313 7,089 Foreign 12,442 5,855 5,475 20,664 49,811 76,520 Deferred U.S. federal 28,330 (766) (31,616) State and local 4,003 2,775 (3,642) Foreign 511 (195) (395) 32,844 1,814 (35,653) Total income taxes $ 53,508 $ 51,625 $ 40,867 During 1995 and 1994, the Company utilized $11 million and $62 million, respectively, of net operating loss carryforwards from an acquired subsidiary to reduce the income tax liability of that subsidiary. The related tax benefits of approximately $5 million and $22 million, respectively, were used to reduce costs in excess of net assets of businesses acquired. The Company has remaining net operating loss carryforwards from acquired subsidiaries of approximately $30 million, which expire in 2002 and 2003 and when realized, will be used to further reduce costs in excess of net assets of businesses acquired. The components of deferred tax assets and liabilities on the balance sheets at December 31, relate to the following: (Dollars in thousands) Deferred tax assets 1995 1994 Reserves for accrued claims costs $ 79,366 $ 78,890 Reserves for post retirement health benefits 56,998 53,729 Other reserves not currently deductible 47,761 42,579 Reserves for employee benefits 43,007 47,644 Foreign tax and alternative minimum tax credit carryovers 11,604 6,707 238,736 229,549 Deferred tax liabilities Depreciation 147,949 105,393 Tax benefits from leasing transactions 16,700 18,477 Unearned revenue 11,803 12,676 Other 4,983 4,491 181,435 141,037 Net deferred tax asset $ 57,301 $ 88,512 Deferred tax assets and liabilities in the Consolidated Balance Sheets are classified based on the related asset or liability creating the deferred tax. Deferred taxes not related to a specific asset or liability are classified based on the estimated period of reversal. Although realization is not assured, management believes it more likely than not that all deferred tax assets will be realized. Income taxes vary from the amounts calculated by applying the U.S. statutory income tax rate to the pretax income as set forth in the following reconciliation: 1995 1994 1993 U.S. statutory tax rate 35.0% 35.0% 35.0% State income taxes (net of federal income tax benefit) 5.8 6.3 2.5 Foreign taxes in excess of U.S. statutory rate 6.4 1.3 3.0 Dividends paid to TASP (0.8) (0.7) (0.7) Non-deductible operating expenses 3.7 3.4 1.9 Amortization of costs in excess of net assets of businesses acquired 2.9 3.1 3.7 Tax rate change impact on deferred expense -- -- (1.7) Foreign tax credits, net (3.4) (1.9) (1.0) Other, net (1.3) (0.4) 2.0 Effective income tax rate 48.3% 46.1% 44.7% PAGE 30 The cumulative undistributed earnings of the Company's foreign subsidiaries (approximately $80 million at December 31, 1995), which if remitted are subject to withholding tax, have been reinvested indefinitely in the respective foreign subsidiaries' operations unless it becomes advantageous for tax or foreign exchange reasons to remit these earnings. Therefore, no withholding or U.S. taxes have been provided. The amount of withholding tax that would be payable on remittance of the undistributed earnings would approximate $8 million. 6. Shareholders' Equity In 1986, the Board of Directors designated a series of 600,000 shares as Series A Participating Preferred Stock from the Company's 5,000,000 shares of preferred stock, no par value. In November 1995, the Company redeemed related preferred stock purchase rights. In 1989, the Board of Directors designated a series of 1,100,000 preferred shares as Series B Cumulative Convertible Preferred Stock, $.01 stated value which is held by the Consolidated Freightways Thrift and Stock Plan (TASP). The Series B preferred stock is convertible into common stock, as described in Note 8, at the rate of four shares for each share of preferred stock subject to antidilution adjustments in certain circumstances. Holders of the Series B preferred stock are entitled to vote with the common stock and are entitled to a number of votes in such circumstances equal to the product of (a) 1.3 multiplied by (b) the number of shares of common stock into which the Series B preferred stock is convertible on the record date of such vote. Holders of the Series B preferred stock are also entitled to vote separately as a class on certain other matters. The TASP trustee is required to vote the allocated shares based upon instructions from the participants; unallocated shares are voted in proportion to the voting instructions received from the participants with allocated shares. In March 1995, the Company's 6,900,000 depository shares, each representing one-tenth of a share of Series C Conversion Preferred stock, were converted to 6,900,000 shares of the Company's common stock. 7. Employee Benefit Plans The Company has a non-contributory defined benefit pension plan (the Pension Plan) covering non-contractual employees in the United States. The Company's annual pension provision and contributions are based on an independent actuarial computation. Although it is the Company's funding policy to contribute the minimum required tax-deductible contribution for the year, it may increase its contribution above the minimum if appropriate to its tax and cash position and the plan's funded status. Benefits under the Pension Plan are based on a career average final five-year pay formula. Approximately 87% of the Pension Plan assets are invested in publicly traded stocks and bonds. The remainder is invested in temporary cash investments, real estate funds and investment capital funds. The following sets forth the pension liabilities included in Employee Benefits in the Consolidated Balance Sheets at December 31: 1995 1994 (Dollars in thousands) Accumulated benefit obligation, including vested benefits of $339,714 in 1995 and $242,638 in 1994 $(369,009) $(261,639) Effect of projected future compensation levels (99,105) (75,466) Projected benefit obligation (468,114) (337,105) Pension Plan assets at market value 407,868 325,102 Pension Plan assets under projected benefit obligation (60,246) (12,003) Unrecognized prior service costs 22,350 24,676 Unrecognized net gain (5,279) (46,673) Unrecognized net asset at transition (17,863) (20,096) Pension Plan liability $ (61,038) $ (54,096) Weighted average discount rate 7.25% 8.5% Expected long-term rate of return on assets 9.5% 9.0% Rate of increase in future compensation levels 5.0% 5.5% PAGE 31 Net pension cost includes the following: 1995 1994 1993 (Dollars in thousands) Cost of benefits earned during the year $ 21,261 $ 23,767 $ 15,789 Interest cost on projected benefit obligation 30,832 28,736 26,378 Actual gain arising from plan assets (81,065) (4,056) (41,891) Net amortization and deferral 49,553 (26,309) 13,889 Net pension cost $ 20,581 $ 22,138 $ 14,165 The Company's Pension Plan includes programs to provide additional benefits for compensation excluded from the basic Pension Plan. The annual provision for these programs is based on independent actuarial computations using assumptions consistent with the Pension Plan. In 1995 and 1994, the total pension liability was $15,708,000 and $11,033,000, respectively, and the total pension cost was $2,645,000 in 1995, $2,458,000 in 1994 and $1,633,000 in 1993. Approximately 52% of the Company's employees are covered by union- sponsored, collectively bargained, multi-employer pension plans. The Company contributed and charged to expense $111,772,000 in 1995, $93,933,000 in 1994 and $98,090,000 in 1993 for such plans. Those contributions were made in accordance with negotiated labor contracts and generally were based on time worked. The Company has a retiree health plan that provides benefits to all non-contractual employees at least 55 years of age with 10 years or more of service. The retiree health plan limits benefits for participants who were not eligible to retire before January 1, 1993, to a defined dollar amount based on age and years of service and does not provide employer-subsidized retiree health care benefits for employees hired on or after January 1, 1993. The following sets forth the total post retirement benefit amounts included in Employee Benefits in the Consolidated Balance Sheets at December 31: (Dollars in thousands) 1995 1994 Accumulated post retirement benefit obligation Retirees and other inactives $ 78,473 $ 50,720 Participants currently eligible to retire 23,968 26,358 Other active participants 28,591 25,692 131,032 102,770 Unrecognized prior service costs 1,814 931 Unrecognized valuation gain 11,598 36,282 Accrued post retirement benefit cost $144,444 $139,983 Weighted average discount rate 7.25% 8.5% Average health care cost trend rate First year 10.0% 11.0% Declining to (year 1999) 6.0% 6.0% Net periodic post retirement benefit costs include the following components: 1995 1994 1993 (Dollars in thousands) Cost of benefits earned during the year $ 2,392 $ 3,593 $ 2,877 Interest cost on accumulated post retirement obligation 9,069 8,396 8,683 Net amortization and deferral (1,245) (656) (411) Net periodic post retirement benefit cost $10,216 $11,333 $11,149 The increase in the accumulated post retirement benefit obligation and the net periodic post retirement benefit cost, given a 1 percent increase in the health care cost trend rate assumption, would be 9.2% for the year ended December 31, 1995 and 9.6% for the years ended December 31, 1994 and 1993. In 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post- employment Benefits". The adoption of this statement in 1994 did not have a material impact on the financial statements. The Company and each of its subsidiaries have adopted various plans relating to the achievement of specific goals to provide incentive compensation for designated employees. Total incentive compensation earned by the participants of those plans is as follows: PAGE 32 (Dollars in thousands) 1995 1994 1993 Salaried participants Incentive compensation $17,300 $52,200 $40,400 Participants 9,000 9,100 6,300 Hourly participants Incentive compensation $9,100 $29,500 $14,200 Participants 13,200 13,200 10,900 8. Thrift and Stock Plan The Company sponsors the Consolidated Freightways Thrift and Stock Plan (TASP), a voluntary defined contribution plan with a leveraged ESOP feature, for non-contractual U.S. employees. The TASP satisfies the Company's contribution requirement by matching up to 50% of the first three percent of a participant's basic compensation. In 1989, the TASP borrowed $150,000,000 to purchase 986,259 shares of the Company's Series B Cumulative Convertible Preferred Stock. This stock is only issuable to the TASP trustee. Company contributions were $9,217,000 in 1995, $7,966,000 in 1994 and $7,248,000 in 1993, primarily in the form of preferred stock. The Series B Preferred Stock earns a dividend of $12.93 per share and is used to repay the TASP debt. Any short fall is paid in cash by the Company. Dividends on these preferred shares are deductible for income tax purposes and, accordingly, are reflected net of their tax benefits in the Statements of Consolidated Income. Allocation of preferred stock to participants' accounts is based upon the ratio of the current year's principal and interest payments to the total TASP debt. Since the debt is guaranteed by the Company, it is reflected in the Consolidated Balance Sheets as debt. The TASP guarantees are reduced as principal is paid. Each share of preferred stock is convertible into common stock, upon the employee ceasing participation in the plan, at a rate generally equal to that number of shares of common stock that could be purchased for $152.10, but not less than the minimum conversion rate of four shares of common stock for each share of Series B preferred stock. Deferred compensation expense is recognized as the preferred shares are allocated to participants and is equivalent to the cost of the preferred shares allocated and the TASP interest expense for the year, reduced by the dividends paid to the TASP. During 1995, 1994 and 1993, $5,918,000, $5,780,000 and $5,598,000, respectively, of deferred compensation expense was recognized. At December 31, 1995, the TASP owned 954,412 shares of Series B preferred stock, of which 201,979 shares have been allocated to employees. At December 31, 1995, the Company has reserved, authorized and unissued common stock adequate to satisfy the conversion feature of the Series B preferred stock. 9. Stock Option Plans Officers and non-employee directors have been granted options under the Company's stock option plans to purchase common stock of the Company at prices not less than the fair market value of the stock on the date of grant. Outstanding options become fully exercisable one year after date of grant; any unexercised options expire after 10 years. Following is a summary of stock option unit data: 1995 1994 1993 Outstanding at January 1 3,778,428 3,813,599 3,552,068 Granted 647,500 736,800 650,000 Exercised (583,143) (614,709) (324,482) Expired, canceled or surrendered (84,590) (157,262) (63,987) Outstanding at December 31 3,758,195 3,778,428 3,813,599 Options which became exercisable during the year 736,800 644,500 300,000 Options exercisable at December 31 3,110,695 3,041,628 3,163,599 Shares reserved at December 31 For future option grants 1,189,785 1,485,275 2,119,200 For issuance (including future option grants, if any) 4,947,980 5,263,703 5,932,799 Exercise prices related to options outstanding at December 31, 1995 ranged from $10.75 to $32.75 per share and aggregated $71,815,000. Exercise prices related to options exercised during 1995 ranged from $13.00 to $26.38, during 1994, $10.75 to $26.38 and during 1993, $12.19 to $19.94. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS 123). The Company does not intend to change its accounting for stock-based compensation but it will make the additional disclosures in 1996 as required by SFAS 123. PAGE 33 10. Financial Instruments The Company has entered into interest rate swap agreements that expire in 1999. These agreements effectively convert $52 million of variable rate obligations to fixed rate obligations. Interest rate differentials to be paid or received are recognized over the life of each agreement as adjustments to interest expense. The Company is exposed to credit loss on the interest rate swaps in the event of non-performance by counter parties, but the Company does not anticipate non-performance by any of these counter parties. The fair values of the interest rate swaps, as presented below, reflect the estimated amounts that the Company would receive or pay to terminate the contracts at the reported date. The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31. Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. (Dollars in thousands) 1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value Payables for interest swaps $ -- $ 2,845 $ -- $ (838) Long-term debt 386,895 425,000 290,481 285,000 Capital leases 111,027 122,000 111,088 124,000 11. 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 impact on the Company's financial position or results of operations. 12. Industry Group Analysis and Foreign Operations The operations of the Company and its subsidiaries, which are conducted primarily in the United States and Canada, encompass principally three business segments: CF MotorFreight (CFMF), a nationwide, full-service trucking company; Con-Way Transportation Services (CTS), a regional trucking and full-service truckload company; and Emery Worldwide (Emery), an air freight and ocean forwarding company. CFMF provides general freight services nationwide and in parts of Canada, Mexico, the Caribbean area, Latin and Central America, Europe and Pacific Rim countries. Operations consist mainly of an extensive transportation network moving freight that is typically shipments of manufactured or non-perishable processed products having high value and requiring expedited service. For reporting purposes, Menlo Logistics, a full service contract logistics company, is included in the CFMF segment. CTS provides regional one- and two-day LTL freight trucking, full-service truckload freight delivery utilizing highway over-the-road and intermodal rail stack train resources for transcontinental, inter-regional and regional transportation; local and interstate container drayage and international shipping. Emery provides global air cargo services through an integrated freight system designed for the movement of parcels and packages of all sizes and weights. Revenues and expenses are allocated between the United States and international, depending on whether the shipments are between locations within the United States or between locations where one or both are outside the United States. Following is an analysis by geographic and industry group. Operating income is net of general corporate expenses, a portion of which have been allocated to subsidiaries on a revenue and capital basis. Intersegment revenues and earnings thereon have been eliminated. The identifiable assets of the parent consist principally of cash, cash equivalents and deposits. GEOGRAPHIC GROUP INFORMATION (Dollars in thousands) Consolidated U.S. International Year Ended December 31, 1995 Revenues $5,281,084 $4,421,171 $ 859,913 Operating income 143,901 113,655 30,246 Identifiable assets 2,750,086 2,647,761 102,325 Year Ended December 31, 1994 Revenues $4,680,749 $3,981,036 $ 699,713 Operating income 142,234 114,732 27,502 Identifiable assets 2,472,723 2,388,953 83,770 Year Ended December 31, 1993 Revenues $4,191,811 $3,665,654 $ 526,157 Operating income 120,157 113,179 6,978 Identifiable assets 2,316,350 2,231,469 84,881 PAGE 34 Consolidated Freightways, Inc. and Subsidiares INDUSTRY GROUP INFORMATION (Dollars in thousands) Industry Group
Adjustments, Con-Way Eliminations and CF Transportation Emery Consolidated the Parent MotorFreight Services Worldwide Year Ended December 31, 1995 Revenues $5,281,084 $2,362,619 $1,152,164 $1,766,301 Operating expenses 4,394,849 2,095,742 876,505 1,422,872 Selling and administrative expenses 606,217 233,665 138,329 234,223 Depreciation 136,117 67,888 40,757 27,472 Operating income (loss) 143,901 $ (34,406) $ 96,573 $ 81,734 Other income (expense) (33,028) Income before income taxes 110,873 Capital expenditures $ 279,215 $ 1,969 $ 108,503 $ 136,546 $ 32,197 Identifiable assets $2,750,086 $ 150,393 $ 929,110 $ 535,147 $1,135,436 Year Ended December 31, 1994 Revenues $4,680,479 $2,094,081 $1,018,544 $1,567,854 Operating expenses 3,824,141 1,823,792 748,086 1,252,263 Selling and administrative expenses 580,370 243,810 124,719 211,841 Depreciation 133,734 73,081 34,519 26,134 Operating income (loss) 142,234 (46,602) $ 111,220 $ 77,616 Other income (expense) (30,314) Income before income taxes $ 111,920 Capital expenditures $ 181,928 $ (961) $ 36,849 $ 97,392 $ 48,648 Identifiable assets $2,472,723 $ 193,733 $ 866,353 $ 420,744 $ 991,893 Year Ended December 31, 1993 Revenues $4,191,811 $2,112,237 $ 818,301 $1,261,273 Operating expenses 3,407,996 1,770,148 615,585 1,022,263 Selling and administrative expenses 528,022 226,405 101,144 200,473 Depreciation 135,636 83,972 29,718 21,946 Operating income 120,157 $ 31,712 $ 71,854 $ 16,591 Other income (expense) (28,716) Income before income taxes $ 91,441 Capital expenditures $ 201,210 $ 2,789 $ 52,470 $ 63,823 $ 82,128 Identifiable assets $2,316,350 $ 205,280 $ 864,748 $ 338,567 $ 907,755
PAGE 35 CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES Quarterly Financial Data (Unaudited) (Dollars in thousands except per share data)
March 31 June 30 September 30 December 31 1995 - Quarter Ended Revenues $1,296,087 $1,320,586 $1,322,779 $1,341,632 Operating income 52,033 48,220 37,244 6,404 * Income (loss) before income taxes 44,751 41,162 29,503 (4,543) Income taxes 20,585 18,935 13,988 - Net income (loss) applicable to common shareholders 19,842 20,086 13,360 (6,722) Per share: Primary net income (loss) 0.50 0.45 0.30 (0.15) Fully diluted net income (loss) 0.46 0.42 0.28 (0.15) Market price range $27.00-$20.25 $27.00-$20.63 $26.75-$21.75 $27.88-$22.75 Common dividends declared - 0.10 0.10 0.10 March 31 June 30 ** September 30 December 31 1994 - Quarter Ended Revenues $1,103,221 $1,059,775 $1,236,483 $1,281,000 Operating income 35,484 17,972 48,365 40,413 Income before income taxes and extraordinary charge 28,758 10,805 41,913 30,444 Income taxes 13,502 5,598 21,632 10,893 Extraordinary charge - - 5,522 - Net income available to common shareholders 10,522 444 9,991 14,753 Per share: Primary net income 0.28 0.01 0.27 *** 0.40 Fully diluted net income 0.25 0.01 0.24 *** 0.37 Market price range $29.25-$23.25 $27.50-$21.75 $25.13-$20.75 $23.00-$18.00 Common dividends declared - - - 0.10 * Includes losses of approximately $26 million for the implementation of CFMF's improvements of its freight flow operations. ** Results include the effects of the 24-day Teamster strike at CF MotorFreight. *** Includes losses per common share of $.15 primary and $.13 fully diluted for the extraordinary charge, net of related tax benefits, for the write-off of intrastate operating rights.
PAGE 36 Ten Year Financial Summary Consolidated Freightways, Inc. and Subsidiaries Years Ended December 31 (Dollars in thousands except per share data)
1995 1994 1993 1992 1991 SUMMARY OF OPERATIONS Revenues $ 5,281,084 $ 4,680,479 $ 4,191,811 $ 4,055,589 $ 4,082,257 CF MotorFreight 2,362,619 2,094,081 2,112,237 2,184,190 2,142,603 Con-Way Transportation Services 1,152,164 1,018,544 818,301 724,195 639,443 Emery Worldwide 1,766,301 1,567,854 1,261,273 1,147,204 1,300,211 Operating income (loss) 143,901 142,234 120,157 48,581 1,736 CF MotorFreight (34,406) (46,602) 31,712 27,485 (c) 51,991 Con-Way Transportation Services 96,573 111,220 71,854 53,747 33,318 Emery Worldwide 81,734 77,616 16,591 (32,651) (83,573) Depreciation and amortization 148,050 145,765 146,297 166,917 168,527 Investment income 841 2,205 5,586 5,041 10,558 Interest expense 34,325 27,945 30,333 38,893 46,703 Income (loss) before income taxes (benefits 110,873 111,920 91,441 (10,733) (43,337) Income taxes (benefits) 53,508 51,625 40,867 (7,077) (2,916) Net income (loss) applicable to common shareholders 46,566 35,710(b) 31,607 (97,728)(d) (53,112) Cash from operations 132,895 165,182 172,808 131,779 192,356 PER SHARE Net income (loss) applicable to common shareholders 1.10 .96 (b) .87 (2.78)(d) (1.52) Dividends declared on common stock .30 .10 -- -- -- Common shareholders' equity 15.76 14.58 13.65 12.64 15.30 FINANCIAL POSITION Cash and cash equivalents 86,345 95,711 139,044 152,064 284,645 Property, plant and equipment, net 1,075,985 944,592 910,444 886,834 896,922 Total assets 2,750,086 2,472,723 2,316,350 2,293,067 2,285,466 Capital expenditures 279,215 181,928 201,210 148,706 98,073 Long-term debt and capital leases 495,510 397,857 408,409 505,320 646,655 Shareholders' equity 722,360 673,629 623,375 579,161 547,083 RATIOS AND STATISTICS Current ratio 1.2 to 1 1.2 to 1 1.1 to 1 1.2 to 1 1.2 to 1 Income (loss) as % of revenues .88% .76% .75% (2.4)% (1.3)% Effective income tax rate 48.3% 46.1% 44.7% (65.9%) (6.7%) Long-term debt and capital leases as % of total capitalization 41% 37% 40% 47% 54% Return on average invested capital 5% 6% 5% -- (3)% Return on average shareholders' equity 8% 9% 8% (1)% (7)% Common dividends as % of net income (loss) 28% 10% -- -- -- Average shares outstanding 44,362,485(a) 37,216,044 36,187,682 35,195,743 35,033,738 Market price range $27.88-$20.25 $29.25-$18.00 $24.00-$13.63 $19.63-$12.50 $21.50-$9.50 Number of shareholders 15,980 16,015 15,785 15,260 14,300 Number of employees 41,600 40,500 39,100 37,900 37,700 (a) Reflects the conversion of Series C Preferred stock to Common stock. (b) Includes $5.5 million ($.15 per share primary and $.13 per share fully diluted) extraordinary charge, net of related tax benefits, for the write-off of intrastate operating rights. (c) Includes special charges of $17.3 million related to CF MotorFreight and write-off of Canadian operating authorities. (d) Includes $70 million ($1.99 per share) cumulative effect of change in method of accounting for post retirement benefits and $7.4 million ($.21 per share) extraordinary charge from early retirement of debt. Also included are special charges of $17.3 million, $10.5 million of charges for the write-down of properties held for sale and certain other intangibles and related tax benefits. (e) Includes one-time subsidiary closure costs of $11.3 million. (f) Includes the results of operations of Emery Air Freight Corporation since its acquisition in April. (g) Includes $11.3 million ($.31 per share) cumulative effect of change in method of accounting for income taxes.
PAGE 37 Ten Year Financial Summary (continued)
1990 1989 (f) 1988 1987 1986 SUMMARY OF OPERATIONS Revenues $ 4,208,527 $ 3,760,193 $ 2,689,075 $ 2,296,911 $ 2,124,167 CF MotorFreight 2,185,271 1,996,681 1,836,141 1,621,148 1,524,336 Con-Way Transportation Services 638,098 558,517 463,918 370,940 318,841 Emery Worldwide 1,385,158 1,204,995 389,016 304,823 281,290 Operating income (loss) 6,044 50,855 162,727 101,248 135,045 CF MotorFreight 108,462 107,895 119,116 92,456 128,927 Con-Way Transportation Services 25,547 (e) 40,365 33,373 6,404 11,359 Emery Worldwide (127,965) (97,405) 10,238 2,388 (5,241) Depreciation and amortization 170,757 159,282 116,204 102,165 94,262 Investment income 2,531 5,418 13,950 25,182 16,942 Interest expense 40,178 38,471 6,324 6,016 7,298 Income (loss) before income taxes (benefits (32,678) 24,297 173,330 119,311 147,639 Income taxes (benefits) (4,697) 15,685 60,177 44,741 58,530 Net income (loss) applicable to common shareholders (40,727) 12,048 (g) 113,153 74,570 89,109 Cash from operations 194,821 81,031 243,595 206,841 224,242 PER SHARE Net income (loss) applicable to common shareholders (1.16) .33 (g) 3.00 1.93 2.31 Dividends declared on common stock .53 1.04 .96 .88 .80 Common shareholders' equity 16.50 18.01 20.32 18.16 17.22 FINANCIAL POSITION Cash and cash equivalents 217,680 111,081 134,783 161,590 153,334 Property, plant and equipment, net 953,504 1,016,325 760,349 622,181 573,092 Total assets 2,412,003 2,391,826 1,536,099 1,377,329 1,288,063 Capital expenditures 141,784 255,793 258,368 155,127 136,278 Long-term debt and capital leases 673,611 652,169 47,677 50,935 58,700 Shareholders' equity 581,979 630,122 766,248 687,857 665,048 RATIOS AND STATISTICS Current ratio 1.2 to 1 1.2 to 1 1.3 to 1 1.4 to 1 1.5 to 1 Income (loss) as % of revenues (1.0)% .3% 4.2% 3.2% 4.2% Effective income tax rate (14.4)% 64.6% 34.7% 37.5% 39.6% Long-term debt and capital leases as % of total capitalization 54% 51% 6% 7% 8% Return on average invested capital (2)% 2% 12% 9% 11% Return on average shareholders' equity (7)% 2% 16% 11% 14% Common dividends as % of net income (loss) 46% 315% 32% 46% 35% Average shares outstanding 34,988,778 36,791,182 37,712,402 38,579,572 38,586,375 Market price range $26.88-$10.75 $37.75-$25.25 $34.75-$25.25 $41.25-$22.75 $36.50-$23.67 Number of shareholders 14,500 13,427 12,789 12,202 11,622 Number of employees 41,300 40,800 29,400 26,300 24,600
EX-21 7 EXHIBIT 21 EXHIBIT 21 CONSOLIDATED FREIGHTWAYS, INC. SIGNIFICANT SUBSIDIARIES OF THE COMPANY December 31, 1995 The Company and its significant subsidiaries were: State or Percent of Province or Stock Owned Country of Parent and Significant Subsidiaries by Company Incorporation Consolidated Freightways, Inc. Delaware Significant Subsidiaries of Consolidated Freightways, Inc. Consolidated Freightways Corporation of Delaware 100 Delaware Canadian Freightways, Limited 100 Alberta, Canada Milne & Craighead Customs Brokers (Canada) Ltd. 100 Canada Canadian Freightways Eastern Limited 100 Ontario, Canada United Terminals LTD. 100 Canada Menlo Logistics, Inc. 100 California Road Systems, Inc. 100 California VantageParts, Inc. 100 Oregon Con-Way Transportation Services, Inc. 100 Delaware Con-Way Truckload Services, Inc. 100 Delaware Emery Air Freight Corporation 100 Delaware Emery Worldwide Airlines, Inc. 100 Nevada EX-27 8 EXHIBIT 27
5 12-MOS DEC-31-1995 DEC-31-1995 86,345 0 788,353 (26,219) 45,890 1,151,562 2,191,523 (1,115,538) 2,750,086 959,224 495,510 271,853 0 145,166 305,341 2,750,086 0 5,281,084 0 5,137,183 33,028 13,343 34,325 110,873 53,508 57,365 0 0 0 46,566 1.10 1.04
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