UNITED STATES
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, 1997 Commission File Number 1-12149
CONSOLIDATED FREIGHTWAYS CORPORATION
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 77-0425334
175 Linfield Drive, Menlo Park, CA 94025
Telephone Number (650) 326-1700
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each
Exchange on
Title of Each Class Which Registered
Common Stock ($.01 par value) NASDAQ
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. ___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 on the
National Automated System of the National Association of Securities
Dealers Inc. Automated Quotation System on February 27, 1998:
$288,354,420
Number of shares of Common Stock outstanding
as of February 27, 1998: 23,020,286
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and IV
Consolidated Freightways Corporation 1997 Annual Report to Shareholders
(only those portions referenced herein are incorporated in this Form
10-K).
Part III
Part III is incorporated by reference from the proxy statement to be
filed in connection with the Company's 1998 Annual Meeting of
Shareholders. (Only those portions referenced herein are incorporated
in this Form 10-K).
Page 1
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-K
Year Ended December 31, 1997
_______________________________________________________________________
INDEX
Item Page
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for the Company's Common Stock and
Related Security Holder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
7A. Quantitative and Qualitative Disclosures About
Market Risk 10
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III
10. Directors and Executive Officers of the Company 11
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial
Owners and Management 11
13. Certain Relationships and Related Transactions 12
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 12
SIGNATURES 13
INDEX TO FINANCIAL INFORMATION 15
Page 2
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-K
Year Ended December 31, 1997
_______________________________________________________________________
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Consolidated Freightways Corporation is a holding company that was
incorporated in Delaware in 1996. It is herein referred to as the
"Registrant" or "Company". Formerly a subsidiary of CNF Transportation
Inc. (the former parent) through December 1, 1996, the Company was spun-
off in a tax free distribution (the Distribution) to shareholders of
the former parent. The Company consists of Consolidated Freightways
Corporation of Delaware (CFCD), a nationwide motor carrier,
incorporated in 1958 as successor to the original trucking company
organized in 1929, and its Canadian operations, including Canadian
Freightways, Ltd., Epic Express, Milne & Craighead, Canadian Sufferance
Warehouses, Blackfoot Logistics and other related businesses; Redwood
Systems, a third party logistics provider; and the Leland James Service
Corporation, an administrative service provider. The Company provides
less-than-truckload transportation and logistics services nationwide
and in parts of Canada, Mexico, the Caribbean area, Latin and Central
America, Europe and Pacific Rim countries.
(b) Financial Information About Industry Segments
The Company operates in a single industry segment.
(c) Narrative Description of Business
The Company, headquartered in Menlo Park, California, is the holding
company of CFCD, a full-service trucking company providing less-than-
truckload freight services nationwide and in Canada and Mexico, and one-
stop international freight service between the United States and 70
countries worldwide through operating agreements with ocean carriers
and a network of international partners. Operations consist of an
extensive transportation network that typically moves shipments of
manufactured or non-perishable processed products having relatively
high value and requiring consistent, expedited service, compared to the
bulk raw materials characteristically transported by railroads,
pipelines and water carriers. Less-than-truckload (LTL) is an industry
designation for shipments weighing less than 10,000 pounds. CFCD is
one of the nation's largest LTL motor carriers in terms of 1997
revenues. The Company also provides logistics services through its
wholly-owned subsidiary, Redwood Systems, Inc. (Redwood). Established
in January 1997, Redwood is a third party, non-asset based logistics
company that offers complete supply chain management services including
dedicated contract warehousing and carriage, just-in-time delivery and
specialized time-definite distribution, information-based logistics
services and worldwide multi-modal logistics.
Page 3
CFCD's primary competitors in the national LTL market are Yellow
Freight System, Inc., Roadway Express, Inc. and Arkansas Best
Corporation. CFCD also competes for LTL freight with regional LTL
motor carriers, small package carriers, private carriage and freight
forwarders. Competition for freight is based primarily upon price,
service consistency and transit time. In an effort to provide faster
service and to better compete, CFCD implemented a comprehensive
reengineering of its line-haul operations in October 1995. This
reengineering, called the Business Accelerator System (BAS), replaced
CFCD's traditional hub-and-spoke network with one that moves freight
directionally from point-to-point and streamlines the freight network.
BAS has the effect of reducing miles and freight handling, thereby
reducing transit times and costs as well as more efficiently using
system capacity. This reengineering, in conjunction with value added
service offerings and use of lower-cost rail services allowed the
Company to return to profitability in 1997.
As a large carrier of LTL general freight, at December 31, 1997, CFCD
operated approximately 39,100 vehicle units including inter-city
tractors and trailers and pick-up and delivery units. It had a network
of 357 U.S. and Canadian freight terminals, metro centers and regional
consolidation centers.
CFCD's operations are supported by a sophisticated data processing
system for the control and management of the business. Management is in
the initial phases of replacing or converting the Company's financial
and operational systems and applications for Year 2000 compliance.
Based upon a current assessment of systems and applications requiring
modification, management expects to spend $25 to $30 million over
the next two years. Of this amount, approximately $11 million
relates to the purchase of new hardware and software, which
will be capitalized and amortized over their estimated useful lives.
Management expects to have all of its financial and operational systems
converted by mid 1999. However, to the extent systems are not
converted by the year 2000, there could be a material adverse effect on
the Company's operations.
There is a broad diversity in the customers served, size of shipments,
commodities transported and length of haul. No single commodity
accounted for more than a small fraction of total revenues.
CFCD operates daily schedules utilizing relay drivers who drive
approximately eight to ten hours each day and sleeper teams which in
1997 approximated 33% of all linehaul miles in North America. 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.
CFCD generally utilizes trailer equipment that is 102 inches in width.
In 1997, CFCD operated in excess of 426 million linehaul miles in North
America, almost all 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 CFCD.
CFCD and several Canadian subsidiaries serve Canada through terminals
in the provinces of Alberta, British Columbia, Manitoba, New Brunswick,
Nova Scotia, Ontario, Quebec, Saskatchewan and in the Yukon Territory.
The Canadian operations utilize a fleet of over 1,250 trucks, tractors
and trailers.
Page 4
Cyclicality and Seasonality
The LTL trucking industry is affected directly by the state of the
overall economy and seasonal fluctuations, which affect the amount of
freight to be transported. Freight shipments, operating costs and
earnings are also affected adversely by inclement weather conditions.
The months of September, October and November of each year usually have
the highest business levels while the first quarter has the lowest.
Employees
At December 31, 1997, approximately 85% of the Company's domestic
employees were represented by various labor unions, primarily the
International Brotherhood of Teamsters (IBT). CFCD and the IBT are
parties to the National Master Freight Agreement (NMFA) which expires
on March 31, 1998. On February 9, 1998, CFCD, along with three other
national motor freight carriers, agreed on a tentative, new five-year
NMFA with the IBT. The agreement, subject to ratification by members
of the IBT, will grant among other things, a one-time, $750 signing
bonus and increased wage and pension benefits for CFCD'S union
employees.
Labor costs, including fringe benefits, averaged approximately 66% of
the Company's 1997 revenues. The Company had approximately 21,600,
20,300 and 20,200 employees at December 31, 1997, 1996 and 1995,
respectively.
Fuel
The Company's average annual fuel cost per gallon (without tax) was
$.576 in 1995. During 1996, the Company experienced a significant
increase in fuel prices, with the average annual fuel cost per gallon
increasing to $.697. To partially offset this increase, the Company
instituted a fuel surcharge program in the second half of 1996. This
program continued throughout 1997, as the average annual fuel cost per
gallon was $.659. As fuel prices moderated towards the latter half of
1997 and into 1998, the Company eliminated its fuel surcharge effective
February 3, 1998.
Significant increases in fuel prices, to the extent not offset by
increases in transportation rates, would have a material adverse effect
on the profitability of the Company. Historically, the Company has
responded to periods of sharply higher fuel prices by implementing fuel
surcharge programs or base rate increases, or both, to recover
additional costs. However, there can be no assurance that the Company
will be able to successfully implement such surcharges or increases in
response to increased fuel costs in the future.
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 which terminated the
Interstate Commerce Commission (ICC) effective January 1, 1996.
Page 5
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. Because of its large and
increasing use of rail "piggyback" (trailer-on-flatcar) service
permitted under its current collective bargaining agreements, CFCD must
also comply with the hazardous materials transportation regulations of
DOT's Federal Railroad Administration. 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. 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
Although the provinces in Canada have regulatory authority over
intra-provincial operations of motor carriers, they have elected to
substantially eliminate intra-provincial regulation of the general
freight trucking industry. Federal legislation to phase in deregulation
of the extra-provincial motor carrier industry took effect January 1,
1988 and the phase in was completed in 1997. The new legislation
relaxed economic regulation of extra-provincial trucking by easing
market entry restrictions, and implemented safety regulations of
trucking services under Federal jurisdiction. CFCD and its Canadian
affiliates wrote off substantially all of the unamortized cost of their
Canadian operating authorities in 1992.
General
The research and development activities of the Company are not
significant.
During 1997, 1996 and 1995 there was no single customer of the Company
that accounted for 10% or more of consolidated revenues.
Page 6
The Company is subject to Federal, state and local environmental laws
and regulations relating to, among other things, contingency planning
for spills of petroleum products, and its disposal of waste oil.
Additionally, the Company is subject to significant regulations dealing
with underground fuel storage tanks. The Company stores some of its
fuel for its trucks and tractors in approximately 302 underground tanks
located in 48 states. The Company believes that it is in substantial
compliance with all such environmental laws and regulations and is not
aware of any leaks from such tanks that could reasonably be expected to
have a material adverse effect on the Company's competitive position,
operations or financial position. However, there can be no assurances
that environmental matters existing with respect to the Company, or
compliance by the Company with laws relating to environmental matters,
will not have a material adverse effect on the Company's business,
financial position or results of operations.
The Company has in place policies and methods designed to conform with
these regulations. The Company estimates that capital expenditures for
upgrading underground tank systems and costs associated with cleaning
activities for 1998 will not be material.
The Company has received notices from the Environmental Protection
Agency and others that it has been identified as a potentially
responsible party (PRP) under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) or other Federal and state
environmental statutes at various Superfund sites. Under CERCLA, PRP's
are jointly and severally liable for all site remediation and expenses.
Based upon cost studies performed by independent third parties, the
Company believes its obligations with respect to such sites would not
have a material adverse effect on its financial condition or results of
operations.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
Approximately 5% of the Company's revenues are derived from
international business.
Page 7
ITEM 2. PROPERTIES
The following summarizes the terminals and freight service centers
operated by the Company at December 31, 1997. In general, the Company
believes such facilities are suitable and adequate to handle CFCD's
current business needs. These facilities generally consist of a large
dock with loading doors, a small office and a large yard for the
movement of tractors and trailers in the normal business operations.
Owned Leased Total
226 131 357
The following table sets forth the location and square footage of
CFCD's principal freight handling facilities:
Location Square Footage
Mira Loma, CA 280,672
** Chicago, IL 231,159
Carlisle, PA 151,100
Kansas City, MO 131,916
** 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
** Akron, OH 82,494
Sacramento, CA 81,286
Atlanta, GA 77,920
Houston, TX 77,346
Dallas, TX 75,358
* Freemont, 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
*** Springfield, MA 51,760
Portland, OR 47,824
Phoenix, AZ 20,237
* Facility partially or wholly financed through the issuance of
industrial revenue bonds. Principal amount of debt is secured by
the property.
** Property pledged as collateral for the benefit of CNF Transportation
Inc. for workers' compensation claims prior to the Distribution,
as required under the Reimbursement and Indemnification Agreement
dated October 1, 1996.
*** Property is leased from a subsidiary of CNF Transportation Inc.
through December 1, 2005.
Page 8
ITEM 3. LEGAL PROCEEDINGS
The legal proceedings of the Company are summarized in Note 9 on pages
26 and 27 of the 1997 Annual Report to Shareholders and are
incorporated herein by reference. Discussions of certain environmental
matters are presented in Items 1 and 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 Nasdaq Stock
Market's National Market. The Company's common stock began trading on
December 3, 1996. The market price range of the common stock for the
period January 1, 1997 to December 31, 1997 was $7.00 to $18.50.
Currently there are no cash dividends paid on the Company's common
stock. The Company presently expects that it will not pay a dividend in
1998. The Company's dividend policy thereafter will be dependent on the
circumstances then in existence. There can be no assurance, however,
that the Company will pay any cash dividends on its common stock in the
future.
As of December 31, 1997, there were 31,650 holders of record of the
common stock ($.01 par value) of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data is presented in the "Five Year Financial
Summary" on page 30 of the 1997 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 on pages 16 through 18 of the 1997 Annual
Report to Shareholders and is incorporated herein by reference.
Page 9
Certain statements included or incorporated by reference herein,
including certain statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" referred to
above, constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, and are subject to
a number of risks and uncertainties. Any such forward-looking
statements included or incorporated by reference herein should not be
relied upon as predictions of future events. Certain such forward-
looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "pro forma," "estimates,"
or "anticipates" or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans or
intentions. Such forward-looking statements are necessarily dependent
on assumptions, data or methods that may be incorrect or imprecise and
they may be incapable of being realized. In that regard, the following
factors, among others, and in addition to matters discussed elsewhere
herein and in documents incorporated by reference herein, could cause
actual results and other matters to differ materially from those in
such forward-looking statements: changes in general business and
economic conditions; increases in domestic and international
competition and pricing pressure; increases in fuel prices; uncertainty
regarding the Company's ability to improve results of operations; labor
matters, including shortages of drivers and increases in labor costs;
changes in governmental regulation, environmental and tax matters,
increases in costs associated with the conversion of financial and
operational systems and applications for Year 2000 compliance and
failure to convert all systems by the year 2000. As a result of the
foregoing, no assurance can be given as to future results of operations
or financial condition.
ITEM 7A. QUANTITITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Auditors' Report are
presented on pages 19 through 28, inclusive, of the 1997 Annual Report
to Shareholders and are incorporated herein by reference. The
unaudited quarterly financial data is included on page 29 of the 1997
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
Page 10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The identification of the Company's Directors is presented on pages 2
and 3 of the Company's 1998 Proxy Statement and those pages are
incorporated herein by reference.
The Executive Officers of the Company, their ages at December 31, 1997
and their applicable business experience are as follows:
W. Roger Curry, 59, President and Chief Executive Officer of the
Company since December 2, 1996. Mr. Curry has served as President and
Chief Executive Officer of CFCD since July 1994. Mr. Curry served as a
Senior Vice President of the former parent from 1986 to December 2,
1996. In 1991, he was elected President of Emery Air Freight
Corporation, relinquishing the position in 1994 to become President of
CFCD.
Patrick H. Blake, 48, Executive Vice President - Operations of the
Company since December 2, 1996. Mr. Blake has served as Executive Vice
President - Operations of CFCD since July 1994. He was Vice President
Eastern Region of CFCD from 1992-1994 and a Division Manager from 1985-
1992.
David F. Morrison, 44, Executive Vice President and Chief Financial
Officer of the Company since December 2, 1996. Mr. Morrison served as
Vice President and Treasurer of the former parent from October 1991 to
October 1996 when he became Executive Vice President and Chief
Financial Officer of CFCD.
Stephen D. Richards, 54, Senior Vice President and General Counsel of
the Company since December 2, 1996. Mr. Richards has been Vice
President and General Counsel of CFCD since September 1995. He was
Deputy General Counsel of the former parent for the preceding four
years.
Joseph R. Schillaci, 55, Executive Vice President - Sales and Marketing
of the Company since April 1997. Prior to joining the Company, Mr.
Schillaci was president and chief operating officer of Petro Travel
Plazas, LP, a national fueling, maintenance and retail provider to the
trucking industry, since 1993.
Robert E. Wrightson, 58, Senior Vice President and Controller of the
Company since December 2, 1996. Mr. Wrightson has served as Senior
Vice President and Controller of CFCD since July 1994. Prior to
joining CFCD, he was Vice President and Controller of the former
parent, assuming that position in 1989.
ITEM 11. EXECUTIVE COMPENSATION
The required information for Item 11 is presented on pages 6 through
10, inclusive, of the Company's 1998 Proxy Statement, 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 4 and 12 of
the Company's 1998 Proxy Statement and is incorporated herein by
reference.
Page 11
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
No reports on Form 8-K were filed in the quarter ended December
31, 1997.
Page 12
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 CORPORATION
(Registrant)
March 27, 1998 /s/W. Roger Curry
W. Roger Curry
President and Chief Executive Officer
March 27, 1998 /s/David F. Morrison
David F. Morrison
Executive Vice President, Chief
Financial Officer and Treasurer
March 27, 1998 /s/Robert E. Wrightson
Robert E. Wrightson
Senior Vice President and Controller
Page 13
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 27, 1998 /s/William D. Walsh
William D. Walsh, Chairman of the Board
March 27, 1998 /s/W. Roger Curry
W. Roger Curry
President, Chief Executive Officer
and Director
March 27, 1998 /s/G. Robert Evans
G. Robert Evans, Director
March 27, 1998 /s/Paul B. Guenther
Paul B. Guenther, Director
March 27, 1998 /s/John M. Lillie
John M. Lillie, Director
Page 14
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-K
Year Ended December 31, 1997
_______________________________________________________________________
INDEX TO FINANCIAL INFORMATION
Consolidated Freightways Corporation and Subsidiaries
The following Consolidated Financial Statements of Consolidated
Freightways Corporation and Subsidiaries appearing on pages 19 through
28, inclusive, of the Company's 1997 Annual Report to Shareholders are
incorporated herein by reference:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Statements of Consolidated Operations - Years Ended December 31,
1997, 1996 and 1995
Statements of Consolidated Cash Flows - Years Ended December 31,
1997, 1996 and 1995
Statements of Consolidated Shareholders' Equity - Years Ended
December 31, 1997, 1996 and 1995
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 16
Report of Independent Public Accountants 16
Schedule II - Valuation and Qualifying Accounts 17
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 15
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. 333-16851, 333-16835 and 333-25167.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Portland, Oregon
March 27, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Consolidated Freightways Corporation:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements included in
Consolidated Freightways Corporation's 1997 Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 27, 1998. Our audit was made
for the purpose of forming an opinion on those statements taken as a
whole. The schedule on page 17 is the responsibility of the Company's
management and is presented for the purpose 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
Portland, Oregon
January 27, 1998
Page 16
SCHEDULE II
CONSOLIDATED FREIGHTWAYS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(In thousands)
DESCRIPTION
ALLOWANCE FOR DOUBTFUL ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
1997 $ 9,692 $ 8,374 $ - $(10,599)(a) $ 7,467
1996 $ 9,349 $ 6,534 $ - $ (6,191)(a) $ 9,692
1995 $11,049 $ 2,326 $ - $ (4,026)(a) $ 9,349
a) Accounts written off net of recoveries.
Page 17
INDEX TO EXHIBITS
ITEM 14(a)(3)
Exhibit No.
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession:
2.1 Distribution Agreement between Consolidated Freightways
Corporation and Consolidated Freightways, Inc., dated
November 25, 1996. (Exhibit 2.1 to the Company's Form 8-K
dated March 12, 1997.) (*)
(3) Articles of incorporation and bylaws:
3.1 Amended and Restated Certificate of Incorporation of Consolidated
Freightways Corporation. (Exhibit 3.1 to the Company's Form 10 filed
October 2, 1996) (*)
3.2 Amended and Restated Bylaws of Consolidated Freightways Corporation.
(Exhibit 3.2 to the Company's Form 10 filed October 2, 1996)(*)
(10) Material Contracts:
10.1 Transition Services Agreement between Consolidated Freightways
Corporation and CNF Service Company, Inc., dated as of December
2, 1996. (Exhibit 10.1 to the Company's Form 8-K dated March
12, 1997.) (*)
10.2 Alternative Dispute Resolution Agreement Between Consolidated
Freightways Corporation and Consolidated Freightways,Inc., dated
as of December 2, 1996. (Exhibit 10.2 to the Company's Form 8-K
dated March 12, 1997.) (*)
10.3 Employee Benefit Matters Agreement between Consolidated
Freightways Corporation and Consolidated Freightways, Inc., dated as
of December 2, 1996. (Exhibit 10.3 to the Company's Form 8-K dated
March 12, 1997.) (*)
10.4 Tax Sharing Agreement between Consolidated Freightways Corporation
and Consolidated Freightways, Inc., dated as of December 2, 1996.
(Exhibit 10.4 to the Company's Form 8-K dated March 12,1997.) (*)
10.5 Reimbursement and Indemnification Agreement between Consolidated
Freightways Corporation of Delaware and Consolidated Freightways,
Inc., dated as of October 1, 1996. (Exhibit 10.5 to the
Company's Form 8-K dated March 12, 1997.) (*)
10.6 Consolidated Freightways Corporation 1996 Stock Option and Incentive
Plan. (Exhibit 10.6 to the Company's Form 10 filed October 2,
1996)(*)(#)
10.7 Loan and Security Agreement among Consolidated Freightways
Corporation of Delaware, BankAmerica Business Credit Inc. and various
other financial institutions dated as of November 27, 1996. (Exhibit
10.7 to the Company's Form 10-K for the year ended December 31,
1996.)(*)
10.8 Consolidated Freightways Corporation 1996 Restricted Stock Award
Agreements. (Exhibit 10.8 to the Company's Form 10-K for the year
ended December 31, 1996.) (*)(#)
10.9 Consolidated Freightways Corporation Senior Executive Incentive Plan
for 1998. (#)
(*) Previously filed with the Securities and Exchange Commission and
incorporated by reference.
(#) Designates a contract or compensation plan for Management or Directors.
Page 18
INDEX TO EXHIBITS
ITEM 14(a)(3)
Exhibit No.
10.10 Consolidated Freightways Corporation Deferred Compensation Plan
for Executives. (Exhibit 10.10 to the Company's Form 10-K for
the year ended December 31, 1996.) (*)(#)
10.11 Consolidated Freightways Corporation Supplemental Executive
Retirement Plan. (Exhibit 10.11 to the Company's Form 10-K for
the year ended December 31, 1996.) (*)(#)
10.12 Consolidated Freightways Inc. Executive Split-Dollar Life
Insurance Plan. (Exhibit 10.12 to the Company's Form 10-K for
the year ended December 31, 1996.) (*)(#)
10.13 Participation Agreement dated as of December 22, 1995 between
Consolidated Freightways Corporation of Delaware, as lessee,
and ABN AMRO Bank N.V., as lessor, as amended. (Exhibit 10.1
to the Company's Form 10-Q for the quarter ended March
31, 1997.) (*)
10.14 Participation Agreement dated as of September 30, 1994
between Consolidated Freightways Corporation of Delaware, as
lessee, and BA Leasing & Capital Corporation and various other
financial institutions, as lessors, as amended. (Exhibit 10.2
to the Company's Form 10-Q for the quarter ended March
31, 1997.) (*)
10.15 Reimbursement and Security Agreement dated July 3, 1997 between
Consolidated Freightways Corporation and CNF Transportation Inc.
(Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
June 30, 1997.) (*)
10.16 Third Amendment to Participation Agreement and Master Lease
intended as Security dated December 12, 1997 between Consolidated
Freightways Corporation of Delaware and ABN AMRO Bank N.V.
10.17 Amendment No. 3 to Loan and Security Agreement dated November
1, 1997 between Consolidated Freightways Corporation of Delaware
and BankAmerica Business Credit, Inc.
(13) Annual Report to Security Holders:
Consolidated Freightways Corporation 1997 Annual Report to
Shareholders. (Only those portions referenced herein are incorporated
in this Form 10-K. Other portions such as the "Letter to Shareholders"
are not required and therefore not "filed" as part of this Form 10-K.)
(21) Significant Subsidiaries of the Company
(27) Financial Data Schedule
(*) Previously filed with the Securities and Exchange Commission and
incorporated by reference.
(#) Designates a contract or compensation plan for Management or Directors.
Page 19
Exhibit 10.9
CONSOLIDATED FREIGHTWAYS CORPORATION
SENIOR EXECUTIVE INCENTIVE PLAN FOR 1998
THE PLAN
In order to motivate certain employees of Consolidated
Freightways Corporation (CFC) more effectively and efficiently, CFC
establishes an Incentive Plan (Plan) under which payments
will be made to designated eligible senior executive personnel
out of calendar year 1998 Incentive Profits.
DESIGNATION OF PARTICIPANTS
Participants in this Plan shall be designated full-time executive
personnel of CFC. A master list of all Plan participants will be
maintained in the office of the President of CFC.
ELIGIBILITY FOR PAYMENT
Participants will commence participation at the beginning of the
first full calendar quarter following becoming eligible.
Calendar quarters begin January 1, April 1, July 1, and October 1
or the first working day thereafter. An employee who commences
participation in the 1998 Plan year, and who participates less than
four full quarters, will receive a pro rata payment based on the
number of full calendar quarters of Plan participation.
Subject to the following exceptions, no person shall receive any
payment under this Plan unless on the date that the payment is actually
made that person is then currently (i) employed by CFC or any of its
subsidiaries and (ii) a Plan participant.
EXCEPTION 1. A Plan participant who is employed by CFC
through December 31, 1998 but leaves that employment or
otherwise becomes ineligible after December 31, 1998 but
before the final payment is made relating to 1998, unless
terminated for cause, shall be entitled to receive payments
under this Plan resulting from 1998 Incentive Profits.
EXCEPTION 2. An appropriate pro rata payment will be made
(1) to a Plan participant who retires prior to December 31,
1998 pursuant to the Consolidated Freightways Corporation
Retirement Plan or to the provisions of the Social Security
Act and who, at the time of retirement, was an eligible
participant in this Plan, (2) to the heirs, legatees,
administrators or executors of a Plan participant
who dies prior to December 31, 1998 and who, at the time of
death, was an eligible participant in this Plan, (3) to an
eligible Plan participant who is placed on an approved
Medical, Sabbatical, or Military Leave of Absence prior to
December 31, 1998, or (4) to an eligible Plan participant
who is transferred to another subsidiary of Consolidated
Freightways Corporation and who remains an employee through
December 31, 1998.
METHOD OF PAYMENT
Each Plan participant will also be assigned an incentive
participation factor as a percent of Annual Salary.
Incentive will be earned on CFC pretax pre-incentive profit.
PERSONAL DATA SHEET
A "Personal Data Sheet" for calculation of incentive will be prepared
for each Plan participant which designates (1) the unit to which the
participant is assigned, (2) his assigned participation, (3) the
minimum level of profit achievement required, (4) the Factor
level of achievement for profit, and (5) the incentive earnings at
the Factor profit goal.
DATE OF PAYMENT
The President of CFC may authorize a partial payment of the
estimated annual earned incentive, in December, 1998. The final
payment to eligible participants, less any previous partial
payment, will be made on or before March 15, 1999.
INCENTIVE PROFIT
Incentive Profit is defined as the pre-tax earnings of Consolidated
Freightways Corporation before deducting any amounts expensed
under this or any subsidiary incentive plan, and before deducting any
amounts expensed under the restricted stock plan and before deducting
income taxes, but after deducting expenses incurred from any
bonus plan(s).
ANNUAL COMPENSATION
Annual Compensation for incentive purposes for each Plan
participant is his annualized salary before any incentive, or
other special compensation as of the first pay period following
the date the participant becomes eligible to participate in this
Plan.
MAXIMUM PAYMENT
Payments under this Plan are not limited by each participant's
participation factor.
LAWS GOVERNING PAYMENTS
No payment shall be made under this Plan in an amount which is
prohibited by law.
AMENDMENT, SUSPENSION, AND ADMINISTRATION OF PLAN
The Board of Directors of CFC
may at any time amend, suspend, or terminate the operation of
this Plan, by thirty-day written notice to the Plan participants,
and will have full discretion as to the administration and
interpretation of this Plan. No participant in this Plan shall
at any time have any right to receive any payment under this Plan
until such time, if any, as any payment is actually made.
DURATION OF PLAN
This Plan is for the calendar year 1998 only.
Exhibit 10.16
THIRD AMENDMENT TO PARTICIPATION AGREEMENT AND MASTER
LEASE INTENDED AS SECURITY AND FIRST AMENDMENT TO SECURITY
AGREEMENT dated as of December 12, 1997 among CONSOLIDATED
FREIGHTWAYS CORPORATION OF DELAWARE, a Delaware corporation (the
"Lessee"), the Lessors referred to below (the "Lessors"), and ABN
AMRO BANK N.V., as agent (the "Agent") for the Lessors
thereunder.
PRELIMINARY STATEMENTS:
WHEREAS, the parties hereto are parties to that certain
Participation Agreement dated as of December 22, 1995, as amended
by a first amendment thereto dated as of March 25, 1996 and a
second amendment thereto dated as of January 23, 1997 (the
"Second Amendment") (said Participation Agreement as so amended
being the "Participation Agreement").
WHEREAS, pursuant to the Participation Agreement, the
Agent and the Lessee entered into that certain Master Lease
Intended as Security, dated as of December 22, 1996, as amended
by and a first amendment thereto dated as of March 25, 1996 and a
second amendment thereto dated as of January 23, 1997 (said
Master Lease Intended as Security as so amended being the
"Lease");
WHEREAS, pursuant to the Second Amendment, the Lessee
executed a Security Agreement dated as of January 23, 1997 in
favor of the Agent (said Security Agreement being the "Security
Agreement"); and
WHEREAS, the Lessee has requested that the
Participation Agreement and the Security Agreement be amended as
set forth herein;
NOW THEREFORE, in consideration of the foregoing, and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Definitions. All capitalized terms used
herein and not otherwise defined herein shall have the meanings
given to such terms in the Participation Agreement.
SECTION 2. Amendments to Participation Agreement. The
Participation Agreement is, effective as of the date hereof,
hereby amended as follows:
(a) Section 6.1(i)(iv) is amended in full to read as
follows:
"(iv) not make or incur, or permit any
of its Subsidiaries to make or incur,
any Capital Expenditures if, after
giving effect thereto, the aggregate
amount of all such Capital Expenditures,
net of proceeds from sales of fixed
assets, would exceed $30,000,000 for
Fiscal Year 1997, $70,000,000 for Fiscal
Year 1998 and $100,000,000 for Fiscal
Year 1999, provided, however, that up to
$15,000,000 of permitted Capital
Expenditures unused in any one year may
be carried over to the following year."
(b) Schedule X is amended by adding the following
definition:
"'Security Agreement' shall mean the
Security Agreement dated as of January 23,
1997 by the Lessee in favor of the Agent, as
amended, modified or supplemented from time to time."
(c) Clause (a) at the definition of "Casualty" in
Schedule X is amended in full to read as follows:
" . . . (a) the loss of such vehicle or the use thereof
due to theft, disappearance, destruction, damage beyond
repair or rendition of such Vehicle permanently unfit
for normal use for any reason whatsoever in the
business judgment of the Lessee; . . ."
(d) The definitions of "Adjusted Net Earnings" and
"Operative Agreement(s)" in Schedule X are amended in full
to read as follows:
" 'Adjusted Net Earnings' shall mean
with respect to any fiscal period of the
Lessee, the Adjusted Net Earnings from
Operations for such fiscal period plus the
sum of the following to the extent deducted
in computing Adjusted Net Earnings from
Operations: (a) interest expense, (b) accrued
income taxes, (c) depreciation and
amortization expense, (d) the non-cash
expense related to the Consolidated
Freightways Corporation 1996 Stock Option and
Incentive Plan (commonly referred to as the
Restricted Stock Awards Program), as amended
from time to time, and (e) miscellaneous
expenses (including Letter of Credit Fees)
less miscellaneous income for such period.
'Operative Agreement(s)' shall mean the
Participation Agreement, the Lease, the Lease
Supplements, the Delivery Date Notices, the
Subleases, any Assumption Agreement, the
Security Agreement, each Certificate of Title
and each UCC financing statement filed or to
be filed from time to time with respect to
the security interests created pursuant to
the Lease."
SECTION 3. Amendments to Security Agreement. The
Security Agreement is, effective as of the date hereof, hereby
amended as follows:
(a) Clause (vi) of Section 3(b) is amended in full to
read as follows:
". . . (vi) any Lien in favor of BankAmerica Business
Credit, Inc., as Agent, under the BABC Agreement
in the Collateral described in Sections 1(b), 1(c)
and 1(d) hereof to the extent that such Collateral
applies both to Vehicles and to vehicles in which
BankAmerica Business Credit, Inc., as Agent, has a
security interest in connection with the BABC
Agreement . . . "
(b) The second sentence of Section 4(a) is amended in
full to read as follows:
". . . Without limiting the generality of the
foregoing, the Grantor will execute and file
such financing or continuation statements, or
amendments thereto, and such other
instruments or notices, as may be necessary
or desirable, or as the Agent may reasonably
request, in order to perfect and preserve the
security interest granted or purported to be
granted hereby, including with respect to any
replacement Vehicle or any Replacement Part
(as hereinafter defined)."
(c) The definition of "Partial Casualty" in Section
5(c) is amended in full to read as follows:
" 'Partial Casualty' means any loss, damage,
destruction, taking by eminent domain, loss
of use or theft of any Vehicle or any portion
of a Vehicle or the rendition of any Vehicle
unfit for normal use for any reason
whatsoever in the business judgment of the
Grantor, in each case which does not
constitute a Casualty."
(d) Clause (a) of the definition of "Casualty" in
Section 5(c) is amended in full to read as follows:
". . . (a) the loss of such Vehicle or the use
thereof due to theft, disappearance, destruction,
damage beyond repair or rendition of such Vehicle
permanently unfit for normal use for any reason
whatsoever in the business judgment of the
Grantor;. . ."
(e) The first sentence of Section 5(f)(i) is amended in
full to read as follows:
"Notwithstanding the other provisions of this
Security Agreement, Grantor shall have no
obligation to replace, repair, or maintain
any Vehicle as to which a Casualty or Partial
Casualty has occurred or repay any portion of
the Lease Balance in respect thereof so long
as the sum of the Specified Value (as
hereinafter defined) of Vehicles which would
be considered a Casualty or a Partial
Casualty (and which have not been replaced or
repaired at the time of determination) do not
exceed in any year $1,250,000 or exceed on a
cumulative basis from the date hereof to the
date of determination $2,500,000. 'Specified
Value' means as to any Vehicle either the
orderly liquidation value thereof as
specified in the appraisal attached as
Schedule I hereto or, in the case of any
replacement Vehicle, the orderly liquidation
value as so specified of the respective
replaced Vehicle."
SECTION 4 Representations and Warranties of the
Lessee. The Lessee represents and warrants as follows:
(a) The Lessee is a corporation duly organized,
validly existing and in good standing under the laws of
Delaware.
(b) The Lessee has all requisite corporate power and
authority to execute, deliver and perform its obligations
under this Amendment and each Operative Agreement, as
amended hereby.
(c) The execution, delivery and performance by the
Lessee of this Amendment and the Operative Agreements, as
amended hereby, and the performance by the Lessee of its
respective obligations hereunder and thereunder, have been
duly authorized by all necessary corporate action and do not
and will not (i) violate any provision of the Lessee's
certificate of incorporation or by-laws, (ii) violate any
provision of any law, rule or regulation presently in effect
applicable to the Lessee, which violation or violations
would have, individually or in the aggregate, a Material
Adverse Effect, (iii) result in a breach of, or constitute a
default under, any indenture, loan or credit agreement, or
any other agreement or instrument to which the Lessee is a
party or by which the Lessee or its properties may be bound
or affected, which breaches or defaults would have,
individually or in the aggregate, a Material Adverse Effect,
or (iv) result in, or require, the creation or imposition of
any Lien of any nature upon or with respect to any of the
properties now owned or hereafter acquired by the Lessee
(other than the Security interest contemplated by the Lease
and the Security Agreement).
(d) No authorization, consent, license, approval or
other action by or formal execution from, and no notice to
or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and
performance by the Lessee of this Amendment or any of the
Operative Agreements, as amended hereby.
(e) This Amendment and each of the other Operative
Agreements, as amended hereby, constitute legal, valid and
binding obligations of the Lessee enforceable against the
Lessee in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency,
arrangement, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
(f) There is no pending or, to the knowledge of
Lessee, threatened action or proceeding affecting the Lessee
or any of its Subsidiaries before any court, governmental
agency or arbitrator, in which there is a reasonable
probability of an adverse decision which, if adversely
determined, would have a Material Adverse Effect or which
purports to affect the legality, validity or enforceability
of this Amendment or any of the other Operative Agreements,
as amended hereby.
SECTION 5. Reference to and Effect on the Operative
Agreements. (a) Upon the effectiveness of this Amendment, on
and after the date hereof each reference in the Participation
Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Participation Agreement, and each
reference in the other Operative Agreements to "the Participation
Agreement", "thereunder", "thereof" or words of like import
referring to the Participation Agreement, shall mean and be a
reference to the Participation Agreement as amended hereby, each
reference in the Lease to "this Lease", "hereunder", "hereof" or
words of like import referring to the Lease, and each reference
in the other Operative Agreements to "the Lease", "thereunder",
"thereof" or words of like import referring to the Lease, shall
mean and be a reference to the Lease as amended hereby. Each
reference in the Security Agreement to "this Agreement,"
"hereunder," "hereof" or words of like import referring to the
Security Agreement, and each reference in the other Operative
Agreements to "the Security Agreement," "thereunder," "thereof"
or words of like import referring to the Security Agreement,
shall mean and be reference to the Security Agreement as amended
hereby.
(b) Except as specifically amended above, the
Participation Agreement, the Lease and the Security Agreement,
and all other Operative Agreements, are and shall continue to be
in full force and effect and are hereby in all respects ratified
and confirmed.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of any Lessor or the
Agent under any of the Operative Agreements, nor constitute a
waiver of any provision of any of the Operative Agreements.
SECTION 6. Costs, Expenses and Taxes. The Lessee
agrees to pay on demand all costs and expenses of the Agent in
connection with the preparation, execution, delivery,
administration, modification and amendment of this Amendment and
the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect
thereto and with respect to advising the Agent as to its rights
and responsibilities hereunder and thereunder. In addition, the
Lessee shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and
delivery of this Amendment and the other instruments and
documents to be delivered hereunder.
SECTION 7. Execution in Counterparts. This Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
agreement.
SECTION 8. Governing Law. This Amendment shall be
governed by, and construed in accordance with, the laws of the
State of California.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
CONSOLIDATED FREIGHTWAYS CORPORATION
OF DELAWARE, as Lessee
By:s/David F. Morrison
Name:David F. Morrison
Title:Executive Vice President and
Chief Financial Officer
ABN AMRO BANK N.V.,
not individually, but solely as Agent
for the Lessors
By:s/Kathleen L. Ross
Name:Kathleen L. Ross
Title:Group Vice President
By:/s/David L. Thomas
Name:David L. Thomas
Title:Vice President
ABN AMRO BANK N.V., as Lessor
By:s/Kathleen L. Ross
Name:Kathleen L. Ross
Title:Group Vice President
By:/s/David L. Thomas
Name:David L. Thomas
Title:Vice President
THE FIRST NATIONAL BANK OF CHICAGO, as Lessor
By
Name:
Title:
PNC LEASING CORP., as Lessor
By:/s/David J. Krener
Name:David J. Krener
Title:Vice President
THE BANK OF NEW YORK, as Lessor
By:/s/Elizabeth T. Ying
Name:Elizabeth T. Ying
Title:Vice President
LBS BANK - NEW YORK, as Lessor
By:/s/Frank J. Horvat
Name:Frank J. Horvat
Title:Senior Vice President
By:/s/Lisa A. Schumann
Name:Lisa A. Schumann
Title:Vice President
PT BANK RAKYAT INDONESIA (PERSERO), as Lessor
By:/s/Kemas M. Arief
Name:Kemas M. Arief
Title:General Manager
By:/s/Hendrawan Tranggana
Name:Hendrawan Tranggana
Title:Deputy General Manager
BANK POLSKA KASA OPIEKI S.A.
PEKAO S.A. GROUP NEW YORK BRANCH
By:/s/Hussein B. El-Tawil
Name:Hussein B. El-Tawil
Title:Vice President
Exhibit 10.17
AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
This Amendment No. 3 to Loan and Security
Agreement is made as of November 1, 1997 by and among each
of the undersigned and amends that certain Loan and Security
Agreement, dated as of November 27, 1996 (as amended by
Amendment No. 1 dated as of February 28, 1997 and Amendment
No. 2 dated as of June 27, 1997, the "Loan Agreement"),
among the financial institutions listed on the signature
pages thereof as lenders (such financial institutions,
together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and
collectively as the "Lenders"), BankAmerica Business Credit,
Inc., a Delaware corporation, as agent for the Lenders (in
its capacity as agent, the "Agent"), NationsBank of Texas,
N.A., as the L/C Issuer and as co-syndication agent for the
Lenders, Caisse Nationale De Credit Agricole, as co-agent
for the Lenders, Consolidated Freightways Corporation of
Delaware, a Delaware corporation, (the "Borrower"),
Consolidated Freightways Corporation (the "Parent"), Leland
James Service Corporation ("Leland") and Redwood Systems,
Inc. ("Redwood"). Capitalized terms used herein without
definition have the meanings assigned thereto in the Loan
Agreement.
RECITALS
A. The Borrower has requested that certain provisions
of the Loan Agreement be amended as more fully described
below.
B. On the terms and subject to the conditions set
forth in this Amendment, the parties to the Loan Agreement
have agreed to the amendments to the Loan Agreement as set
forth below.
AGREEMENT
In consideration of the foregoing, and for good and
valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby agree as follows:
ARTICLE 1
AMENDMENTS TO LOAN AND SECURITY AGREEMENT
1.1 Amendment to the Definition of "Adjusted Net
Earnings". The definition of "Adjusted Net Earnings" set
forth in Section 1.1 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"Adjusted Net Earnings" means with respect to any
fiscal period of the Borrower, the Adjusted Net
Earnings from Operations for such fiscal period plus
the sum of the following to the extent deducted in
computing Adjusted Net Earnings from Operations: (a)
interest expense, (b) accrued income taxes, (c)
depreciation and amortization expense, (d) the non-cash
expense related to the Consolidated Freightways
Corporation 1996 Stock Option and Incentive Plan
(commonly referred to as the Restricted Stock Awards
Program), as amended from time to time, and (e)
miscellaneous expenses (including Letter of Credit
Fees) less miscellaneous income for such period."
1.2 Amendment to the Definition of "Applicable
Margin". The definition of "Applicable Margin" set forth in
Section 1.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"Applicable Margin" means
(i) with respect to Base Rate Revolving
Loans and all other Obligations (other than LIBOR
Revolving Loans), one-quarter percent (0.25%); and
(ii) with respect to LIBOR Revolving
Loans, one and one-quarter percent (1.25%)."
1.3 Amendment to the Definition of "Default Rate".
The definition of "Default Rate" set forth in Section 1.1 of
the Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"Default Rate" means a fluctuating per annum
interest rate at all times equal to the sum of (a) the
otherwise applicable Interest Rate, plus (b) two
percent (2.0%). Each Default Rate shall be adjusted
simultaneously with any change in the applicable
Interest Rate. In addition, with respect to Letters of
Credit, the Default Rate shall mean an increase in the
Letter of Credit Fee by two (2) percentage points."
1.4 Amendment to the Definition of "Triggering
Event". The definition of "Triggering Event" set forth in
Section 1.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"Triggering Event" means the occurrence of any
one of the following events: (a) an Event of
Default, (b) Availability is $50,000,000 or less, (c) the
average daily Dollar amount of Revolving Loans outstanding
for the immediately preceding thirty (30) day period
exceeds $40,000,000, or (d) the aggregate Dollar
amount of Revolving Loans outstanding on any date exceeds
$50,000,000."
1.5 Amendment to Section 3.1(a). The fourth
sentence of Section 3.1(a) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"Except as otherwise provided herein, the
outstanding Obligations shall bear interest as follows:
(i) for all Base Rate Revolving Loans and other
Obligations (other than LIBOR Revolving Loans) at a
fluctuating per annum rate equal to the Base Rate plus
the Applicable Margin, and (ii) for all LIBOR Revolving
Loans at a per annum rate equal to the LIBOR Rate plus
the Applicable Margin; provided, however, that if the
sum of outstanding Letters of Credit and outstanding
Revolving Loans exceeds $150,000,000, the amount by
which the Revolving Loans, when added to the
outstanding Letters of Credit, exceeds $150,000,000
shall bear interest at the Interest Rate otherwise
applicable to such Revolving Loans plus one-quarter of
one percent (0.25%)."
1.6 Amendment to Section 3.6. Section 3.6 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"3.6 Letter of Credit Fee. The Borrower agrees to
pay to the Agent, for the ratable account of the
Lenders, for each Letter of Credit, a fee (the "Letter of
Credit Fee") equal to one and one-eighths percent (1.125%)
per annum of the undrawn face amount of each Letter
of Credit issued for the Borrower's account at the
Borrower's request, plus all out-of-pocket costs, fees and
expenses incurred by the Agent in connection with the
application for, issuance of, or amendment to any
Letter of Credit. The Letter of Credit Fee shall be payable
monthly in arrears on the first day of each month
following any month in which a Letter of Credit was
issued and/or in which a Letter of Credit remains
outstanding. The Letter of Credit Fee shall be
computed on the basis of a 360-day year for the actual
number of days elapsed."
1.7 Amendment to Section 8.9. Section 8.9 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"8.9 Debt For Borrowed Money. After giving effect
to the making of the Revolving Loans to be made on the
Initial Funding Date, the Loan Parties and their
Subsidiaries have no Debt For Borrowed Money, except
(a) the Obligations, (b) Debt For Borrowed Money
described on Schedule 8.9, and (c) trade payables and
other contractual obligations arising in the ordinary
course of business."
1.8 Amendment to Section 9.12. Section 9.12 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"9.12 Debt. None of the Loan Parties shall
incur or maintain any Debt For Borrowed Money, other
than: (a) the Obligations; (b) provided that no Event
of Default has occurred and is continuing or would
result from such action, Debt For Borrowed Money of the
Parent and the Borrower in an aggregate amount
outstanding at any time not to exceed $25,000,000,
excluding Debt For Borrowed Money incurred to finance
Capital Expenditures permitted under Section 9.21; and
(c) other Debt For Borrowed Money existing on the
Closing Date and reflected in the Financial Statements
attached hereto as Exhibit F or listed on Schedule 8.9.
The terms and conditions of any agreement (including
amendments, modifications, waivers and restatements of
existing agreements) entered into by the Borrower
relating to Synthetic Leases shall not contain any
financial covenants which are more restrictive on the
Borrower than the financial covenants set forth in
Sections 9.22, 9.23 and 9.24 of this Agreement and any
amendments or modifications to the interest rate or the
amortization shall be acceptable to the Agent."
1.9 Amendment to Section 9.21. Section 9.21 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"9.21 Capital Expenditures. None of the Loan
Parties shall make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount
of all Capital Expenditures (net of proceeds from sales of
fixed assets) by the Loan Parties on a consolidated
basis would exceed $30,000,000 for Fiscal Year 1997,
$70,000,000 for Fiscal Year 1998 and $100,000,000 for each
Fiscal Year thereafter until the Stated Termination
Date; provided, however, that up to $15,000,000
of unused permitted Capital Expenditures in a given Fiscal
Year may be carried over to the following Fiscal Year."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each Loan Party warrants and represents to the Agent
and the Lenders that:
2.1 Representations and Warranties True and
Correct. The representations and warranties contained in
the Agreement and the other Loan Documents are correct in
all material respects on and as of the date hereof except to
the extent the Agent and the Lenders have been notified by
the Borrower that any representation or warranty is not
correct and the Majority Lenders have explicitly waived in
writing compliance with such representation or warranty; and
except with respect to Schedules 8.3, 8.5, 8.9, 8.15, 8.17,
8.18, 8.29 and 8.32 to the Loan Agreement to the extent that
the Borrower has submitted to the Agent, the L/C Issuer and
each Lender an update thereto.
2.2 No Default or Event of Default. No event has
occurred and is continuing which constitutes a Default or an
Event of Default.
ARTICLE 3
MISCELLANEOUS
3.1 Effective Date. This Amendment shall be
effective as of the date when the Agent has received a duly
executed counterpart of this Amendment from each of the
parties to the Loan Agreement.
3.2 Governing Law. This Amendment shall be
interpreted and the rights and liabilities of the parties
hereto determined in accordance with the internal laws (as
opposed to the conflict of laws provisions) of the State of
California.
3.3 Counterparts. This Amendment may be executed
in any number of counterparts, and by the Agent, each
Lender, the Borrower, Parent, Leland and Redwood in separate
counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have entered into
this Amendment on the date first above written.
"BORROWER"
Consolidated Freightways
Corporation of Delaware, a
Delaware corporation
By:/s/David F. Morrison
Name:David F. Morrison
Title:Executive Vice President and
Chief Financial Officer
"PARENT"
Consolidated Freightways
Corporation, a Delaware
corporation
By:/s/David F. Morrison
Name:David F. Morrison
Title:Executive Vice President and
Chief Financial Officer
"LELAND"
Leland James Service
Corporation, a Delaware
corporation
By:/s/David F. Morrison
Name:David F. Morrison
Title:Executive Vice President and
Chief Financial Officer
"REDWOOD"
Redwood Systems, Inc., a Delaware
corporation
By:/s/David F. Morrison
Name:David F. Morrison
Title:Executive Vice President and
Chief Financial Officer
"AGENT"
BankAmerica Business Credit,
Inc., as the Agent
By:/s/Gary P. Riley
Name:Gary P. Riley
Title:Vice President
"LENDERS"
Commitment: $75,000,000 BankAmerica Business Credit,
Inc., as a Lender
By:/s/Gary P. Riley
Name:Gary P. Riley
Title:Vice President
Commitment: $35,000,000 NationsBank of Texas, N.A., as a
Lender
By:/s/Stacy Yenerich
Name:Stacy Yenerich
Title:Assistant Vice President
Commitment: $20,000,000 Caisse Nationale De Credit
Agricole, as a Lender
By:/s/Dean Belice
Name:Dean Belice
Title:Senior Vice President
Commitment: $35,000,000 Transamerica Business Credit
Corporation, as a Lender
By:/s/Robert Heinz
Name:Robert Heinz
Title:Senior Vice President
Commitment: $25,000,000 Congress Financial Corporation
(Western), as a Lender
By:/s/Gregg L. Coiley
Name:Gregg L. Coiley
Title:Vice President
Commitment: $20,000,000 The CIT Group/Business Credit,
Inc., as a Lender
By:/s/Robert Castine
Name:Robert Castine
Title:Assistant Vice President
Commitment: $15,000,000 BTM Capital Corporation, as a
Lender
By:/s/William R. York
Name:William R. York
Title:Vice President
"L/C ISSUER"
NationsBank of Texas, N.A., as
L/C Issuer
By:/s/Stacy Yenerich
Name:Stacy Yenerich
Title:Assistant Vice President
Exhibit 13
Consolidated Freightways Corporation
and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Consolidated Freightways Corporation (the Company) completed
its first year as an independent company in 1997, earning
operating income of $45.3 million. This is a $118.4 million
improvement over the $73.1 million loss in 1996. 1997 includes a
$14.3 million non-cash charge for the issuance of common stock
under the Company's restricted stock plan, which was not incurred
in 1996. Excluding this charge, 1997 operating income improved
$132.7 million over the prior year. The 1997 net income of $20.4
million or $0.92 per basic share compares to a net loss of $55.6
million or $2.52 per basic share in 1996. Excluding the charge,
net income in 1997 was $28.9 million or $1.31 per basic share.
These significant improvements were attributable to improved
revenue yield coupled with aggressive cost containment programs.
Revenues for 1997 increased 7.1% over the prior year to $2.3
billion, with net revenue per hundred weight increasing 6.2%.
This reflects the general rate increase implemented in January,
1997, combined with management's efforts to improve the freight
mix. The Company also benefited by higher yields from premium
service offerings. Overall, the less-than truckload (LTL)
industry benefited from higher rates in 1997, as tighter capacity
resulted in a stable pricing environment. Total tonnage
increased 0.9%, while higher rated LTL tonnage increased 1.6%.
Salaries, wages and benefits in 1997 increased 0.7% over
the prior year. These expenses reflect Teamsters wage and benefit
increases of approximately $30 million, an increase of $21.1
million of incentive compensation for non-contractual employees
and expenses associated with increased business levels. The
Company also incurred a $14.3 million non-cash charge in 1997 for
the issuance of approximately 1.1 million common shares to all
eligible, full-time employees under its restricted stock plan.
These additional expenses were offset by increased use of rail
services, a significant reduction in workers' compensation claims
cost through aggressive cost containment, workplace safety and
return to work initiatives, and efficiencies in linehaul, dock
and city operations. The 1996 expenses were adversely impacted by
the implementation of the Business Accelerator System (BAS) and
also reflect a 3.5%, April 1, 1996, contractual wage and benefit
increase. Also included in 1996 expenses were salary and
benefits for administrative services which were outsourced to the
former parent in 1997 and a $15.0 million charge to increase
workers' compensation reserves.
Operating expenses increased 5.4% in 1997 compared to the
prior year due primarily to charges for administrative services
outsourced to the former parent. During 1997, the fees for
these services were $22.6 million. In 1996, the expense
allocations from the former parent were included in salaries,
wages and benefits as noted in the previous paragraph. The
Company also experienced an increase in repair and maintenance
expense in 1997 due to its aging fleet. This was partially
offset by a 6.1% decrease in fuel costs due to lower fuel prices
per gallon and a higher proportion of freight transported via
rail, as discussed below. In 1996, operating expenses increased
0.7% over 1995 due to expenses associated with implementing BAS.
Also in 1996, the Company experienced a 20.9% increase in fuel
prices. The Company was able to recover approximately 80% of its
increased fuel costs through a fuel surcharge program.
Purchased transportation increased 6.7% and 17.1% in 1997
and 1996, respectively, as the Company increased its use of lower
cost rail services in strategic lanes. Rail miles as a
percentage of total inter-city miles in 1997 increased to 27.9%
from 26.0% in 1996 and 21.9% in 1995.
Operating taxes and licenses decreased 2.9% and 3.4% in 1997
and 1996, respectively. These decreases are the result of lower
fuel taxes, licensing fees and highway use taxes as a higher
proportion of freight was transported via rail, as discussed
above. Additionally, the Company has successfully challenged
and reduced property tax assessments on its terminal properties.
Claims and insurance increased 11.4% in 1997 in line with
increased revenue levels. In 1996, claims and insurance expense
decreased 4.5% over 1995 levels due to improved cargo loss and
damage experience.
Depreciation expense decreased 17.5% from 1996 levels due to
a higher proportion of fully depreciated equipment in 1997 and
the transfer of $57.6 million of excess properties to the former
parent concurrent with the spin-off. Depreciation increased 0.9%
in 1996 due to increased capital expenditures during 1995 and
1996.
The above combination of increased revenues and cost
containment efforts resulted in an improvement in the operating
ratio to 98.0% in 1997 from 103.4% in 1996.
The 1995 and 1996 operating results were adversely affected
by the implementation of BAS. BAS, implemented in October 1995,
was a redesign of the freight system whereby freight is moved
directionally from point-to-point, reducing miles and handling,
thereby lowering costs and average transit times. Although
implementation of BAS ultimately improved on-time performance and
reduced transit times, system implementation took longer than
expected and utilization during the first half of 1996 was below
expected levels. Operational refinements in the second half of
the year and an increased acceptance of the Company's improved
service resulted in total and LTL tonnage for the year ended
December 31, 1996 increasing 1.0% and 2.5% over 1995 levels while
revenues increased 1.9%. The excess costs related to BAS,
combined with a depressed pricing environment, resulted in an
operating loss of $73.1 million in 1996. The operating ratio in
1996 was 103.4% compared with 102.0% in 1995.
Other expense, net, decreased 30.4% in 1997 from 1996 levels
primarily due to investment income on the Company's short-term
investments. In 1996, other expense, net increased over 1995 due
primarily to interest expense on increased borrowings from the
former parent which is included in Miscellaneous, net in the
Statements of Consolidated Operations.
The Company's effective income tax (benefit) rates in 1997,
1996 and 1995 differ from the statutory Federal rate due
primarily to foreign taxes and non-deductible items.
Management is in the initial phases of replacing or
converting the Company's financial and operational systems and
applications for Year 2000 compliance. Based upon a current
assessment of systems and applications requiring modification,
management expects to spend $25 to $30 million over the next two
years. Of this amount, approximately $11 million relates to the
purchase of new hardware and software, which will be capitalized
and amortized over their estimated useful lives. Management
expects to have all of its financial and operational systems
converted by mid 1999. However, to the extent systems are not
converted by the year 2000, there could be a material adverse
effect on the Company's operations.
On February 9, 1998, Consolidated Freightways Corporation of
Delaware (CFCD), a wholly-owned subsidiary of the Company, along
with three other national motor freight carriers, agreed on a
tentative five-year National Master Freight Agreement with the
International Brotherhood of Teamsters (IBT). The current
agreement expires on March 31, 1998. The agreement, subject to
ratification by members of the IBT, will grant among other
things, a one-time, $750 signing bonus and increased wage and
pension benefits for CFCD's union employees. With ratification
of the proposed agreement as well as a continued stable pricing
environment in 1998, management will continue to focus on yield
enhancement and efficient use of existing capacity. Management
will also continue with its aggressive workers' compensation
claims containment programs which proved successful in 1997 and
with refinements to improve operating efficiencies. In an effort
to offset increased operating costs in 1998, management
implemented a 5.5% general rate increase in January, which will
apply to approximately 40% of customer revenues. As discussed
in Footnote 8 in the Company's 1997 Consolidated Financial
Statements, the Company has a restricted stock plan. If
performance conditions are met, approximately 1.1 million shares
of common stock will be issued in December, 1998, and
compensation expense recognized based on the then market price of
the stock. Based on the market price of the stock on December
31, 1997, the Company would recognize a $9.0 million non-cash
charge, net of related tax benefits.
Liquidity and Capital Resources
As of December 31, 1997, the Company had $107.7 million in
cash and cash equivalents. Net cash flow from operations for the
year ended December 31, 1997 was $77.4 million, primarily from
net income and depreciation and amortization. Management expects
cash flows from operations in 1998 to be sufficient for working
capital and capital expenditure needs. Capital expenditures for
the year ended December 31,1997 were $22.7 million compared with
$48.2 million in 1996, as management opted to minimize capital
expenditures during its first year of operations as an
independent company. The Company expects 1998 capital
expenditures to be approximately $70 million, primarily for the
replacement of aging trucks, tractors and trailers. Management
expects to fund these capital expenditures with cash from
operations, supplemented by financing arrangements, if necessary.
The Company has a $225.0 million secured credit facility
with several banks to provide for working capital and letter of
credit needs. Working capital borrowings are limited to $100.0
million while letters of credit are limited to $150.0 million.
Borrowings under the agreement, which expires in 2000, bear
interest based upon either prime or LIBOR, plus a margin
dependent on the Company's financial performance. Borrowings and
letters of credit are secured by substantially all of the assets
(excluding real property and certain rolling stock) of CFCD, all
of the outstanding stock of CFCD and 65% of the outstanding
capital stock of Canadian Freightways Limited, a wholly owned
subsidiary of CFCD. As of December 31, 1997, the Company had no
short-term borrowings and $93.1 million of letters of credit
outstanding under this facility. The continued availability of
funds under this credit facility will require that the Company
remain in compliance with certain financial covenants. The most
restrictive covenants require the Company to maintain a minimum
level of earnings before interest, taxes, depreciation and
amortization, minimum amounts of tangible net worth and fixed
charge coverage, and limit capital expenditures. The Company is
in compliance as of December 31, 1997 and expects to be in
compliance with these covenants throughout 1998.
As of December 31, 1997, the Company's ratio of long-term
debt to total capital was 6% compared with 7% as of December 31,
1996. The current ratio was 1.3 to 1 and 1.1 to 1 as of December
31, 1997 and 1996, respectively.
Inflation
Significant increases in fuel prices, to the extent not
offset by increases in transportation rates, would have a
material adverse effect on the profitability of the Company.
Historically, the Company has responded to periods of sharply
higher fuel prices by implementing fuel surcharge programs or
base rate increases, or both, to recover additional costs.
However, there can be no assurance that the Company will be able
to successfully implement such surcharges or increases in
response to increased fuel costs in the future.
Other
The Company has received notices from the Environmental
Protection Agency and others that it has been identified as a
potentially responsible party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or
other Federal and state environmental statutes at various
Superfund sites. Under CERCLA, PRP's are jointly and severally
liable for all site remediation and expenses. Based upon cost
studies performed by independent third parties, the Company
believes its obligations with respect to such sites would not
have a material adverse effect on its financial condition or
results of operations.
Certain statements included or incorporated by reference
herein constitute "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended,
and are subject to a number of risks and uncertainties. Any such
forward-looking statements included or incorporated by reference
herein should not be relied upon as predictions of future events.
Certain such forward-looking statements can be identified by the
use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates," or "anticipates" or the
negative thereof or other variations thereof or comparable
terminology, or by discussions of strategy, plans or intentions.
Such forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise
and they may be incapable of being realized. In that regard, the
following factors, among others, and in addition to matters
discussed elsewhere herein and in documents incorporated by
reference herein, could cause actual results and other matters to
differ materially from those in such forward-looking statements:
changes in general business and economic conditions; increases in
domestic and international competition and pricing pressure;
increases in fuel prices; uncertainty regarding the Company's
ability to improve results of operations; labor matters,
including shortages of drivers and increases in labor costs;
changes in governmental regulation; environmental and tax
matters; increases in costs associated with the conversion of
financial and operational systems and applications for Year 2000
compliance and failure to convert all systems by the year 2000.
As a result of the foregoing, no assurance can be given as to
future results of operations or financial condition.
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
Years Ended December 31,
(Dollars in thousands except per share data)
1997 1996 1995
<S> <C> <C> <C>
REVENUES $ 2,299,075 $ 2,146,172 $ 2,106,529
COSTS AND EXPENSES
Salaries, wages and benefits 1,509,665 1,498,707 1,452,415
Operating expenses 363,615 345,006 342,762
Purchased transportation 191,041 179,126 152,953
Operating taxes and licenses 72,882 75,083 77,733
Claims and insurance 63,741 57,214 59,896
Depreciation 52,872 64,102 63,556
2,253,816 2,219,238 2,149,315
OPERATING INCOME (LOSS) 45,259 (73,066) (42,786)
OTHER INCOME (EXPENSE)
Investment income 1,894 263 756
Interest expense (3,213) (843) (918)
Miscellaneous, net (Note 10) (1,958) (4,131) (850)
(3,277) (4,711) (1,012)
Income (loss) before income taxes (benefits) 41,982 (77,777) (43,798)
Income taxes (benefits) (Note 6) 21,623 (22,201) (13,889)
NET INCOME (LOSS) $ 20,359 $ (55,576) $ (29,909)
Basic average shares outstanding 22,066,212 22,025,323 22,025,323
Diluted average shares outstanding 22,755,714 22,025,323 22,025,323
Basic Earnings (Loss) per Share: (Note 2) $ 0.92 $ (2.52) $ (1.36)
Diluted Earnings (Loss) per Share: (Note 2) $ 0.89 $ (2.52) $ (1.36)
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 107,721 $ 48,679
Trade accounts receivable, net
of allowances (Note 2) 310,601 285,410
Other accounts receivable 10,300 3,339
Operating supplies, at lower of average cost
or market 8,741 11,511
Prepaid expenses 39,696 35,848
Deferred income taxes (Note 6) 16,554 35,470
Total Current Assets 493,613 420,257
Property, Plant and Equipment, at cost
Land 78,227 78,989
Buildings and improvements 342,413 343,023
Revenue equipment 559,610 559,823
Other equipment and leasehold improvements 116,390 115,317
1,096,640 1,097,152
Accumulated depreciation and amortization (713,653) (680,464)
382,987 416,688
Other Assets
Deposits and other assets 9,468 10,808
Deferred income taxes (Note 6) 11,728 9,334
21,196 20,142
Total Assets $ 897,796 $ 857,087
The accompanying notes are an integral part of these statements.
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands)
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 83,127 $ 87,511
Accrued liabilities (Note 3) 212,644 187,267
Accrued claims costs (Note 2) 82,023 95,780
Federal and other income taxes (Note 6) 7,706 4,083
Total Current Liabilities 385,500 374,641
Long-Term Liabilities
Long-term debt (Note 4) 15,100 15,100
Accrued claims costs (Note 2) 112,173 110,200
Employee benefits (Note 7) 115,220 113,312
Other liabilities 26,356 33,136
Total Liabilities 654,349 646,389
Shareholders' Equity
Preferred stock, $.01 par value; authorized
5,000,000 shares; issued none - -
Common stock, $.01 par value; authorized
50,000,000 shares; issued 23,038,437
and 22,025,323 shares, respectively 230 220
Additional paid-in capital 71,461 57,174
Cumulative translation adjustment (6,572) (4,910)
Retained earnings 178,573 158,214
Treasury stock, at cost (18,151 shares) (245) -
Total Shareholders' Equity 243,447 210,698
Total Liabilities and Shareholders' Equity $ 897,796 $ 857,087
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Years Ended December 31,
(Dollars in thousands)
1997 1996 1995
<S> <C> <C> <C>
Cash and Cash Equivalents, Beginning
of Period $ 48,679 $ 26,558 $ 23,116
Cash Flows from Operating Activities
Net income (loss) 20,359 (55,576) (29,909)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 54,679 64,565 63,902
Increase (decrease) in deferred income taxes (Note 6) 16,522 (35,634) 18,556
Gains from property disposals, net (914) (3,089) (2,360)
Issuance of common stock under restricted
stock plan (Note 8) 14,297 - -
Changes in assets and liabilities:
Receivables (32,152) (34,484) (4,851)
Accounts payable (4,384) 1,199 5,677
Accrued liabilities 25,377 4,612 (1,883)
Accrued claims costs (11,784) 22,531 4,811
Income taxes 3,623 2,715 (791)
Employee benefits 1,908 7,216 (13,515)
Other (10,161) 28,490 2,135
Net Cash Provided by Operating Activities 77,370 2,545 41,772
Cash Flows from Investing Activities
Capital expenditures (22,674) (48,203) (111,962)
Proceeds from sales of property 4,591 8,329 6,529
Net Cash Used by Investing Activities (18,083) (39,874) (105,433)
Cash Flows from Financing Activities
Former parent investment and advances, net (Note 10) - 59,450 67,103
Purchase of treasury stock (245) - -
Net Cash Provided (Used) by Financing Activities (245) 59,450 67,103
Increase in Cash and Cash Equivalents 59,042 22,121 3,442
Cash and Cash Equivalents, End of Period $ 107,721 $ 48,679 $ 26,558
Supplemental Disclosure
Cash paid for income taxes (Note 2) $ 1,478 $ - $ -
Cash paid for interest (net of amounts capitalized) $ 1,444 $ 877 $ 1,485
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Additional Cumulative Treasury
Number of Paid-in Translation Retained Stock,
Shares Amount Capital Adjustment Earnings at cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 22,025,323 $ 220 $ 57,174 $ (4,663) $ 160,848 $ - $ 213,579
Net cash infusion from
former parent (Note 10) - - - - 67,103 - 67,103
Net asset transfers from
former parent - - - - 9,283 - 9,283
Net loss - - - - (29,909) - (29,909)
Translation adjustment - - - (948) - - (948)
Balance, December 31, 1995 22,025,323 220 57,174 (5,611) 207,325 - 259,108
Net cash infusion from
former parent (Note 10) - - - - 59,450 - 59,450
Net asset transfers to
former parent (Note 10) - - - - (52,985) - (52,985)
Net loss - - - - (55,576) - (55,576)
Translation adjustment - - - 701 - - 701
Balance, December 31, 1996 22,025,323 220 57,174 (4,910) 158,214 - 210,698
Issuance of common stock under
restricted stock plan (Note 8) 1,013,114 10 14,287 - - - 14,297
Purchase of 18,151 treasury shares - - - - - (245) (245)
Net income - - - - 20,359 - 20,359
Translation adjustment - - - (1,662) - - (1,662)
Balance, December 31, 1997 23,038,437 $ 230 $ 71,461 $ (6,572) $ 178,573 $(245) $ 243,447
<F/N>
The accompanying notes are an integral part of these statements.
</TABLE>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Consolidated Financial Statements and Basis of Presentation: The
accompanying consolidated financial statements include the accounts of
Consolidated Freightways Corporation and its wholly-owned subsidiaries (the
Company). The Company, incorporated in the state of Delaware, consists of
Consolidated Freightways Corporation of Delaware (CFCD), a nationwide motor
carrier, and its Canadian operations, including Canadian Freightways, Ltd.
(CFL), Epic Express, Milne & Craighead, Canadian Sufferance Warehouses,
Blackfoot Logistics, and other related businesses; Redwood Systems, a third
party logistics provider; and the Leland James Service Corporation (LJSC),
an administrative service provider. The Company provides less-than-
truckload transportation and logistics services nationwide and in parts of
Canada, Mexico, the Caribbean area, Latin and Central America, Europe and
Pacific Rim countries. Approximately 95% of the Company's revenues are
domestic.
The Company was a wholly-owned subsidiary of CNF Transportation Inc.,
(the former parent), through December 1, 1996. On December 2, 1996, the
Company was spun-off in a tax free distribution (the Distribution) to
shareholders. The amounts included in the accompanying consolidated
financial statements through December 1, 1996 are based upon historical
amounts included in the consolidated financial statements of the former
parent and are presented as if the Company had operated as an independent
stand-alone entity, except that it has not been allocated any portion of
the former parent's consolidated borrowings or interest expense thereon.
2. Principal Accounting Policies
Recognition of Revenues: Transportation freight charges are
recognized as revenue when freight is received for shipment. The estimated
costs of performing the total transportation services are then accrued.
This revenue recognition method does not result in a material difference
from in-transit or completed service methods of recognition.
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 $7,467,000 and $9,692,000 as of December 31, 1997 and 1996,
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, 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 are charged to
operating expenses as incurred; betterments are capitalized. Gains or
losses on sales of equipment are recorded in operating expenses.
Income Taxes: The Company follows the liability method of accounting
for income taxes. Prior to the Distribution, the Company was included in
the consolidated federal income tax return and consolidated unitary state
income tax returns of the former parent. Income tax benefits and deferred
income taxes presented in periods prior to the Distribution represent a pro-
rata share of the former parent's consolidated income tax expense and
deferred income taxes and approximate those that would have been recorded
had the Company filed separate income tax returns.
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 upon trends of losses for filed
claims and claims estimated to be incurred. The long-term portion of
accrued claims costs relates primarily to workers' compensation claims
which are payable over several years.
Interest Expense: The interest expense presented in the Statements of
Consolidated Operations is related to industrial revenue bonds, as
discussed in Note 4, and long-term tax liabilities. The interest expense as
presented for the years ended December 31, 1996 and 1995 is not necessarily
intended to reflect the expense that would have been incurred had the
Company been an independent stand-alone company prior to the Distribution.
Earnings per Share: The Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," in
1997. Basic earnings per share is calculated using only the weighted
average shares outstanding for the period. Diluted earnings per share
includes the dilutive effect of the Company's restricted stock. See
Footnote 8, "Stock Compensation Plans." The dilutive effect of the
restricted stock for the year ended December 31, 1997 was 689,502 shares.
Basic and diluted earnings per share for the years ended December 31, 1996
and 1995 were computed using 22,025,323 shares, which represents the number
of shares issued in the Distribution, and remain as previously reported.
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.
Recent Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that all items of
comprehensive income be prominently displayed in the financial statements.
Reclassification of prior year financial statements is required. This
statement is effective for fiscal years beginning after December 15, 1997.
Adoption of this statement will not affect previously reported earnings.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement
requires the presentation of financial information on the same basis that
it is used within an organization to evaluate segment performance and
allocate resources. It also requires enhanced disclosures about
geographic, product and service information. This statement is effective
for fiscal years beginning after December 15, 1997. Management expects
that adoption of this statement will not have a material effect on the
Company's reporting requirements.
Reclassification: Certain amounts in prior years' financial
statements have been reclassified to conform to the current year
presentation.
3. Accrued Liabilities
Accrued liabilities consisted of the following as of December 31:
1997 1996
(Dollars in thousands)
Accrued holiday and vacation pay $ 75,002 $ 70,728
Other accrued liabilities 59,378 46,219
Wages and salaries 26,663 27,287
Accrued union health and welfare 22,281 21,296
Accrued taxes other than income taxes 19,854 18,040
Accrued incentive bonus 9,466 3,697
Total accrued liabilities $ 212,644 $ 187,267
4. Long-Term Debt
As of December 31, 1997 and 1996, long-term debt consisted of
$15,100,000 of industrial revenue bonds with rates between 7.0% and 7.25%,
due at various dates in 2003 and 2004.
The Company has a $225.0 million secured credit facility with several
banks to provide for working capital and letter of credit needs. Working
capital borrowings are limited to $100.0 million while letters of credit
are limited to $150.0 million. Borrowings under the agreement, which
expires in 2000, bear interest based upon either prime or LIBOR, plus a
margin dependent on the Company's financial performance. Borrowings and
letters of credit are secured by substantially all of the assets (excluding
real property and certain rolling stock) of CFCD, all of the outstanding
stock of CFCD and 65% of the outstanding capital stock of CFL. As of
December 31, 1997, the Company had no short-term borrowings and $93.1
million of letters of credit outstanding under this facility. The continued
availability of funds under this credit facility will require that the
Company remain in compliance with certain financial covenants. The most
restrictive covenants require the Company to maintain a minimum level of
earnings before interest, taxes, depreciation and amortization, minimum
amounts of tangible net worth and fixed charge coverage, and limit capital
expenditures. The Company is in compliance as of December 31, 1997, and
expects to be in compliance with these covenants throughout 1998.
The Company's interest expense, as presented on the Statements of
Consolidated Operations, is net of capitalized interest of $0, $339,000 and
$361,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Based on interest rates currently available to the Company for debt
with similar terms and maturities, the fair value of long-term debt
exceeded book value as of December 31, 1997 and 1996 by 10.6% and 11.6%,
respectively.
There are no aggregate annual maturities or sinking fund requirements
of long-term debt for each of the next five years ending December 31, 2002.
5. Leases
The Company is obligated under various non-cancelable leases which
expire at various dates through 2013.
Future minimum lease payments under all leases with initial or
remaining non-cancelable lease terms in excess of one year as of December
31, 1997, are $21,680,000 in 1998, $18,608,000 in 1999, $3,058,000 in 2000,
$1,156,000 in 2001, $478,000 in 2002, and $604,000 thereafter.
Rental expense for operating leases is comprised of the following:
1997 1996 1995
(Dollars in thousands)
Minimum rentals $37,091 $47,146 $56,118
Less sublease rentals (635) (1,029) (5,768)
Net rental expense $36,456 $46,117 $50,350
6. Income Taxes
The components of pretax income (loss) and income taxes (benefits) are
as follows:
1997 1996 1995
(Dollars in thousands)
Pretax income (loss)
U.S. corporations $ 31,296 $(86,829) $(53,674)
Foreign corporations 10,686 9,052 9,876
Total pretax income (loss) $ 41,982 $(77,777) $(43,798)
Income taxes (benefits)
Current
U.S. Federal $ (296) $ 11,014 $(32,078)
State and local 88 (2,048) (4,630)
Foreign 5,309 4,467 4,263
5,101 13,433 (32,445)
Deferred
U.S. Federal 14,526 (35,098) 16,183
State and local 1,884 (536) 1,861
Foreign 112 - 512
16,522 (35,634) 18,556
Total income taxes (benefits) $ 21,623 $(22,201) $(13,889)
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.
The components of deferred tax assets and liabilities in the
Consolidated Balance Sheets as of December 31 relate to the following:
1997 1996
(Dollars in thousands)
Deferred taxes - current
Assets
Reserves for accrued claims costs $ 23,079 $ 29,434
Other reserves not currently deductible 2,821 16,573
Liabilities
Unearned revenue, net (9,346) (10,537)
Total deferred taxes - current 16,554 35,470
Deferred taxes - non current
Assets
Reserves for accrued claims costs 43,675 42,477
Employee benefits 22,934 20,452
Retiree health benefits 24,054 23,539
Federal net operating loss and
credit carryovers 1,743 5,418
Liabilities
Depreciation (63,937) (63,939)
Tax benefits from leasing transactions (13,875) (15,166)
Other (2,866) (3,447)
Total deferred taxes - non current 11,728 9,334
Net deferred taxes $ 28,282 $ 44,804
For income tax reporting purposes, the Company had alternative minimum
tax credit carryovers of $1.6 million as of December 31, 1997. The
carryovers have no expiration date.
Income taxes (benefits) varied from the amounts calculated by applying
the U.S. statutory income tax rate to the pretax income (loss) as set forth
in the following reconciliation:
1997 1996 1995
U.S. statutory tax rate 35.0% (35.0)% (35.0)%
State income taxes (benefits), net of
federal income tax benefit 4.7 (2.0) (3.0)
Foreign taxes in excess of
U.S. statutory rate 4.0 1.7 3.0
Non-deductible operating
expenses 3.8 2.6 4.1
Fuel tax credits (0.6) (0.4) (1.1)
Foreign tax credits (0.2) 0.7 --
Other, net 4.8 3.9 0.3
Effective income tax rate 51.5% (28.5)% (31.7)%
The cumulative undistributed earnings of the Company's foreign
subsidiaries (approximately $67 million as of December 31, 1997), 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 be $3.3 million.
7. Employee Benefit Plans
The Company maintains a non-contributory defined benefit pension plan
(the Pension Plan) covering the Company's non-contractual employees in the
United States. The Company's annual pension provision and contributions
are based on an independent actuarial computation. The Company's funding
policy is to contribute the minimum required tax-deductible contribution
for the year. However, it may increase its contribution above the minimum
if appropriate to its tax and cash position and the Pension Plan's funded
status. Benefits under the Pension Plan are based on a career average
final five-year pay formula. Approximately 89% of the Pension Plan assets
are invested in publicly traded stocks and bonds. The remainder is
invested in temporary cash investments and real estate funds.
The following information sets forth the Company's pension liabilities
included in Employee Benefits in the Consolidated Balance Sheets as of
December 31:
1997 1996
(Dollars in thousands)
Accumulated benefit obligation, including
vested benefits of $204,997 in 1997 and
$183,600 in 1996 $(214,289) $(191,225)
Effect of projected future compensation
levels (29,580) (22,767)
Projected benefit obligation (243,869) (213,992)
Pension Plan assets at market value 244,286 213,787
Pension Plan assets greater (less) than
projected benefit obligation 417 (205)
Unrecognized prior service costs 8,056 9,841
Unrecognized net gain (49,484) (49,123)
Unrecognized net asset at transition, being
amortized over 18 years (6,621) (7,725)
Pension Plan liability $ (47,632) $ (47,212)
Weighted average discount rate 7.5% 8.0%
Expected long-term rate of return
on assets 9.5% 9.5%
Rate of increase in future
compensation levels 5.0% 5.0%
Net pension cost includes the following:
1997 1996 1995
(Dollars in thousands)
Cost of benefits earned during
the year $ 5,975 $ 7,055 $ 5,610
Interest cost on projected
benefit obligation 17,172 16,596 15,130
Actual gain arising from
plan assets (36,697) (32,163) (34,490)
Net amortization and deferral 13,970 13,628 20,330
Net pension cost $ 420 $ 5,116 $ 6,580
The Company's Pension Plan includes a program to provide additional
benefits for compensation excluded from the basic Pension Plan. The annual
provision for this plan is based upon independent actuarial computations
using assumptions consistent with the Pension Plan. As of December 31,
1997, the liability associated with this plan was $1,177,000. The pension
cost was $175,000 for the year ended December 31, 1997.
Approximately 85% of the Company's domestic employees are covered by
union-sponsored, collectively bargained, multi-employer pension plans. The
Company contributed and charged to expense $126,606,000 in 1997,
$116,712,000 in 1996, and $104,042,000 in 1995 for such plans. Those
contributions were made in accordance with negotiated labor contracts and
generally were based on time worked.
The Company maintains a retiree health plan which provides benefits to
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 information sets forth the Company's total post
retirement benefit liabilities included in Employee Benefits in the
Consolidated Balance Sheets as of December 31:
1997 1996
(Dollars in thousands)
Accumulated post retirement benefit obligation
Retirees and other inactives $33,601 $31,895
Participants currently eligible to retire 6,796 6,451
Other active participants 6,379 6,055
46,776 44,401
Unrecognized prior service cost 352 395
Unrecognized valuation gain 17,853 20,207
Accrued post retirement benefit liability $64,981 $65,003
Weighted average discount rate 7.5% 8.0%
Average health care cost trend rate
First year 6.5% 9.0%
Declining to (year 1999) 5.5% 6.0%
Net periodic post retirement benefit costs include the following
components:
1997 1996 1995
(Dollars in thousands)
Cost of benefits earned during
the year $ 409 $ 540 $ 432
Interest cost on accumulated post
retirement obligation 3,472 4,000 3,768
Net amortization and deferral (1,023) (103) (526)
Net periodic post retirement
benefit cost $ 2,858 $ 4,437 $ 3,674
A one percent annual increase in the health care cost trend rate
assumption would have increased the accumulated post retirement benefit
obligation by $1,977,000 as of December 31, 1997. The net periodic post
retirement benefit cost would have increased by $148,000 for the year ended
December 31, 1997.
The Company's non-contractual employees in the United States are
eligible to participate in the Company's Stock and Savings Plan. This is a
401(k) plan which allows employees to make contributions that the Company
matches with common stock up to 50% of the first three percent of a
participant's basic compensation. The Company's contribution, which is
charged as an expense, vests immediately with the employee and totaled
$1,993,000 in 1997, $1,926,000 in 1996, and $1,990,000 in 1995.
The Company has adopted various plans relating to the achievement of
specific goals to provide incentive bonuses for designated employees.
Total incentive bonuses earned by the participants were $25,690,000,
$4,614,000 and $1,288,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
8. Stock Compensation Plans
The Company has a Stock Option and Incentive Plan (the Plan) under
which shares of restricted stock were granted to its regular, full-time
employees. During December 1996, 2,146,450 shares were granted at a
weighted average price of $7.475 per share. During 1997, an additional
1,057,027 shares were granted at a weighted average price of $15.31 per
share. The shares vest over three years from the date of the original
grant and are contingent upon the Company's stock price achieving pre-
determined increases over the grant price for 10 consecutive trading days
following each year. All restricted stock awards entitle the participant
credit for any dividends. Compensation expense is recognized based upon the
current market price and the extent to which performance criteria are being
met. On December 16, 1997, restrictions on approximately one-third of the
shares lapsed. Accordingly, the Company recognized a non-cash charge of
$14,297,000. The Company has 2,144,122 granted but unissued shares of
restricted stock for which compensation expense will be recognized over
future vesting periods as appropriate. As of December 31, 1997, those
shares had an aggregate market value of $29,212,000. The Company has
100,321 shares remaining reserved under the Plan.
The Plan also allows for officers, non-employee directors and certain
designated employees to be granted options to purchase common stock of the
Company. The terms of the options will be set at the date of grant. No
options have been granted as of December 31, 1997.
In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." Adoption of this statement is optional, and the Company has
opted to account for stock-based compensation in accordance with APB 25,
"Accounting for Stock Issued to Employees." Had the Company adopted this
statement, pro forma net income for the year ended December 31, 1997 would
have been $16.6 million or $0.75 per basic share and $0.73 per diluted
share. This statement would have had an immaterial effect on the net loss
for the year ended December 31, 1996. The net loss for the year ended
December 31, 1995 would remain as reported.
9. Contingencies
The Company and its subsidiaries are involved in various lawsuits
incidental to their businesses. It is the opinion of management that the
ultimate outcome of these actions will not have a material adverse effect
on the Company's financial position or results of operations.
On February 12, 1998, the United States District Court for the Central
District of California dismissed two lawsuits filed against the Company and
its principal operating subsidiary. The court accepted the Company's
argument that the claims and issues in question are matters covered by the
collective bargaining agreement and subject to the arbitration and
grievance procedures. The underlying lawsuits, filed in October 1997,
claimed among other things, invasion of privacy by the use of video cameras
at a terminal facility, including restrooms, in order to combat a problem
with theft and drug use. Approximately five plaintiffs were non-employees
and were not covered by the collective bargaining agreement, and therefore
may pursue legal action in Riverside County Superior Court. It is the
opinion of management that the ultimate outcome of the remaining claims
will not have a material adverse effect on the Company's financial position
or results of operations.
Consolidated tax returns in which the Company was included in prior to
the spin-off from its former parent have been and are being examined by the
Internal Revenue Service (IRS). The tax sharing agreement entered into with
the former parent obligates the Company to pay additional taxes and
interest should certain issues identified by the IRS not be resolved in the
Company's favor. While favorable resolution is not assured, the Company
believes that the ultimate outcome will not have a material adverse effect
on its financial position or results of operations.
CFCD and the International Brotherhood of Teamsters (IBT) are parties
to the National Master Freight Agreement (NMFA) which expires on March 31,
1998. On February 9, 1998, CFCD, along with three other national motor
freight carriers, agreed on a tentative, five-year NMFA with the IBT,
subject to ratification by its members.
The Company has received notices from the Environmental Protection
Agency (EPA) and others that it has been identified as a potentially
responsible party (PRP) under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) or other Federal and state
environmental statutes at various Superfund sites. Under CERCLA, PRP's are
jointly and severally liable for all site remediation and expenses. Based
upon cost studies performed by independent third parties, the Company
believes its obligations with respect to such sites would not have a
material adverse effect on its financial position or results of operations.
10. Related Party Transactions
The Company is party to a Transition Services Agreement with its
former parent under which the former parent provides information systems,
data processing, computer and communications, payroll and other
administrative services. Services are paid for by the Company based upon an
arm's length negotiated basis. The agreement is for three years but
contains provisions that are cancelable by the Company on six months
written notice. The former parent can cancel any and all services, except
telecommunications and data processing, on six months notice. For the year
ended December 31, 1997, the Company was charged $22,649,000 for services
under the agreement. For the period from the Distribution date to December
31, 1996, the Company was charged $2,600,000. The Company is also party to
an agreement with its former parent which provides for the allocation of
taxes and certain liabilities arising from periods prior to the
Distribution.
Prior to the Distribution, the former parent administered uninsured
workers' compensation and employer's liability claims made against the
Company and, where required by law or contract, provided the necessary
guarantees or collateral for the performance of the Company's obligations
in each state. As a condition of the Distribution, those guarantees and
collateral will remain in place until the pending claims are resolved. To
indemnify the former parent against liability relating to these claims, the
Company has pledged real properties and letters of credit in the amounts of
$50.0 million and $30.0 million, respectively, for the benefit of the
former parent. The potential liabilities, and related pledged collateral,
should be reduced over time as the Company's pending claims are resolved.
Prior to the Distribution, the Company participated in the former
parent's centralized cash management system and, consequently, its
operating and capital expenditure needs were met by the former parent to
the extent that cash from operating activities was insufficient. The
related interest expense on these advances, included in Miscellaneous, net
in the Statements of Consolidated Operations, was approximately $6,115,000
and $1,729,000 for the years ended December 31, 1996 and 1995,
respectively. Additionally, the Company received certain corporate
support services from the former parent, namely accounting, finance, legal
and treasury services. Costs were allocated to the Company using both
incremental and proportional methods on a revenue and capital basis. For
the years ended December 31, 1996 and 1995, the charges were $10,600,000
and $11,946,000, respectively. These costs are included in Operating
Expenses in the Statements of Consolidated Operations. The Company
believes that the allocation methods used provided the Company with a
reasonable share of such expenses and approximate amounts which would have
been incurred had the Company operated on an independent, stand-alone
basis.
LJSC provided various administrative services to the former parent and
its subsidiaries under service contracts at an aggregate charge of
$64,228,000 for the period January 1, 1996 through the Distribution date.
The aggregate charges for the year ended December 31, 1995 were
$84,471,000. At the time of the Distribution, certain administrative
service departments of LJSC that provided services to the former parent and
its subsidiaries were transferred to a subsidiary of the former parent. In
connection with the transfer of these departments, certain net assets and
liabilities in the amounts of $11,163,000 and $13,795,000, respectively,
were transferred from LJSC to the former parent.
In connection with the Distribution, certain real properties of CFCD,
with an aggregate net book value of $57,574,000, were transferred to the
former parent. Additionally, $1,957,000 of net liabilities were also
transferred from CFCD to the former parent.
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
Quarterly Financial Data
(Unaudited)
(Dollars in thousands except per share data)
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1997 - Quarter Ended
Revenues $545,633 $578,623 $603,253 $571,566
Operating income (loss) 8,537 16,676 24,340 (4,294)(a)
Income (loss) before
income taxes (benefits) 7,999 15,331 23,383 (4,731)
Income taxes (benefits) 4,745 8,413 11,600 (3,135)
Net income (loss) 3,254 6,918 11,783 (1,596)
Basic earnings (loss) per share 0.15 0.31 0.53 (0.07)
Diluted earnings (loss) per share 0.15 0.31 0.51 (0.07)
Market price range $7.00-$12.25 $10.00-$16.813 $13.75-$18.50 $11.875-$18.438
March 31 June 30 September 30 December 31
1996 - Quarter Ended
Revenues $502,544 $529,997 $559,605 $554,026
Operating loss (24,557) (13,667) (2,301) (32,541)(b)
Loss before income tax benefits (26,342) (14,498) (2,683) (34,254)
Income tax benefits (6,206) (6,566) (928) (8,501)
Net loss (20,136) (7,932) (1,755) (25,753)
Basic loss per share (0.91) (0.36) (0.08) (1.17)
Diluted loss per share (0.91) (0.36) (0.08) (1.17)
Market price range N/A N/A N/A $6.00-$9.125
<F/N>
(a) Includes $14.3 million non-cash charge for the issuance of common stock under the Company's
restricted stock plan.
(b) Includes $15.0 million non-cash charge for the increase in workers' compensation reserve.
</TABLE>
<TABLE>
<CAPTION>
Five Year Financial Summary
Consolidated Freightways Corporation
And Subsidiaries
Years Ended December 31
(Dollars in thousands except per share data)
(Unaudited)
1997 1996 1995 1994 1993
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Revenues $ 2,299,075 $ 2,146,172 $2,106,529 $1,936,412 $2,074,323
Operating income (loss) 45,259(a) (73,066)(b) (42,786)(c) (47,743) 29,403
Depreciation and amortization 54,679 64,565 63,902 73,443 83,739
Investment income 1,894 263 756 497 459
Interest expense 3,213 843 918 880 443
Income (loss) before income taxes (benefits) 41,982 (77,777) (43,798) (44,478) 36,769
Income taxes (benefits) 21,623 (22,201) (13,889) (14,274) 16,628
Net income (loss) 20,359 (55,576) (29,909) (32,116) 20,141
Cash from operations 77,370 2,545 41,772 33,739 67,186
PER SHARE
Basic earnings (loss) 0.92 (2.52) (1.36) (1.46) 0.91
Diluted earnings (loss) 0.89 (2.52) (1.36) (1.46) 0.91
Shareholders' equity 10.58 9.57 11.76 9.70 12.13
FINANCIAL POSITION
Cash and cash equivalents 107,721 48,679 26,558 23,116 10,764
Property, plant and equipment, net 382,987 416,688 501,311 452,878 500,866
Total assets 897,796 857,087 866,698 852,510 878,934
Capital expenditures 22,674 48,203 111,962 32,120 49,395
Long-term debt 15,100 15,100 15,100 15,100 15,100
Shareholders' equity 243,447 210,698 259,108 213,579 267,074
RATIOS AND STATISTICS
Current ratio 1.3 to 1 1.1 to 1 1.0 to 1 1.1 to 1 1.0 to 1
Net income (loss) as % of revenues 0.9% (2.6)% (1.4)% (1.7)% 1.0%
Effective income tax rate 51.5% (28.5)% (31.7)% (32.1)% 45.2%
Long-term debt as % of
total capitalization 6% 7% 6% 7% 5%
Return on average invested capital 8% (22)% (11)% (11)% 6%
Return on average shareholders' equity 9% (24)% (13)% (13)% 8%
Average shares outstanding 22,066,212 22,025,323 22,025,323 22,025,323 22,025,323
Market price range $7.00-$18.50 $6.00-$9.125 n/a n/a n/a
Number of shareholders 31,650 13,500 n/a n/a n/a
Number of employees 21,600 20,300 20,200 22,000 22,100
<F/N>
(a) Includes $14.3 million non-cash charge for the issuance of common stock under the Company's restricted stock plan.
(b) Includes $15.0 million non-cash charge for the increase in workers' compensation reserve.
(c) Includes approximately $26 million of costs related to implementation of the Business Accelerator System.
</TABLE>
EXHIBIT 21
CONSOLIDATED FREIGHTWAYS CORPORATION
SIGNIFICANT SUBSIDIARIES OF THE COMPANY
December 31, 1997
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 Corporation Delaware
Significant Subsidiaries of Consolidated Freightways Corporation
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
Blackfoot Logistics 100 British
Columbia
Consolidadora De Fletes Mexico 100 Mexico
Leland James Service Corporation 100 Delaware
Redwood Systems, Inc. 100 Delaware
Redwood Systems Logistics de Mexico 100 Mexico
Redwood Systems Services de Mexico 100 Mexico
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 107,721
<SECURITIES> 0
<RECEIVABLES> 328,368
<ALLOWANCES> (7,467)
<INVENTORY> 8,741
<CURRENT-ASSETS> 493,613
<PP&E> 1,096,640
<DEPRECIATION> (713,653)
<TOTAL-ASSETS> 897,796
<CURRENT-LIABILITIES> 385,500
<BONDS> 15,100
0
0
<COMMON> 71,691
<OTHER-SE> 171,756
<TOTAL-LIABILITY-AND-EQUITY> 897,796
<SALES> 0
<TOTAL-REVENUES> 2,299,075
<CGS> 0
<TOTAL-COSTS> 2,253,816
<OTHER-EXPENSES> 3,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,213
<INCOME-PRETAX> 41,982
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