UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 1-12149
CONSOLIDATED FREIGHTWAYS CORPORATION
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 77-0425334
175 Linfield Drive, Menlo Park, CA 94025
Telephone Number (650) 326-1700
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No .
Number of shares of Common Stock, $.01 par value,
outstanding as of July 31, 1998: 23,048,754
Page 1
CONSOLIDATED FREIGHTWAYS CORPORATION
FORM 10-Q
Quarter Ended June 30, 1998
_____________________________________________________________________
_____________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Statements of Consolidated Income -
Three and Six Months Ended June 30, 1998
and 1997 5
Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to Vote of Security Holders 14
Item 5. Stockholder Proposals 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
Page 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
.
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 149,990 $ 107,721
Trade accounts receivable, net of allowances 305,493 310,601
Other receivables 6,362 10,300
Operating supplies, at lower of average
cost or market 9,193 8,741
Prepaid expenses 53,056 39,696
Deferred income taxes 12,064 16,554
Total Current Assets 536,158 493,613
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 78,361 78,227
Buildings and improvements 343,613 342,413
Revenue equipment 558,125 559,610
Other equipment and leasehold improvements 118,916 116,390
1,099,015 1,096,640
Accumulated depreciation and amortization (734,750) (713,653)
364,265 382,987
OTHER ASSETS
Deposits and other assets 13,636 9,468
Deferred income taxes 16,774 11,728
30,410 21,196
TOTAL ASSETS $ 930,833 $ 897,796
The accompanying notes are an integral part of these statements.
Page 3
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 77,117 $ 83,127
Accrued liabilities 234,520 212,644
Accrued claims costs 76,409 82,023
Federal and other income taxes 12,027 7,706
Total Current Liabilities 400,073 385,500
LONG-TERM LIABILITIES
Long-term debt 15,100 15,100
Accrued claims costs 110,973 112,173
Employee benefits 116,418 115,220
Other liabilities and deferred credits 32,597 26,356
Total Liabilities 675,161 654,349
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
5,000,000 shares; issued none -- --
Common stock, $.01 par value; authorized
50,000,000 shares; issued 23,066,905
and 23,038,437 shares, respectively 231 230
Additional paid-in capital 71,485 71,461
Accumulated other comprehensive income (8,862) (6,572)
Retained earnings 193,063 178,573
Treasury stock (18,151 shares) (245) (245)
Total Shareholders' Equity 255,672 243,447
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 930,833 $ 897,796
The accompanying notes are an integral part of these statements.
Page 4
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS CORPORATION
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands except per share amounts)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES $ 551,841 $ 578,623 $1,097,489 $1,124,256
COSTS AND EXPENSES
Salaries, wages and benefits 357,115 378,483 710,686 736,480
Operating expenses 88,225 88,243 176,545 178,985
Purchased transportation 48,485 45,591 94,421 88,928
Operating taxes and licenses 17,215 18,557 34,318 36,598
Claims and insurance 12,857 17,561 26,141 31,360
Depreciation 12,438 13,512 25,072 26,692
536,335 561,947 1,067,183 1,099,043
OPERATING INCOME 15,506 16,676 30,306 25,213
OTHER INCOME (EXPENSE)
Investment income 1,463 237 2,415 431
Interest expense (972) (871) (1,967) (1,170)
Miscellaneous, net (440) (711) (878) (1,144)
51 (1,345) (430) (1,883)
Income before income taxes 15,557 15,331 29,876 23,330
Income taxes 8,084 8,413 15,386 13,158
NET INCOME $ 7,473 $ 6,918 $ 14,490 $ 10,172
Basic average shares outstanding 23,048,519 22,025,323 23,039,159 22,025,323
Diluted average shares outstanding 24,325,142 22,052,864 24,221,957 22,090,741
Basic Earnings per Share: $ 0.32 $ 0.31 $ 0.63 $ 0.46
Diluted Earnings per Share: $ 0.31 $ 0.31 $ 0.60 $ 0.46
<FN>
The accompanying notes are an integral part of these statements.
Page 5
</TABLE>
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1998 1997
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 107,721 $ 48,679
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 14,490 10,172
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 25,961 27,574
Increase (decrease) in deferred income taxes (556) 1,969
Gains from property disposals, net (10) (804)
Changes in assets and liabilities:
Receivables 9,046 (37,410)
Prepaid expense (13,360) (6,444)
Accounts payable (6,010) (10,206)
Accrued liabilities 21,876 31,488
Accrued claims costs (6,814) (5,117)
Income taxes 4,321 8,726
Employee benefits 1,198 1,877
Other (1,039) 324
Net Cash Provided by Operating Activities 49,103 22,149
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (7,191) (12,653)
Proceeds from sales of property 357 1,626
Net Cash Used by Investing Activities (6,834) (11,027)
Increase in Cash and Cash Equivalents 42,269 11,122
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 149,990 $ 59,801
The accompanying notes are an integral part of these statements.
Page 6
CONSOLIDATED FREIGHTWAYS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements of
Consolidated Freightways Corporation and subsidiaries (the Company)
have been prepared by the Company, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management,
the consolidated financial statements include all normal recurring
adjustments necessary to present fairly the information required to
be set forth therein. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted from these statements pursuant to such rules and regulations
and, accordingly, should be read in conjunction with the consolidated
financial statements included in the Company's 1997 Annual Report to
Shareholders.
There were no significant changes in the Company's commitments
and contingencies as previously described in the 1997 Annual Report
to Shareholders and related annual report to the Securities and
Exchange Commission on Form 10-K.
2. Credit Facility
On July 2, 1998 the Company amended its secured credit facility,
reducing the total facility from $225.0 million to $150.0 million.
Working capital borrowings are limited to $150.0 million while
letters of credit are limited to $100.0 million. The amendment
reduced the interest rate on borrowings and released all revenue
equipment previously encumbered under the original agreement.
Borrowings and letters of credit are secured primarily by eligible
accounts receivable. The amendment further provides for reduced
letter of credit and unused line fees, and less restrictive financial
covenants. As of June 30, 1998, the Company had no short-term
borrowings and $98.1 million of letters of credit outstanding under
this facility. The continued availability of funds under this credit
facility will require that the Company remain in compliance with
certain financial covenants. The Company is in compliance as of June
30, 1998 and expects to be in compliance with these covenants for the
remainder of the year.
Page 7
3. Earnings per Share
The following charts reconcile basic to diluted earnings per
share for the three and six months ended June 30, 1998 and 1997:
(Dollars in thousands except per share amounts)
Weighted
Three Average Earnings
Months Ended Net Income Shares Per Share
June 30, 1998
Basic $7,473 23,048,519 $0.32
Dilutive effect
of restricted
stock -- 1,276,623 (0.01)
Diluted $7,473 24,325,142 $0.31
June 30, 1997
Basic $6,918 22,025,323 $0.31
Dilutive effect
of restricted
stock -- 27,541 --
Diluted $6,918 22,052,864 $0.31
Weighted
Six Average Earnings
Months Ended Net Income Shares Per Share
June 30, 1998
Basic $14,490 23,039,159 $0.63
Dilutive effect
of restricted
stock -- 1,182,798 (0.03)
Diluted $14,490 24,221,957 $0.60
June 30, 1997
Basic $10,172 22,025,323 $0.46
Dilutive effect
of restricted
stock -- 65,418 --
Diluted $10,172 22,090,741 $0.46
Page 8
4. Comprehensive Income
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Comprehensive Income" in the quarter
ended March 31, 1998. Comprehensive income for the three and six
months ended June 30, 1998 and 1997 is as follows:
(Dollars in thousands)
Three Six
Months Ended Months Ended
June 30, June 30,
1998 1997 1998 1997
Net Income $7,473 $6,918 $14,490 $10,172
Other Comprehensive Income:
Foreign currency translation
adjustments, net of taxes (1,367) (83) (1,374) (96)
Comprehensive Income $6,106 $6,835 $13,116 $10,076
5. Software Costs
The Company adopted the provisions of American Institute of
Certified Public Accountants Statement of Position 98-1 (SOP 98-1)
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" in the quarter ended March 31, 1998. SOP 98-1
standardizes which costs related to computer software developed or
obtained for internal use are to be capitalized and those that are to
be expensed as incurred. The Company capitalized approximately $1.7
million of internal use software costs in the six months ended June
30, 1998.
6. Stock Compensation
As of June 30, 1998, there were 2,144,122 granted but unissued
shares remaining under the Company's Stock Option and Incentive Plan.
The shares had an aggregate market value of $29.9 million. The
shares vest in two installments as early as December 16, 1998 and
1999, but are contingent upon the Company's stock price achieving pre-
determined increases over the price at the time of grant in December
1996. If performance conditions are met, approximately 1,072,000
shares of common stock will be issued to employees in December 1998
and compensation expense will be recognized based on the then market
price of the stock. Based on the market price of the stock on June
30, 1998, the Company would recognize a $9.0 million non-cash charge,
net of related tax benefits
Page 9
7. Recent Accounting Pronouncements
The American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting the Costs of Start Up
Activities." This statement requires that the costs of start-up
activities and organization costs be expensed as incurred. The
statement is effective for fiscal years beginning after December 15,
1998. Management does not expect that adoption of this standard will
have a material effect on the Company's financial position or results
of operations.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments. It
requires that an organization recognize all derivatives as either
assets or liabilities on the balance sheet at fair value and
establishes the timing of recognition of the gain/loss based upon the
derivatives' intended use. This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999.
Management does not expect that adoption of this standard will have a
material effect on the Company's financial position or results of
operations.
8. Contingencies
The Company and its subsidiaries are defendants in various
lawsuits incidental to their businesses. It is the opinion of
management that the ultimate outcome of these actions will not have a
material adverse effect on the Company's financial position or
results of operations.
Page 10
CONSOLIDATED FREIGHTWAYS CORPORATION AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Revenues for the three and six months ended June 30, 1998
decreased 4.6% and 2.4%, respectively, from the prior year as the
Company experienced lower year-over-year tonnage levels. Yield
management programs, diversion of freight due to recent labor
negotiations and softening industrial production contributed to the
lower tonnage levels. Year-over-year total and higher rated less-
than-truckload tonnage decreased 9.9% and 7.6%, respectively, for the
three months ended June 30, 1998 and 8.1% and 5.9%, respectively, for
the six months ended June 30, 1998. The Company continued to benefit
from improved revenue yields. Net revenue per hundred weight in the
three and six month periods increased 5.8% and 6.2%, respectively,
over the prior year as a result of the 5.5% January rate increase and
improved freight mix.
Salaries, wages and benefits decreased 5.6% and 3.5% for the
three and six month periods due to lower business volumes, continued
cost savings from workers' compensation claims containment programs
and increased efficiencies in cross-dock freight handling. Operating
expenses remained flat as lower fuel prices and decreased fuel usage,
due to lower business volumes and increased use of purchased
transportation, were offset primarily by increased repair and
maintenance on the Company's aging fleet and expenses from the Company's
Year 2000 project, which totaled $2.7 million year-to-date.
Purchased transportation increased 6.3% and 6.2% in the three and six
month periods, respectively, as the Company continued to maximize use
of lower cost rail services. Rail miles as a percentage of total
inter-city miles increased from 26.4% to 27.0% in the three month
period and from 26.0% to 26.9% in the six month period. The
combination of lower business volumes and increased use of rail
services also resulted in a 7.2% and 6.2% decrease in operating taxes
and licenses in the three and six month periods, respectively.
Claims and insurance decreased 26.8% and 16.6%, respectively, due to
lower business volumes and improved claims experience over last year.
Depreciation continues to decline year-over-year as more the of
Company's fleet becomes fully depreciated.
The above factors resulted in operating income of $15.5 million
in the three months ended June 30, 1998, a $1.2 million decrease from
prior year. The operating ratio remained essentially flat at 97.2%
versus 97.1% in the prior year. Operating income for the six months
ended June 30, 1998 increased $5.1 million to $30.3 million with the
operating ratio improving to 97.2% from 97.8%.
Other expense, net for the six month period decreased 77.2% from
the prior year due to increased investment income on the Company's
short-term investments.
Page 11
The Company's effective income tax rates differ from the
statutory Federal rate due to foreign taxes and non-deductible items.
As noted above, tonnage levels were adversely affected
throughout the second quarter due to recent labor negotiations,
despite ratification of the National Master Freight Agreement in
April. Management is actively working to recapture only that freight
which enhances the Company's profitability. Management will also
continue to focus on yield enhancement and keeping expense levels in
line with business volumes. As discussed in Footnote 6, the Company
has a restricted stock program. If performance conditions are met in
December 1998, approximately 1,072,000 shares of common stock will be
issued to employees, and compensation recognized based on the then
market price of the stock. Based on the market price of the stock at
June 30, 1998, the Company would recognize a $9.0 million non-cash
charge, net of related tax benefits.
Management is in the process of replacing or converting the
Company's financial and operational systems and applications for Year
2000 compliance. Based upon a current assessment of systems and
applications requiring modification, management expects to spend
approximately $25 to $30 million through mid-1999. Of this amount,
approximately $11 million relates to the purchase and implementation
of new hardware and software, which will be capitalized and amortized
over their estimated useful lives. Management expects to have all of
its financial and operational systems replaced or converted by mid
1999. However, to the extent systems are not converted by the year
2000, there could be a material adverse effect on the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $150.0 million in cash and
cash equivalents. Net cash flow from operations for the six months
ended June 30, 1998 was $49.1 million due primarily to net income and
depreciation and amortization. Management expects cash flow from
operations for 1998 will be sufficient for working capital and
capital expenditure requirements. Capital expenditures for the six
months ended June 30, 1998 were $7.2 million compared with $12.7
million in the same period last year. Management expects capital
expenditures to be approximately $64 million for the remainder of
1998, primarily for replacement of the Company's aging fleet of
tractors and trailers. Approximately 540 new tractors and 485
trailers will come on line during the remainder of the year.
Management expects to fund these expenditures with cash from
operations supplemented by financing arrangements, if deemed
appropriate.
As discussed in Footnote 2, the Company amended its secured
credit facility, reducing, among other things, the amount available
for working capital and letter of credit needs from $225.0 million to
$150.0 million. This decrease reflects the Company's improved
liquidity since its spin-off in December 1996. As of June 30, 1998,
the Company had no short-term borrowings and $98.1 million of letters
of credit outstanding.
Page 12
INFLATION
Significant increases in fuel prices, to the extent not offset
by increases in transportation rates, would have a material adverse
effect on the profitability of the Company. Historically, the
Company has responded to periods of sharply higher fuel prices by
implementing fuel surcharge programs or base rate increases, or both,
to recover additional costs. However, there can be no assurance that
the Company will be able to successfully implement such surcharges or
increases in response to increased fuel costs in the future.
OTHER
The Company has received notices from the Environmental
Protection Agency and others that it has been identified as a
potentially responsible party (PRP) under the Comprehensive
Environmental Response Compensation and Liability Act (CERCLA) or
other Federal and state environmental statutes at various Superfund
sites. Under CERCLA, PRP's are jointly and severally liable for all
site remediation and expenses. Based upon cost studies performed by
independent third parties, the Company believes its obligations with
respect to such sites would not have a material adverse effect on its
financial condition or results of operations.
Certain statements included or incorporated by reference herein
constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to a
number of risks and uncertainties. Any such forward-looking
statements included or incorporated by reference herein should not be
relied upon as predictions of future events. Certain such forward-
looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"seeks," "approximately," "intends," "plans," "pro forma,"
"estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology, or by discussions of
strategy, plans or intentions. Such forward-looking statements are
necessarily dependent on assumptions, data or methods that may be
incorrect or imprecise and they may be incapable of being realized.
In that regard, the following factors, among others, and in addition
to matters discussed elsewhere herein and in documents incorporated
by reference herein, could cause actual results and other matters to
differ materially from those in such forward-looking statements:
changes in general business and economic conditions; increases in
domestic and international competition and pricing pressure;
increases in fuel prices; uncertainty regarding the Company's ability
to improve results of operations; labor matters, including shortages
of drivers and increases in labor costs; changes in governmental
regulation; environmental and tax matters; increases in costs
associated with the conversion of financial and operational systems
and applications for Year 2000 compliance and failure to convert all
systems by the year 2000. As a result of the foregoing, no assurance
can be given as to future results of operations or financial
condition.
Page 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously disclosed, the Company has received notices from
the Environmental Protection Agency and others that it has been
identified as a potentially responsible party (PRP) under the
Comprehensive Environmental Response Compensation and Liability Act
(CERCLA) or other Federal and state environmental statutes at various
Superfund sites. Based upon cost studies performed by independent
third parties, the Company believes its obligations with respect to
such sites would not have a material adverse effect on its financial
condition or results of operations.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Shareholders Meeting held May 11, 1998, the following
matters were presented with the indicated voting results:
For the purpose of electing members of the Board of Directors, the
votes representing shares of Common stock were cast as follows:
Nominee For Withheld
Paul B. Guenther 21,060,921 49,081
William D. Walsh 21,057,888 52,114
The following directors did not stand for election and continued in
office as directors after the Annual Shareholders Meeting: W. Roger
Curry, G. Robert Evans, Robert W. Hatch, John M. Lillie, James B.
Malloy and Raymond F. O'Brien.
ITEM 5. Stockholder Proposals
Pursuant to the Company's bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 1999 annual
meeting of stockholders must provide specified information to the
Company between February 10, 1999 and March 12, 1999 (unless such
matters are included in the Company's proxy statement pursuant to
Rule 14a-8 under the Securities Exchange Act of 1934, as amended).
Page 14
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Amendment No. 4, dated July 2, 1998, to the Loan and
Security Agreement among Consolidated Freightways Corporation
of Delaware,BankAmerica Business Credit Inc. and various
other financial institutions.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the quarter ended
June 30, 1998.
Page 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company (Registrant) has duly
caused this Form 10-Q Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Consolidated Freightways Corporation
(Registrant)
August 12, 1998 /s/David F. Morrison
David F. Morrison
Executive Vice President and
Chief Financial Officer
August 12, 1998 /s/Robert E. Wrightson
Robert E. Wrightson
Senior Vice President and
Controller
Page 16
AMENDMENT NO. 4 TO
LOAN AND SECURITY AGREEMENT
This Amendment No. 4 to Loan and Security
Agreement (this "Amendment") is made as of the 2nd day of
July, 1998 by and among each of the undersigned and amends
that certain Loan and Security Agreement, dated as of
November 27, 1996 (as amended by Amendment No. 1 dated as of
February 28, 1997, Amendment No. 2 dated as of June 27,
1997, Amendment No. 3 dated as of November 1, 1997 and by
this Amendment, the "Loan Agreement"), among the financial
institutions listed on the signature pages thereof as
lenders (such financial institutions, together with their
respective successors and assigns, are referred to
hereinafter each individually as a "Lender" and collectively
as the "Lenders"), BankAmerica Business Credit, Inc., a
Delaware corporation, as agent for the Lenders (in its
capacity as agent, the "Agent"), NationsBank of Texas, N.A.,
as the L/C Issuer and as co-syndication agent for the
Lenders, Credit Agricole Indosuez, as co-agent for the
Lenders, Consolidated Freightways Corporation of Delaware, a
Delaware corporation, (the "Borrower"), Consolidated
Freightways Corporation (the "Parent"), Leland James Service
Corporation ("Leland") and Redwood Systems, Inc.
("Redwood"). Capitalized terms used herein without
definition have the meanings assigned thereto in the Loan
Agreement.
RECITALS
A. The Borrower has requested that certain provisions
of the Loan Agreement be amended as more fully described
below.
B. On the terms and subject to the conditions set
forth in this Amendment, the parties to the Loan Agreement
have agreed to amendments to the Loan Agreement, including,
without limitation, (i) a reduction of the Total Facility
from $225,000,000 to $150,000,000, (ii) a reduction of the
interest rate payable on Revolving Loans, (iii) a reduction
of the Letter of Credit Fee, (iii) a reduction of the Unused
Line Fee, (iv) elimination of the early termination fee, (v)
release of all Revenue Equipment from the Agent's Liens,
(vi) modifications to the requirement of weekly delivery of
Borrowing Base Certificates, (vii) modifications to various
financial covenants, and (viii) various modifications
relating to or corresponding to the foregoing, all as set
forth more fully below.
AGREEMENT
In consideration of the foregoing, and for good and
valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby agree as follows:
ARTICLE 1
AMENDMENTS TO LOAN AND SECURITY AGREEMENT
1.1 Amendments to Section 1.1 - Definitions. Each
of the following definitions set forth in Section 1.1 of the
Loan Agreement is hereby amended and restated to read in its
entirety as follows:
"`Availability' means at any time the lesser of:
(a) the Total Facility or
(b) the Net Amount of Eligible Accounts
multiplied by the Account Advance Rate;
Less, in the case of each of (a) and (b) above, the sum
of (without duplication of amounts which have become
ineligible):
(A) the Aggregate Revolver Outstandings;
(B) following the occurrence and during
the continuance of any Event of Default, reserves for
accrued interest on the Obligations;
(C) the Environmental Compliance Reserve;
(D) ACH Settlement Risk Reserve; and
(E) all other reserves which the Agent
deems necessary or desirable in the exercise of its
reasonable credit judgment to maintain with respect to
the Borrower's account, including, without limitation,
reserves for any amounts which the Agent or any Lender
may be obligated to pay in the future for the account
of the Borrower."
"`Borrowing Base Certificate' means the
certificate by a Responsible Officer of the Borrower,
substantially in the form of Exhibit A (or another form
acceptable to the Agent) which (a) is required to be
delivered pursuant to Section 6.7 (it being understood
and agreed that if such certificate is required to be
delivered on a weekly basis, information included
therein with respect to the Accounts will be updated
weekly, and that other information included therein
with respect to Accounts of the type described in
Accounts Dilution Rate will be updated as of the end of
each month), (b) sets forth the calculation of the
Availability, including a calculation of each component
thereof, and is dated, as of the close of business on
the last Business Day of the month (or the last
Business Day of the week, if applicable) covered by the
certificate, and (c) if required to be delivered weekly
pursuant to Section 6.7, is to be delivered prior to
the end of the third Business Day of the following
week; all in such detail as shall be reasonably
satisfactory to the Agent. All calculations of
Availability in connection with the preparation of any
Borrowing Base Certificate shall originally be made by
the Borrower and certified to the Agent; provided, that
the Agent shall have the right to review and adjust, in
the exercise of its reasonable credit judgment, any
such calculation (1) to reflect its reasonable estimate
of declines in value of any of the Collateral described
therein, and (2) to the extent that such calculation is
not in accordance with this Agreement."
"`Commitment' means, at any time with respect to a
Lender, the principal amount set forth beside such
Lender's name under the heading "Commitment" on the
signature pages of Amendment No. 4 to this Agreement
dated as of July 2, 1998 or on the signature page of
the Assignment and Acceptance pursuant to which such
Lender became a Lender hereunder in accordance with the
provisions of Section 13.3, as such Commitment may be
adjusted from time to time in accordance with the
provisions of Section 13.3 or Section 2.1(b) and
"Commitments" means, collectively, the aggregate amount
of the commitments of all of the Lenders."
"`Excluded Property' means Real Estate (and any
fixtures and intangible property (such as permits,
maintenance contracts, blueprints and designs) which
are in each case directly and specifically related to
the particular parcel of Real Estate if covered by a
mortgage of such Real Estate), the Revenue Equipment
and stock of Subsidiaries of the Borrower existing as
of the Closing Date other than the 65% of the stock of
Canadian Freightways Limited pledged to the Agent for
the benefit of the Lenders pursuant to the Stock Pledge
Agreement."
"`Triggering Event' means the occurrence of any
one of the following events: (a) an Event of Default,
(b) Availability is $25,000,000 or less, (c) the
average daily Dollar amount of Revolving Loans
outstanding for the immediately preceding thirty (30)
day period exceeds $20,000,000, or (d) the aggregate
Dollar amount of Revolving Loans outstanding on any
date exceeds $25,000,000."
1.2 Deletion of Definitions. Each of the following
definitions set forth in Section 1.1 of the Loan Agreement
is hereby deleted:
"Applicable Margin"
"Appraised Value of Revenue Equipment"
"Eligible Revenue Equipment"
"Eligible Revenue Equipment Value"
"Fixed Charge Coverage Ratio"
"Maximum Revolver Equipment Advance"
"Revenue Equipment Advance Rate"
1.3 Amendment to Section 2.1 - Credit Facility.
Section 2.1 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"2.1 Credit Facility. Subject to all of the
terms and conditions of this Agreement, the Lenders
severally agree to make available a total credit
facility of up to $150,000,000 (the "Total Facility")
for the Borrower's use from time to time during the
term of this Agreement. The Total Facility shall be
comprised of a revolving line of credit consisting of
revolving loans and letters of credit, as described in
Sections 2.2 and 2.3."
1.4 Amendment to Section 3.1(a) - Interest Rate on
Revolving Loans. The fourth sentence of Section 3.1(a) of
the Loan Agreement is hereby amended and restated to read in
its entirety as follows:
"Except as otherwise provided herein, the
outstanding Obligations shall bear interest as follows:
(i) for all Base Rate Revolving Loans and other
Obligations (other than LIBOR Revolving Loans) at a
fluctuating per annum rate equal to the Base Rate minus
one-quarter of one percent (0.25%), and (ii) for all
LIBOR Revolving Loans at a per annum rate equal to the
LIBOR Rate plus seven-eighths of one percent (0.875%)."
1.5 Amendment to Section 3.5 - Unused Line Fee.
The first sentence of Section 3.5 of the Loan Agreement is
hereby amended and restated to read in its entirety as
follows:
"3.5 Unused Line Fee. Until the Obligations have
been paid in full and the Agreement terminated, the
Borrower agrees to pay, on the first day of each month
and on the Termination Date, to the Agent, for the
ratable account of the Lenders, an unused line fee (the
"Unused Line Fee") equal to one-quarter of one percent
(0.25%) per annum on the average daily amount by which
the Total Facility exceeded the sum of the average
daily outstanding amount of Revolving Loans and the
undrawn face amount of all outstanding Letters of
Credit, during the immediately preceding month or
shorter period if calculated on the Termination Date."
1.6 Amendment to Section 3.6 - Letter of Credit
Fee. The first sentence of Section 3.6 of the Loan
Agreement is hereby amended and restated to read in its
entirety as follows:
"3.6 Letter of Credit Fee. The Borrower agrees to
pay to the Agent, for the ratable account of the
Lenders, for each Letter of Credit, a fee (the "Letter
of Credit Fee") equal to seven-eighths of one percent
(0.875%) per annum of the undrawn face amount of each
Letter of Credit issued for the Borrower's account at
the Borrower's request, plus all out-of-pocket costs,
fees and expenses incurred by the Agent in connection
with the application for, issuance of, or amendment to
any Letter of Credit."
1.7 Amendment to Section 4.2 - Termination of
Facility. Section 4.2 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"4.2 Termination of Facility. The Borrower may
terminate this Agreement upon at least thirty (30)
Business Days' notice to the Agent and the Lenders,
upon (a) the payment in full of all outstanding
Revolving Loans, together with accrued interest
thereon, and the cancellation of all outstanding
Letters of Credit, (b) the payment in full in cash of
all other Obligations together with accrued interest
thereon, and (c) with respect to any LIBOR Revolving
Loans prepaid in connection with such termination prior
to the expiration date of the Interest Period
applicable thereto, the payment of the amounts
described in Section 5.5."
1.8 Amendment to Section 6.2(b) - Perfection and
Protection of Security Interests - Revenue Equipment.
Section 6.2(b) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(b) Intentionally Omitted."
1.9 Amendment to Section 6.5 - Appraisals.
Section 6.5 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"6.5 Intentionally Omitted."
1.10 Amendment to Section 6.7 - Collateral Reporting.
Section 6.7 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"6.7 Collateral Reporting. The Borrower shall
provide the Agent with the following documents at the
following times in form satisfactory to the Agent:
(a) if the daily average Availability for
the preceding month is $25,000,000 or less or if a
Default or Event of Default arising under Section 9.21,
Section 9.22 or Section 9.23 has occurred and is
continuing, on a weekly basis, a Borrowing Base
Certificate and, at the same time, such supporting
documentation as the Agent may request;
(b) on a monthly basis, as of the end of
each month, and received by the end of the 20th day of
the following month, a Borrowing Base Certificate and,
at the same time, such supporting documentation as the
Agent may request;
(c) on a monthly basis, as of the end of
each month, and received by the Agent no later than the
20th day of the following month, an aging of the
Borrower's Accounts, together with a reconciliation to
the Borrower's general ledger, and the Borrower's
computation of ineligible Accounts and reserves against
Availability, certified as accurate and correct by a
Responsible Officer of the Borrower;
(d) on a monthly basis, as of the end of
each month, and received by the Agent no later than the
20th day of the following month, an aging or open item
listing of all Borrower's accounts payable to the
fifteen Account Debtors with the highest amount of
Accounts owed to the Borrower; provided that such
accounts payable information shall not be required with
respect to the Account Debtors to which the Borrower is
indebted in an amount not in excess of $50,000;
(e) such other reports as to the
Collateral of the Borrower as the Agent shall
reasonably request from time to time; and
(f) with the delivery of each of the
foregoing, a certificate of an officer of the Borrower
certifying as to the accuracy and completeness of the
foregoing.
If any of the Borrower's records or reports of the
Collateral are prepared by an accounting service or
other agent, the Borrower hereby authorizes such
service or agent to deliver such records, reports, and
related documents to the Agent, for distribution to the
Lenders. Any report required to be delivered pursuant
to this Section 6.7 on a day that is not a Business Day
may be delivered on the next Business Day after such
report was due."
1.11 Amendment to Section 6.10 - Equipment. Section
6.10 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:
"6.10 Equipment.
(a) The Borrower represents and warrants
to the Agent and the Lenders and agrees with the Agent
and the Lenders that all of the Equipment owned by the
Borrower is and will be used or held for use in the
Borrower's business, and is and will be fit for such
purposes. The Borrower shall keep and maintain its
Equipment in good operating condition and repair
(ordinary wear and tear excepted) and shall make all
necessary replacements thereof.
(b) The Borrower shall promptly inform
the Agent of any material additions to or deletions
from the Equipment (other than Excluded Property). The
Borrower will not, without the Agent's prior written
consent, alter or remove any identifying manufacturers
serial number, vehicle identification number or similar
symbol or number on any of the Borrower's Equipment
consisting of Collateral.
(c) The Borrower shall not, without the
Agent's prior written consent, sell, lease as a lessor,
or otherwise dispose of any of the Borrower's Equipment
(other than Excluded Revenue Equipment); provided,
however, that the Borrower may dispose of Included
Revenue Equipment as permitted by Section 6.10(d), and
may dispose of obsolete or unusable Equipment other
than Included Revenue Equipment which is obsolete or
unusable and has a book value no greater than
$2,000,000 in the aggregate in any Fiscal Year, or
$6,000,000 in the aggregate during the term of this
Agreement, without the Agent's consent.
(d) The Borrower shall not, without the
Agent's prior written consent, sell, lease as a lessor
or otherwise dispose of any Included Revenue Equipment;
provided, however, that so long as no Event of Default
has occurred and is continuing, the Borrower may
dispose of Included Revenue Equipment having an orderly
liquidation value no greater than $4,000,000 in the
aggregate in any month and no greater than $16,000,000
in the aggregate in any Fiscal Year, if such
dispositions are made in the ordinary course of the
Borrower's business and consistent with the Borrower's
past practice."
1.12 Amendment to Section 9.21- Capital Expenditures.
Section 9.21 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.21 Capital Expenditures. None of the Loan
Parties shall make or incur any Capital Expenditure if,
after giving effect thereto, the aggregate amount of
all Capital Expenditures (net of proceeds from sales of
fixed assets) by the Loan Parties on a consolidated
basis would exceed $30,000,000 for Fiscal Year 1997 or
$100,000,000 for each Fiscal Year thereafter until the
Stated Termination Date; provided, however, that up to
$15,000,000 of unused permitted Capital Expenditures in
a given Fiscal Year may be carried over to the
following Fiscal Year."
1.13 Amendment to Section 9.22 - Adjusted Net Earnings.
Section 9.22 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"9.22 Adjusted Net Earnings. The Parent, the
Borrower and their Subsidiaries on a consolidated basis
will not permit the Adjusted Net Earnings for the
fiscal period specified below, measured at the end of
each fiscal quarter on a Fiscal Year to date basis for
1997 and on a rolling four quarter basis thereafter, to
be less than the amount set forth below opposite such
fiscal quarter:
Period Amount
March 1997 $5,000,000
June 1997 $15,000,000
September 1997 $27,000,000
December 1997 $40,000,000
March 1998 $43,000,000
June 1998 $50,000,000
September 1998 $52,000,000
December 1998 $55,000,000
March 1999 $54,000,000
June 1999 $56,000,000
September 1999 $58,000,000
December 1999 and $60,000,000
thereafter
1.14 Amendment to Section 9.23 - Adjusted Tangible Net
Worth. Section 9.23 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"9.23 Adjusted Tangible Net Worth. The Parent,
the Borrower and their Subsidiaries on a consolidated
basis will not permit Adjusted Tangible Net Worth
calculated without regard to the increase, not to
exceed $10,000,000 (after giving effect to income
taxes), in the worker's compensation accrual reserve
over and above the level of such reserve reflected in
the Latest Projections dated September 9, 1996 and
delivered to the Agent, to be less than the following
amounts:
Period Amount
December 1996 $210,000,000
March 1997 through $195,000,000
December 1997
March 1998 $190,000,000
June 1998 through $220,000,000
September 1998
December 1998 and $225,000,000
thereafter
1.15 Amendment to Section 9.24 - Fixed Charge Coverage
Ratio. Section 9.24 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"9.24 Intentionally Omitted."
1.16 Amendment to Section 13.2(h) - Amendments and
Waivers. Section 13.2(h) of the Loan Agreement (which
relates to definitions which cannot be amended without the
consent of each Lender) is hereby amended and restated to
delete references to definitions which have been deleted,
and shall read in its entirety as follows:
"(h) increase the "Account Advance Rate," "Maximum
Revolver Amount," "Total Facility" or "Unused Letter of
Credit Facility"."
1.17 Amendment of Borrowing Base Certificate. Exhibit
A of the Loan Agreement is hereby amended and restated and
shall read in its entirety as Exhibit A attached hereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Each Loan Party warrants and represents to the Agent
and the Lenders that:
2.1 Representations and Warranties True and
Correct. The representations and warranties contained in
the Agreement and the other Loan Documents are correct in
all material respects on and as of the date hereof except to
the extent the Agent and the Lenders have been notified by
the Borrower that any representation or warranty is not
correct and the Majority Lenders have explicitly waived in
writing compliance with such representation or warranty; and
except with respect to Schedules 8.3, 8.5, 8.9, 8.15, 8.17,
8.18, 8.29 and 8.32 to the Loan Agreement to the extent that
the Borrower has submitted to the Agent, the L/C Issuer and
each Lender an update thereto.
2.2 No Default or Event of Default. No event has
occurred and is continuing which constitutes a Default or an
Event of Default.
ARTICLE 3
CONSENT TO RELEASE OF COLLATERAL
3.1 Consent to Release of Revenue Equipment
Collateral. By its signature below, each Lender consents to
the release of all Collateral which consists of Revenue
Equipment and authorizes and directs the Agent to release
such Collateral and take all actions necessary in connection
therewith and reasonably incidental thereto.
ARTICLE 4
MISCELLANEOUS
4.1 Effective Date. This Amendment shall be
effective as of the date when the Agent has received a duly
executed counterpart of this Amendment from each of the
parties to the Loan Agreement; provided that the changes to
the pricing terms contained in Sections 1.3, 1.4, 1.5 and
1.6 of this Amendment shall be effective on July 1, 1998.
4.2 Governing Law. This Amendment shall be
interpreted and the rights and liabilities of the parties
hereto determined in accordance with the internal laws (as
opposed to the conflict of laws provisions) of the State of
California.
4.3 Counterparts. This Amendment may be executed
in any number of counterparts, and by the Agent, the L/C
Issuer, each Lender, the Borrower, Parent, Leland and
Redwood in separate counterparts, each of which shall be an
original, but all of which shall together constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties have entered into
this Amendment on the date first above written.
"BORROWER"
Consolidated Freightways
Corporation of Delaware, a
Delaware corporation
By: /s/David F. Morrison
Name: David F. Morrison
Title: Executive Vice President
and CFO
"PARENT"
Consolidated Freightways
Corporation, a Delaware
corporation
By: /s/David F. Morrison
Name: David F. Morrison
Title: Executive Vice President
and CFO
"LELAND"
Leland James Service
Corporation, a Delaware
corporation
By: /s/David F. Morrison
Name: David F. Morrison
Title: Executive Vice President
and CFO
"REDWOOD"
Redwood Systems, Inc., a Delaware
corporation
By: /s/David F. Morrison
Name: David F. Morrison
Title: Executive Vice President
and CFO
"AGENT"
BankAmerica Business Credit,
Inc., as the Agent
By: /s/Gary P. Riley
Name: Gary P. Riley
Title: Vice President
"LENDERS"
Commitment: $63,333,333.34 BankAmerica Business Credit,
Inc., as a Lender
By: /s/Gary P. Riley
Name: Gary P. Riley
Title: Vice President
Commitment: $23,333,333.33 NationsBank of Texas, N.A., as a
Lender
By: /s/Stacy Wills
Name: Stacy Wills
Title: Assistant Vice President
Commitment: $13,333,333.33 Credit Agricole Indosuez, as a
Lender
By: /s/Marcy Lyons
Name: Marcy Lyons
Title: First Vice President
Commitment: $23,333,333.33 Transamerica Business Credit
Corporation, as a Lender
By: /s/Robert L Heinz
Name: Robert L. Heinz
Title: Senior Vice President
Commitment: $16,666,666.67 Congress Financial Corporation
(Western), as a Lender
By: /s/Gregg Corey
Name: Gregg Corey
Title: Vice President
Commitment: $10,000,000.00 PNC Bank, National Association,
as a Lender
By:/s/ Michael Shover
Name: Michael Shover
Title: Bank Officer
"L/C ISSUER"
NationsBank of Texas, N.A., as
L/C Issuer
By: /s/Stacy Wills
Name: Stacy Wills
Title: Assistant Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 149,990
<SECURITIES> 0
<RECEIVABLES> 319,563
<ALLOWANCES> (7,708)
<INVENTORY> 9,193
<CURRENT-ASSETS> 536,158
<PP&E> 1,099,015
<DEPRECIATION> (734,750)
<TOTAL-ASSETS> 930,833
<CURRENT-LIABILITIES> 400,073
<BONDS> 15,100
0
0
<COMMON> 71,716
<OTHER-SE> 183,956
<TOTAL-LIABILITY-AND-EQUITY> 930,833
<SALES> 0
<TOTAL-REVENUES> 1,097,489
<CGS> 0
<TOTAL-COSTS> 1,067,183
<OTHER-EXPENSES> 430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,967
<INCOME-PRETAX> 29,876
<INCOME-TAX> 15,386
<INCOME-CONTINUING> 14,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,490
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.60
</TABLE>
