PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
COMMISSION FILE NUMBER 132-3
CONSOLIDATED FREIGHTWAYS, INC.
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 94-1444798
3240 Hillview Avenue, Palo Alto, California 94304
Telephone Number (415) 494-2900
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days.
Yes xx No
Number of shares of Common Stock, $.625 par value,
outstanding as of September 30, 1994 : 36,285,771
PAGE 2
CONSOLIDATED FREIGHTWAYS, INC.
FORM 10-Q
Quarter Ended September 30, 1994
_________________________________________________________________
_________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 3
Statements of Consolidated Income -
Three Months and Nine Months Ended September 30,
1994 and 1993 5
Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1994 1993
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 140,574 $ 139,044
Trade accounts receivable, net of
allowances 599,324 508,669
Other accounts and notes receivable 72,056 24,261
Operating supplies, at lower of average
cost or market 38,458 34,940
Prepaid expenses 83,180 69,009
Deferred income taxes 109,354 108,458
Total Current Assets 1,042,946 884,381
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 158,787 152,402
Buildings and improvements 509,115 488,292
Revenue equipment 989,982 935,482
Other equipment and leasehold improvements 368,894 347,601
2,026,778 1,923,777
Accumulated depreciation and amortization (1,085,830) (1,013,333)
940,948 910,444
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, net of accumulated amortization 345,506 354,076
Operating rights, net of accumulated
amortization -- 9,129
Long-term receivables 6,600 6,600
Marketable securities at lower of cost
or market 14,019 13,727
Restricted funds 14,287 13,954
Deferred income taxes 32,455 16,659
Deferred charges and other assets 117,298 102,889
530,165 517,034
TOTAL ASSETS $2,514,059 $2,311,859
The accompanying notes are an integral part of these statements.
PAGE 4
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1994 1993
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 801,759 $ 634,107
Accrued claims costs 142,876 138,242
Current maturities of long-term debt and
capital leases 41,050 39,246
Federal and other income taxes 48,780 33,449
Total Current Liabilities 1,034,465 845,044
LONG-TERM LIABILITIES
Long-term debt and guarantees 294,639 297,215
Long-term obligations under capital leases 111,171 111,194
Accrued claims costs 164,892 173,999
Other liabilities and deferred credits 251,855 261,032
Total Liabilities 1,857,022 1,688,484
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized
5,000,000 shares:
Series A, designated 600,000 shares;
none issued -- --
Series B, 8.5% cumulative, convertible,
$.01 stated value; designated
1,100,000 shares; issued 963,919 and
968,655 shares, respectively 10 10
Series C, 8.738% cumulative, convertible,
$.01 stated value; designated and
issued 690,000 shares 7 7
Additional paid-in capital, preferred stock 264,462 265,182
Deferred TASP compensation (123,550) (129,276)
Total Preferred Shareholders' Equity 140,929 135,923
Common stock, $.625 par value; authorized
100,000,000 shares; issued 43,895,612
and 43,340,801 shares, respectively 27,435 27,090
Additional paid-in capital, common stock 112,765 104,666
Cumulative translation adjustment (229) 1,229
Retained earnings 563,767 542,811
Cost of repurchased common stock
(7,609,841 and 7,638,809 shares,
respectively) (187,630) (188,344)
Total Common Shareholders' Equity 516,108 487,452
Total Shareholders' Equity 657,037 623,375
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,514,059 $2,311,859
The accompanying notes are an integral part of these statements.
<TABLE>
PAGE 5
<CAPTION>
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
REVENUES
CF MotorFreight $ 584,398 $ 536,047 $ 1,512,894 $ 1,580,128
Con-Way Transportation Services 259,444 213,989 763,765 600,889
Emery Worldwide 392,641 316,967 1,122,820 899,191
1,236,483 1,067,003 3,399,479 3,080,208
COSTS AND EXPENSES
CF MotorFreight
Operating Expenses 500,745 445,136 1,312,732 1,316,421
Selling and Administrative Expenses 65,406 56,021 181,582 171,025
Depreciation 17,988 22,190 56,552 63,472
584,139 523,347 1,550,866 1,550,918
Con-Way Transportation Services
Operating Expenses 191,948 162,914 562,140 449,681
Selling and Administrative Expenses 30,633 27,354 90,546 76,954
Depreciation 9,288 5,922 25,831 22,076
231,869 196,190 678,517 548,711
Emery Worldwide
Operating Expenses 313,975 253,988 894,935 733,818
Selling and Administrative Expenses 51,748 49,437 154,290 145,309
Depreciation 6,387 5,593 19,050 16,339
372,110 309,018 1,068,275 895,466
1,188,118 1,028,555 3,297,658 2,995,095
OPERATING INCOME (LOSS)
CF MotorFreight 259 12,700 (37,972) 29,210
Con-Way Transportation Services 27,575 17,799 85,248 52,178
Emery Worldwide 20,531 7,949 54,545 3,725
48,365 38,448 101,821 85,113
OTHER INCOME (EXPENSE)
Investment income 661 1,155 1,882 4,149
Interest expense (7,206) (7,845) (20,865) (23,473)
Miscellaneous, net 93 (80) (1,362) (1,693)
(6,452) (6,770) (20,345) (21,017)
Income Before Income Taxes and
Extraordinary Charge 41,913 31,678 81,476 64,096
Income Taxes 21,632 14,599 40,732 30,357
Net Income Before Extraordinary Charge 20,281 17,079 40,744 33,739
Extraordinary charge from write off of
intrastate operating rights, net
of tax benefits of $4,056 5,522 -- 5,522 --
NET INCOME 14,759 17,079 35,222 33,739
Preferred Stock Dividends 4,768 4,697 14,265 14,193
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 9,991 $ 12,382 $ 20,957 $ 19,546
Primary average shares outstanding (1) 37,218,928 35,432,410 37,261,289 35,398,707
PRIMARY EARNINGS PER SHARE
Net Income Before Extraordinary Charge $ 0.42 $ 0.35 $ 0.71 $ 0.55
Extraordinary charge (0.15) -- (0.15) --
Net income $ 0.27 $ 0.35 $ 0.56 $ 0.55
FULLY DILUTED EARNINGS PER SHARE
Net Income Before Extraordinary Charge $ 0.37 $ 0.31 $ 0.63 $ 0.48
Extraordinary charge (0.13) -- (0.13) --
Net income $ 0.24 $ 0.31 $ 0.50 $ 0.48
(1) Includes the dilutive effects of stock options.
The accompanying notes are an intergral part of these statements.
</TABLE>
PAGE 6
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1994 1993
(Dollars in thousands)
CASH AND TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD $ 139,044 $ 152,064
CASH FLOWS FROM OPERATING ACTIVITIES
Income before extraordinary charge 40,744 33,739
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 109,313 109,150
Decrease in deferred income taxes (5,523) (14,166)
(Gains) losses from property disposals, net 772 (613)
Changes in operating assets and liabilities:
Receivables (85,462) (166,580)
Notes receivable from sale of trade
accounts -- 166,399
Accrued claims costs (4,473) (4,352)
Accounts payable 48,931 (9,568)
Income taxes 14,299 (10,257)
Accrued liabilities, deferred charges
and other 26,186 30,881
Net Cash Provided by Operating Activities 144,787 134,633
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (138,768) (157,858)
Sales of marketable securities -- 66,395
Purchases of marketable securities (292) (53,392)
Proceeds from sale of property 5,493 9,493
Net Cash Used in Investing Activities (133,567) (135,362)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital
lease obligations (795) (45,404)
Proceeds from issuance of long-term debt -- 32,000
Proceeds from issuance of common stock 8,438 987
Payments of preferred dividends (17,333) (17,389)
Net Cash Used in Financing Activities (9,690) (29,806)
Increase (Decrease) in Cash and Temporary
Cash Investments 1,530 (30,535)
CASH AND TEMPORARY CASH INVESTMENTS,
END OF PERIOD $ 140,574 $ 121,529
The accompanying notes are an integral part of these statements.
PAGE 7
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements of
Consolidated Freightways, Inc. and subsidiaries (the Company)
have been prepared by the Company, without audit by independent
public accountants, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of
management, the consolidated financial statements include all
normal recurring adjustments necessary to present fairly the
information required to be set forth therein. Certain
information and note disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these
statements pursuant to such rules and regulations and,
accordingly, should be read in conjunction with the consolidated
financial statements included in the Company's 1993 Annual Report
to Shareholders.
There have been no significant changes in the accounting
policies of the Company. There were no significant changes in
the Company's commitments and contingencies as previously
described in the 1993 Annual Report to Shareholders and related
annual report to the Securities and Exchange Commission on Form
10-K.
2. In November 1993, the Accounting Standards Division of the
AICPA issued Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans" (SOP 93-6). This statement
changes the recognition of compensation for stock allocated to
employee accounts to satisfy plan benefits, settlement of plan
liabilities and changes the inclusion in earnings per share of
shares held in trust by ESOPs. As provided for under this
statement, the Company is not required to adopt this method of
accounting as its existing ESOP (TASP) was established before
December 31, 1992. Had this statement been adopted January 1,
1994, both the primary and fully diluted earnings per share for
the quarter and nine months ended September 30, 1994 would have
been $.26 and $.55, respectively.
3. The passage of the Federal Aviation Administration
Authorization Act of 1994 made the Company's intrastate operating
rights worthless. Consequently, the Company recorded an
extraordinary charge of $9,578,000 equal to the carrying value of
its operating rights. The extraordinary charge is reflected net
of income tax benefits of $4,056,000 in the Statements of
Consolidated Income.
4. The Company and its subsidiaries are defendants in various
lawsuits incidental to their businesses. It is the opinion of
management that the ultimate outcome of these actions will not
have a material impact on the Company's financial position or
results of operations.
PAGE 8
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Strong growth at all of the Company's principal operating
entities in the third quarter resulted in an increase in total
Company revenues of 15.9% over the same period last year. CF
MotorFreight (CFMF) revenues were a significant improvement from
the levels in the second quarter that were adversely impacted by
a 24 day strike by the Teamster's Union. Year-to-date Company
revenues were up 10.4% as continuing record levels at Con-Way
Transportation Services (CTS) and Emery Worldwide (Emery) more
than offset lower, strike affected CFMF revenues.
Third quarter operating income increased 25.8% to $48.4 million
while year-to-date operating income increased 19.6% to $101.8
million. Significant improvements in earnings at CTS and Emery
offset lower operating income and strike related losses at CFMF.
The Company recorded a non-cash $5.5 million extraordinary charge
net of income tax benefits of $4.1 million in the third quarter.
The charge reflects the pre-emption of intrastate operating
rights as a result of the passage of the Federal Aviation
Administration Authorization Act of 1994 in August of this year.
CF MOTORFREIGHT
CF MotorFreight (CFMF) revenues for the third quarter 1994
increased 9.0% on a tonnage increase of 2.0%, with higher rated
less-then-truckload (LTL) tonnage also up 2.0%. CFMF's third
quarter revenue improvement over last year reflects growth from
its non-carrier logistics operation. Third quarter revenues from
the LTL carrier operations improved marginally from the third
quarter in 1993 reflecting CFMF's recapture of business levels
lost during the second quarter strike. Year-to-date revenues
were down 4.3% as a result of the Teamster strike in April of
this year with year-to-date tonnage down 9.1% and LTL tonnage
down 9.4%.
CFMF's third quarter operating income was down $12.4 million from
the 1993 quarter reflecting increased labor costs incurred during
the recapture of business levels and costs incurred in connection
with the reconfiguration of operations. The nine-months loss of
$38.0 million reflects a deterioration of $67.2 million from the
comparable period in 1993 due to losses incurred during the
strike and subsequent recovery and increased operating expenses.
However, CFMF's marginal operating income of $259,000 for the
quarter highlights CFMF's return to profitability from the
previous quarter's strike related loss of $42.1 million.
PAGE 9
A new management team is focusing efforts on improving customer
service, emphasizing flexible value-added service and continuing
to reduce costs. In addition, management is implementing plans
to benefit from the operating flexibilities gained in the new
four-year National Master Freight Agreement with the Teamsters.
The efficiencies realized from the operating flexibilities in
conjunction with the new management's efforts are expected to
yield improved operating results.
CON-WAY TRANSPORTATION SERVICES
Con-Way Transportation Services (CTS) third quarter revenues
increased 21.2% to $259.4 million compared with the same period
last year. Year-to-date revenues were at record levels,
increasing 27.1% compared with the nine-months ended 1993. The
corresponding tonnage increases were 16.4% for the quarter and
22.9% year-to-date with LTL tonnage up 20.1% and 27.0% for the
respective periods. The gains in both periods reflect expansion
into new regions combined with growth in the existing markets
served, and benefits from the strike in the year-to-date period.
Operating income for the quarter increased 54.9% to $27.6 million
and year-to-date income increased 63.4% to $85.2 million over the
respective periods last year. The improved operating income
reflects the revenue growth within CTS' existing markets and
improved profits from the newly established regions.
CTS anticipates some erosion of rates following the federal pre-
emption of state operating authorities under the Federal Aviation
Administration Authorization Act of 1994. However, the pre-
emption also allows CTS to continue to expand into regions not
currently served and to further expand on their joint service
agreements and complete a U.S. network. This will allow CTS to
provide additional services and aggressively pursue large
national accounts.
EMERY WORLDWIDE
Emery Worldwide (Emery) revenues in the third quarter increased
23.9% over the same period last year on tonnage growth of 29.6%.
Year-to-date revenues have increased 24.9% to $1.1 billion. Both
the quarter and year-to-date revenues represent record levels.
The strong quarterly growth benefitted from international tonnage
that increased 43.5% compared to 24.3% domestically. Year-to-
date domestic and international growth was 35.3% and 39.2%,
respectively. Contributing to the increase in revenues is
management's continued concentration on securing significant
international and domestic accounts. Also contributing to
domestic growth is the decline in commercial wide-body lift.
Emery continues to see the benefits of the combination of strong
growth in revenues and managed cost containment as operating
PAGE 10
income in the third quarter increased 158.3% over the prior
year's quarter to $20.5 million. Year-to-date operating
income increased $50.8 million over the prior year to a record
$54.5 million.
Emery management will continue with the same programs that have
proven successful at increasing revenues and controlling costs.
As part of these programs, Emery recently completed the
reconfiguration of its main hub facility in Dayton, Ohio which
will allow the company to increase its effective capacity by over
20% per day, while at the same time improving service
reliability, delivery performance and minimizing costs. To meet
increasing volumes, the company has put into service seven of
nine DC-8 jet freighters ordered earlier in the year with the
remainder to be put into service in the fourth quarter. Although
these additions replace previously existing short-term leased
planes, they allow Emery to more efficiently service increasing
business levels.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1994, the Company had $140.6 million in
cash and cash equivalents and $14.0 million in long term
investments. Cash flow from operations of $144.8 million was
primarily the result of income from operations and significant
depreciation and amortization. During the first nine months of
the year, capital expenditures were $138.8 million compared to
$157.9 million in 1993. The Company supplemented its 1994
capital expenditure needs for equipment with the addition of
various lease arrangements. The 1993 capital expenditures
include the purchase of approximately $61.5 million of aircraft
and related equipment in connection with the USPS contract. The
Company intends to finance the remaining capital requirements for
the year with cash from operations supplemented by lease
arrangements.
In the fourth quarter of this year, $38.2 million of the
Company's Medium Term Notes come due. The Company intends to
retire these maturities with existing cash and cash flows from
operations.
The Company has a $250 million unsecured credit facility,
which in May 1994, was supplemented by a $50 million agreement.
A related $110 million facility provides for additional letter of
credit flexibility subject to the overall limitation of $250
million. At the Company's election, $55 million of this letter
of credit facility can be utilized as incremental capacity
without the overall $250 million limitation. The aggregate
capacity under these facilities is $355 million. At September
30, 1994, $77.6 million of letters of credit were issued under
these agreements.
In May 1994, the Company secured an additional $25 million
PAGE 11
under the Emery receivables sale facility. This brings the total
availability under this facility for cash and non-transferable
promissory notes and related letters of credit to $100 million.
At September 30, 1994, $72 million of letters of credit were
issued and secured with Emery receivables.
In addition, the Company has several unsecured letter of
credit facilities with various banks that total $45 million. At
September 30, 1994, $41.3 million of letters of credit were
issued under these agreements.
OTHER
The Company's operations necessitate the storage of fuel in
underground tanks as well as the disposal of substances regulated
by various federal and state laws. The Company adheres to a
stringent site-by-site tank testing and maintenance program
performed by a qualified independent party to protect the
environment and comply with regulations. Where the need for
clean-up is necessary, the Company takes appropriate action.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously reported, the Company has been designated a
Potentially Responsible Party (PRP) by the EPA with respect to
the disposal of hazardous substances at various sites. The
Company expects its share of the total cleanup costs of all sites
to be immaterial. Certain legal matters are discussed in Note 4
in the Notes to Consolidated Financial Statements in Part I of
this form.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1994.
PAGE 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company (Registrant) has
duly caused this Form 10-Q Quarterly Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED FREIGHTWAYS, INC.
(Registrant)
November 10, 1994 /s/Gregory L. Quesnel
Gregory L. Quesnel
Executive Vice President -
Chief Financial Officer
November 10, 1994 /s/Gary D. Taliaferro
Gary D. Taliaferro
Vice President and Controller
<TABLE> EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
The following is the computation of fully-diluted earnings per share:
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Earnings:
Net income before extraordinary charge $ 20,281 $ 17,079 $ 40,744 $ 33,739
Preferred dividends 4,768 4,697 14,265 14,193
15,513 12,382 26,479 19,546
Extraordinary charge 5,522 -- 5,522 --
Net income available to common
shareholders 9,991 12,382 20,957 19,546
Non-discretionary adjustments under
the if-converted method:
Addback: Series B, preferred dividends, net of
tax benefits 2,120 2,041 6,304 6,224
Less: Replacement of funding
adjustment, net of tax benefits (1) (2,120) (2,041) (6,304) (6,224)
Net income available to common
shareholders $ 9,991 $ 12,382 $ 20,957 $ 19,546
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares 36,255,334 35,432,410 36,144,907 35,398,707
Equivalents - stock options 963,594 411,756 1,116,382 524,774
Preferred stock - if-converted method 4,315,273 4,586,821 4,315,273 4,586,821
41,534,201 40,430,987 41,576,562 40,510,302
FULLY-DILUTED EARNINGS PER SHARE
Net income before extraordinary charge $ 0.37 $ 0.31 $ 0.63 $ 0.48
Extraordinary charge (0.13) -- (0.13) --
Net income available to common
shareholders $ 0.24 $ 0.31 $ 0.50 $ 0.48
(1) Additional payment to the TASP to replace the funding lost under the if-converted method.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 140574
<SECURITIES> 0
<RECEIVABLES> 630208
<ALLOWANCES> (30884)
<INVENTORY> 38458
<CURRENT-ASSETS> 1042946
<PP&E> 2026778
<DEPRECIATION> (1085830)
<TOTAL-ASSETS> 2514059
<CURRENT-LIABILITIES> 1034465
<BONDS> 405810
<COMMON> 140200
0
264479
<OTHER-SE> 252358
<TOTAL-LIABILITY-AND-EQUITY> 2514059
<SALES> 0
<TOTAL-REVENUES> 3399479
<CGS> 0
<TOTAL-COSTS> 3297658
<OTHER-EXPENSES> 20345
<LOSS-PROVISION> 8442
<INTEREST-EXPENSE> 20865
<INCOME-PRETAX> 81476
<INCOME-TAX> 40732
<INCOME-CONTINUING> 26479
<DISCONTINUED> 0
<EXTRAORDINARY> 5522
<CHANGES> 0
<NET-INCOME> 20957
<EPS-PRIMARY> .56
<EPS-DILUTED> .50
</TABLE>
