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 March 31, 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 March 31, 1994: 36,134,432
PAGE 2
CONSOLIDATED FREIGHTWAYS, INC.
FORM 10-Q
Quarter Ended March 31, 1994
_________________________________________________________________
_________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 3
Statements of Consolidated Income -
Three Months Ended March 31, 1994 and 1993 5
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 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 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1994 1993
(In thousands)
ASSETS
CURRENT ASSETS
Cash and temporary cash investments $ 120,222 $ 139,044
Trade accounts receivable, net of
allowances 521,464 508,669
Other accounts and notes receivable 28,860 35,714
Operating supplies, at lower of average
cost or market 34,585 34,940
Prepaid expenses 101,939 69,009
Deferred income taxes 106,975 108,458
Total Current Assets 914,045 895,834
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 152,417 152,402
Buildings and improvements 493,909 488,292
Revenue equipment 951,637 935,482
Other equipment and leasehold improvements 355,207 347,601
1,953,170 1,923,777
Accumulated depreciation and amortization (1,039,940) (1,013,333)
913,230 910,444
OTHER ASSETS
Cost in excess of net assets of businesses
acquired, net of accumulated amortization 351,463 354,076
Operating rights, net of accumulated
amortization 8,921 9,129
Long-term receivables 6,600 6,600
Marketable securities at lower of cost
or market 14,704 13,727
Restricted funds 15,385 13,954
Deferred charges and other assets 110,683 102,889
507,756 500,375
TOTAL ASSETS $2,335,031 $2,306,653
The accompanying notes are an integral part of these statements.
PAGE 4
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1994 1993
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 658,091 $ 634,107
Accrued claims costs 132,838 138,242
Current maturities of long-term debt and
capital leases 39,183 39,246
Federal and other income taxes 3,864 6,158
Total Current Liabilities 833,976 817,753
LONG-TERM LIABILITIES
Long-term debt and guarantees 296,963 297,215
Long-term obligations under capital leases 111,236 111,194
Deferred income taxes 15,819 22,085
Accrued claims costs 174,049 173,999
Other liabilities and deferred credits 262,637 261,032
Total Liabilities 1,694,680 1,683,278
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 967,179 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 264,957 265,182
Deferred TASP compensation (126,801) (129,276)
Total Preferred Shareholders' Equity 138,173 135,923
Common stock, $.625 par value; authorized
100,000,000 shares; issued 43,764,559
and 43,340,801 shares, respectively 27,355 27,090
Additional paid-in capital, common stock 110,708 104,666
Cumulative translation adjustment (1,088) 1,229
Retained Earnings 553,333 542,811
Cost of repurchased common stock
(7,630,127 and 7,638,809 shares,
respectively) (188,130) (188,344)
Total Common Shareholders' Equity 502,178 487,452
Total Shareholders' Equity 640,351 623,375
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,335,031 $2,306,653
The accompanying notes are an integral part of these statements.
PAGE 5
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands except per share amount)
Three Months Ended
March 31,
REVENUES 1994 1993
CF MotorFreight $ 532,383 $ 520,162
Con-Way Transportation Services 230,408 187,967
Emery Worldwide 340,430 284,852
1,103,221 992,981
COSTS AND EXPENSES
CF MotorFreight
Operating Expenses 447,155 432,770
Selling and Administrative Expenses 61,567 56,738
Depreciation 19,748 20,537
528,470 510,045
Con-Way Transportation Services
Operating Expenses 173,773 138,384
Selling and Administrative Expenses 27,656 25,525
Depreciation 8,055 8,148
209,484 172,057
Emery Worldwide
Operating Expenses 275,242 238,169
Selling and Administrative Expenses 48,190 45,998
Depreciation 6,351 5,362
329,783 289,529
1,067,737 971,631
OPERATING INCOME (LOSS)
CF MotorFreight 3,913 10,117
Con-Way Transportation Services 20,924 15,910
Emery Worldwide 10,647 (4,677)
35,484 21,350
OTHER INCOME (EXPENSE)
Investment income 515 1,506
Interest expense (6,876) (7,707)
Miscellaneous, net (365) 332
(6,726) (5,869)
Income Before Income Taxes 28,758 15,481
Income Taxes 13,502 7,213
Net Income 15,256 8,268
Preferred Stock Dividends 4,734 4,749
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 10,522 $ 3,519
Primary average shares outstanding (1) 37,159,645 36,015,495
PRIMARY EARNINGS PER COMMON SHARE: $ 0.28 $ 0.10
FULLY DILUTED EARNINGS PER COMMON SHARE: $ 0.25 $ 0.09
(1) Includes the dilutive effect of stock options.
The accompanying notes are an integral part of these statements.
PAGE 6
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1994 1993
(In thousands)
CASH AND TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD $ 139,044 $ 152,064
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 15,256 8,268
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 36,749 36,800
Decrease in deferred income taxes (5,345) (522)
(Gains) losses from property disposals, net 4 (234)
Changes in assets and liabilities:
Receivables (10,787) (17,624)
Notes receivable from sale of trade
accounts -- 21,879
Accrued claims costs (5,354) (4,363)
Accounts payable (9,997) (20,657)
Income taxes 3,569 5,837
Accrued liabilities, deferred charges
and other (4,763) 13,948
Net Cash Provided by Operating Activities 19,332 43,332
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (38,177) (38,514)
Purchases of marketable securities (977) (32,632)
Proceeds from sale of property 758 2,241
Net Cash Used by Investing Activities (38,396) (68,905)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt and capital
lease obligations (273) (107)
Proceeds from issuance of common stock 6,297 683
Payments of preferred dividends (5,782) (5,800)
Net Cash Provided (Used)
by Financing Activities 242 (5,224)
Decrease in Cash and Temporary Cash Investments (18,822) (30,797)
CASH AND TEMPORARY CASH INVESTMENTS,
END OF PERIOD $ 120,222 $ 121,267
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,
except as discussed in Item 2, "Management's Discussion and
Analysis of Results of Operations."
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 ended March 31, 1994 would have been $.28.
3. 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
Total Company revenues for the first quarter of 1994
increased 11.1% to $1.1 billion from the same period last year.
This substantial increase is due to the continued success of the
Con-Way group and Emery, which posted a significant increase in
revenue in what is traditionally a slow quarter for the air
freight business. CF MotorFreight earned slightly higher
revenues as a January 1, 1994 discount rate rollback was
substantially retained.
First quarter operating income increased $14.1 million or 66.2%
over the same period last year as the Con-Ways posted another
quarter of record operating profits and Emery realized an
operating profit in the first quarter, a period in which it has
historically incurred losses. The success of these two groups
more than offset the decline in CF MotorFreight. All three
groups were affected by the severe cold and wet winter weather
and the Los Angeles-area earthquake.
Significant variations in segment revenue and operating income
are as follows:
CF MOTORFREIGHT
CF MotorFreight's (CFMF) revenues for the first quarter of
1994 increased $12.2 million or 2.4% over the prior year, due
primarily to the 3% discount rate rollback effective January 1,
1994. Total tonnage was essentially unchanged while the higher
rated less-than-truckload (LTL) tonnage decreased 1%. This
decline reflects loss of shipments due to the harsh winter
weather conditions and the Los Angeles-area earthquake, as well
as market dilution from non-traditional competitors and changes
in distribution patterns by customers. However, CFMF was showing
signs of improvement, as LTL tonnage per day in March 1994 was up
0.8%, the first year-to-year increase since December 1992.
Operating income for the quarter declined 61.3% from the
comparable 1993 quarter reflecting an increase in labor costs,
expenses related to the weather and earthquake and a substantial
erosion in yields. The yield erosion abated in the first quarter
of 1994 with substantial retention of the January 1994 discount
rollback.
PAGE 9
CFMF expects to report a loss in the second quarter due to a
three week work stoppage that ended April 29, 1994. On April 6
CFMF's contractual employees, represented primarily by the
International Brotherhood of Teamsters (IBT), went on strike
after the IBT leadership rejected Trucking Management Inc.'s
contractual offer. After negotiations, a tentative agreement was
reached on April 29, 1994. Although the contractual employees
have returned to work, the IBT membership needs to ratify the
contract in May. The Company expects to report a substantial
loss for the quarter due to fixed costs continuing during the
strike and start up of business activities since the strike.
CFMF's management does not expect business volumes to be restored
to levels prior to the strike. However, at this time management
cannot reliably predict how much of such business will be
permanently lost to competitors.
To minimize the ongoing costs associated with the strike,
management is considering various options to optimize the
freight-flow infrastructure. This involves sizing the system in
line with various levels of reduced business to minimize linehaul
and freight handling costs and increase direct loading.
CON-WAY TRANSPORTATION SERVICES
Con-Way Transportation Services (CTS) revenue increased
$42.4 million or 22.6% over the same period last year, setting a
new first quarter revenue record, as total revenue for the
quarter exceeded $200 million. Expansion into new markets,
primarily Missouri and Florida in late 1993 and the northeast in
early 1994, has yielded substantial increases in shipment levels.
Total tonnage increased 24.5% while the higher rated LTL tonnage
increased 23.1% over the same period last year.
Operating profits for the first quarter of 1994 improved
$5.0 million or 31.5% over the same period last year. Despite
incurring start up costs related to market expansions and
significant costs as a result of bad winter weather and the Los
Angeles-area earthquake, margins still increased from 8.5% in the
first quarter of 1993 to 9.1% in 1994.
The Con-Ways expect to continue their pattern of growth
through expansion into new geographic markets, utilization of its
joint service agreements and continued growth in its existing
markets. These joint service agreements augment business levels
by allowing the companies to service customer requirements in
these competitive markets. The Con-Way's business volumes have
benefited significantly from the Teamster strike of the unionized
sector of the LTL industry in April 1994.
PAGE 10
EMERY WORLDWIDE
Emery's first quarter 1994 revenues of $340.4 million
represent an increase of 19.5% over 1993. All of the revenue
increase is attributable to commercial business with North
American and international weight increasing 33% and 29%,
respectively. Revenue under the new U.S. Postal Service contract
is 26% lower than in 1993. The new USPS contract provides for
revenue of $880 million over 10 years with an additional $26.9
million annually as reimbursement of certain costs.
Operating income was $10.6 million, an increase of $15.3
million from a loss of $4.7 million last year. Emery's profit
improvement in both the domestic and international markets is
attributable to stringent cost control measures implemented in
1992, growth in volumes resulting from increasing customer
confidence and marketplace acceptance of Emery's successful
strategy of offering flexible service solutions.
Emery plans to continue the strategies which have
successfully increased business levels while containing costs.
In March, Emery announced it was leasing 9 DC-8 jet freighters
with delivery occurring through the fourth quarter. The
additions will allow Emery to efficiently service current
business levels and handle anticipated increases as the peak
shipping season approaches. Although the DC-8s replace short-
term leased planes, their utilization will increase dedicated
lift capacity by 25%. The Company will continue to optimize its
freight flow infrastructure to maximize operating margins as
commercial business volumes continue to increase both
domestically and internationally.
Emery's business volumes have also benefited significantly
in April 1994 as a result of the Teamster strike of the unionized
sector of the LTL industry.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994 the Company had $120.2 million in cash and
cash equivalents and $14.7 million in long term investments.
Cash flow from operations of $19.3 million was primarily the
result of income from operations and significant depreciation and
amortization. The Company incurred $38.2 million in capital
expenditures during the quarter. As a result of the strike by
the Teamsters, the Company has canceled plans for CFMF 1994
capital expenditures of approximately $50 million for over-the
road equipment, such as tractors and trailers, city pick up and
delivery trucks and dock equipment, as well as terminal
expansion. The Company expects to satisfy the capital
expenditure requirements of its regional trucking and airfreight
operations with cash from operations and by leasing.
PAGE 11
In 1993, Emery entered into a $75 million receivable sale
facility with several banks. The agreement involves the sale of
eligible air freight subsidiary receivables to a special purpose
corporation for use as cash or non-transferable promissory notes
and related letters of credit. At March 31, 1994, $72 million of
letters of credit were issued and secured with Emery receivables.
To allow for future letter of credit requirements, Emery is
currently negotiating an increase in this facility to $100
million.
Also in 1993, the Company entered into a $250 million
unsecured credit facility to provide standby availability for the
Company's letter of credit and working capital needs. A second
related agreement provides for letters of credit up to $110
million. Letters of credit of $121 million are outstanding under
these two facilities. The combined cash borrowings and
outstanding letters of credit under these two agreements may not
exceed $250 million.
To satisfy working capital needs, during the work stoppage
and for the time required to restore business levels at CFMF, the
Company has available unused credit of $130 million at March 31,
1994.
OTHER
The Company's operations necessitate the storage of fuel in
underground tanks as well as the disposal of substances regulated
by various federal and state laws. The Company adheres to a
stringent site-by-site tank testing and maintenance program
performed by 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.
PAGE 12
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 3
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
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 1994.
PAGE 13
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)
May 6, 1994 /s/Gregory L. Quesnel
Gregory L. Quesnel
Executive Vice President -
Chief Financial Officer
May 6, 1994 /s/Robert E. Wrightson
Robert E. Wrightson
Vice President and Controller
COMPUTATION OF PER SHARE EARNINGS
The following is the computation of fully-diluted earnings per share:
Three Months Ended
March 31
1994 1993
(Dollars in thousands)
Earnings:
Net Income $ 15,256 $ 8,268
Preferred dividends 4,734 4,749
Net income available to common shareholders 10,522 3,519
Non-discretionary adjustments under
the if-converted method:
Addback: Series B, preferred dividends,
net of tax benefits 2,078 2,093
Less: Replacement of funding
adjustment, net of tax benefits (1) (2,078) (2,093)
$ 10,522 $ 3,519
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares 35,962,606 35,360,163
Equivalents - stock options 1,197,039 655,332
Series B, preferred stock -
if converted method 4,124,274 4,440,790
41,283,919 40,456,285
FULLY-DILUTED EARNINGS PER SHARE $ 0.25 $ 0.09
(1) Additional payment to the TASP to replace the funding lost under
the if-converted method.
