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, 1995
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, 1995 : 43,302,283
PAGE 2
CONSOLIDATED FREIGHTWAYS, INC.
FORM 10-Q
Quarter Ended March 31, 1995
_________________________________________________________________
_________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 3
Statements of Consolidated Income -
Three Months Ended March 31, 1995 and 1994 5
Statements of Consolidated Cash Flows -
Three Months Ended March 31, 1995 and 1994 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 10
Item 4. Submission of Matters to a Vote of Security
Holders 11
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,
1995 1994
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 93,516 $ 95,711
Trade accounts receivable, net of
allowances 675,044 659,191
Other accounts receivable 23,608 37,021
Operating supplies, at lower of average
cost or market 44,033 41,719
Prepaid expenses 98,668 71,277
Deferred income taxes 131,071 126,546
Total Current Assets 1,065,940 1,031,465
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 164,289 163,965
Buildings and improvements 519,060 510,568
Revenue equipment 995,988 979,002
Other equipment and leasehold improvements 386,686 368,809
2,066,023 2,022,344
Accumulated depreciation and amortization (1,093,549) (1,077,752)
972,474 944,592
OTHER ASSETS
Restricted funds 14,356 12,861
Deposits and other assets 108,114 80,626
Unamortized aircraft maintenance, net 78,396 81,010
Costs in excess of net assets of businesses
acquired, net of accumulated amortization 319,585 322,169
520,451 496,666
TOTAL ASSETS $2,558,865 $2,472,723
The accompanying notes are an integral part of these statements.
PAGE 4
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1995 1994
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 802,423 $ 796,381
Accrued claims costs 136,236 138,800
Current maturities of long-term debt and
capital leases 2,174 3,712
Short-term borrowings 55,000 --
Federal and other income taxes 6,506 6,275
Total Current Liabilities 1,002,339 945,168
LONG-TERM LIABILITIES
Long-term debt and guarantees 286,679 286,833
Long-term obligations under capital leases 111,010 111,024
Accrued claims costs 163,859 163,849
Deferred income taxes 43,570 38,034
Other liabilities and deferred credits 252,106 254,186
Total Liabilities 1,859,563 1,799,094
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 961,032 and
962,748 shares, respectively 10 10
Series C, 8.738% cumulative, convertible,
$.01 stated value; designated and
issued none and 690,000 shares,
respectively -- 7
Additional paid-in capital, preferred stock 146,163 264,284
Deferred TASP compensation (119,167) (120,646)
Total Preferred Shareholders' Equity 27,006 143,655
Common stock, $.625 par value; authorized
100,000,000 shares; issued 50,892,217
and 43,955,510 shares, respectively 31,808 27,472
Additional paid-in capital, common stock 230,229 116,209
Cumulative translation adjustment 2,672 (1,170)
Retained earnings 594,726 574,885
Cost of repurchased common stock
(7,589,934 and 7,601,382 shares,
respectively) (187,139) (187,422)
Total Common Shareholders' Equity 672,296 529,974
Total Shareholders' Equity 699,302 673,629
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,558,865 $2,472,723
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 amounts)
Three Months Ended
March 31
REVENUES 1995 1994
CF MotorFreight $ 608,425 $ 532,383
Con-Way Transportation Services 274,890 230,408
Emery Worldwide 412,772 340,430
1,296,087 1,103,221
COSTS AND EXPENSES
CF MotorFreight
Operating Expenses 524,784 447,155
Selling and Administrative Expenses 56,827 61,567
Depreciation 16,691 19,748
598,302 528,470
Con-Way Transportation Services
Operating Expenses 203,540 173,773
Selling and Administrative Expenses 33,219 27,656
Depreciation 9,283 8,055
246,042 209,484
Emery Worldwide
Operating Expenses 339,175 275,242
Selling and Administrative Expenses 53,938 48,190
Depreciation 6,597 6,351
399,710 329,783
1,244,054 1,067,737
OPERATING INCOME
CF MotorFreight 10,123 3,913
Con-Way Transportation Services 28,848 20,924
Emery Worldwide 13,062 10,647
52,033 35,484
OTHER INCOME (EXPENSE)
Investment income 125 515
Interest expense (7,201) (6,876)
Miscellaneous, net (206) (365)
(7,282) (6,726)
Income Before Income Taxes 44,751 28,758
Income Taxes 20,585 13,502
Net Income 24,166 15,256
Preferred Stock Dividends 4,324 4,734
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 19,842 $ 10,522
Primary average shares outstanding (1) 44,217,465 37,159,645
PRIMARY EARNINGS PER SHARE $ 0.50 $ 0.28
FULLY DILUTED EARNINGS PER SHARE $ 0.46 $ 0.25
(1) Includes the dilutive effect of stock options, and the conversion of
Series C Preferred stock to Common stock in the three months ended
March 31, 1995.
The accompanying notes are an intergral part of these statements.
PAGE 6
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1995 1994
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 95,711 $ 139,044
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 24,166 15,256
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 35,310 36,749
Increase (decrease) in deferred income taxes 2,098 (5,345)
(Gains) losses from property disposals, net (171) 4
Changes in assets and liabilities:
Receivables (17,490) (10,787)
Accrued claims costs (2,278) (5,354)
Accounts payable 9,753 (9,997)
Income taxes 14,884 3,569
Accrued incentive compensation (30,971) (650)
Accrued liabilities and other (26,630) (4,113)
Net Cash Provided by Operating Activities 8,671 19,332
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (56,541) (38,177)
Purchases of marketable securities -- (977)
Proceeds from sale of property 825 758
Net Cash Used by Investing Activities (55,716) (38,396)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 55,000 --
Repayment of long-term debt and capital
lease obligations (1,707) (273)
Proceeds from issuance of common stock 511 6,297
Payments of common dividends (3,636) --
Payments of preferred dividends (5,318) (5,782)
Net Cash Provided by Financing Activities 44,850 242
Decrease in Cash and Cash Equivalents (2,195) (18,822)
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 93,516 $ 120,222
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 1994 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 1994 Annual Report to Shareholders and related
annual report to the Securities and Exchange Commission on Form
10-K.
2. Short-term borrowings consist of $55.0 million from the
Company's $300 million revolving, unsecured credit facility. The
borrowings bear interest at LIBOR plus a margin (totaling 6.65%
at March 31, 1995). At March 31, 1995, the Company also had
$110.1 million of letters of credit outstanding under this
agreement, leaving $134.9 million of unused capacity. This
agreement expires in January 1999.
3. On March 15, 1995, the Company's 6,900,000 depository shares,
each representing one-tenth of a share of Series C Conversion
Preferred stock, were converted to 6,900,000 shares of the
Company's Common stock.
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
Total Company revenues in the first quarter increased 17.5% to a
record $1.30 billion driven by strong revenue growth at each of
the Company's principal operations. CF MotorFreight (CFMF)
continued its strong recovery, with revenues exceeding pre-strike
levels. The growth was accomplished despite a noticeable
slowdown in the rate of economic growth.
Operating income increased 46.6% to a first quarter record of
$52.0 million and was the second highest operating income level
in the Company's history. The increase in income reflects the
first quarter in five years that all of CF's principal businesses
reported simultaneous earnings increases.
Significant variations in segment revenue and operating income
are as follows:
CF MOTORFREIGHT
CF MotorFreight's first quarter revenues increased 14.3% from the
same quarter of last year on a tonnage increase of 9.6% with
less-than-truckload (LTL) tonnage up 11.5%. The revenue
improvements reflect CFMF's continuing recovery, benefits of the
January 1st rate increase, continued growth from its non-carrier
logistics operation and the success of new marketing initiatives.
Operating income for the first quarter increased 158.7% from the
same quarter last year. This improvement reflects benefits from
revenue growth, cost controls and efficiencies gained from
changes in operations to increase the utilization of rail. Also
contributing to improved results was income from non-carrier
operations.
With growth in the economy beginning to slow, CFMF is
experiencing increased discounting and intensified competition.
A 3.3% wage and benefit increase for contractual labor went into
effect on April 1, 1995. To offset the impact of these trends,
CFMF will initiate additional changes to operations. These
include increasing point-to-point loading, thereby reducing
freight handling and transit times.
PAGE 9
CON-WAY TRANSPORTATION SERVICES
First quarter revenues from Con-Way Transportation Services (CTS)
increased 19.3% on a tonnage increase of 7.5% with LTL tonnage
increasing 7.9%. Contributing to the increased revenue levels
was customers' acceptance of CTS's operations serving new
geographic markets and expanded service in market lanes between
regions.
CTS's operating income for the first quarter was up 37.9% over
the first quarter of 1994. The operating margin increased to
10.5% from 9.1% a year ago. The significant income improvement
reflects increased profitability from revenue growth and
efficiencies of joint service operations despite startup and
expansion costs incurred in the Pacific Northwest and New
York/New Jersey metropolitan area.
With weaker economic growth expected for the second quarter,
management is expecting increased pricing pressures especially in
light of the deregulation of intrastate traffic. CTS expects to
counter slower economic growth by differentiating the level and
type of services it provides customers, including its ability to
provide expanded geographic coverage.
EMERY WORLDWIDE
Emery Worldwide's (Emery) revenues increased 21.3% primarily from
continued strong growth in its international business. Domestic
revenues increased 8.4% on 10.6% weight growth, while
international revenues were up 54.7% on a 57.8% weight increase.
The lower domestic increase reflects softening U.S. economic
growth, particularly in the automotive sector which constitutes a
significant customer base for Emery. The strong international
growth reflects the continuation of Emery's marketing strategy to
increase its global market share.
Emery's first quarter operating income increased 22.7% from the
same quarter last year reflecting the combined benefits of volume
improvements and cost control. Emery was able to mitigate some
of the slowing of domestic growth by reducing terminal and
airhaul expenses in part from the elimination seven aircraft from
its fleet.
Seasonal adjustments to the size of its fleet and measures to
hold down other operating costs will be emphasized in response to
the softening domestic business growth. In addition to the above
measures, enhanced and new marketing programs have been added to
further satisfy customer needs in global markets. In the
international market, management is expanding its service
capabilities to provide coverage to emerging areas, especially in
Asia.
PAGE 10
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995 the Company had $93.5 million in cash and
cash equivalents. Net cash flow from operations of $8.7 million
was primarily the result of income from operations, depreciation
and amortization, after payments for incentive compensation.
During the first three months of the year, capital expenditures
were $56.5 million, an increase of $18.4 million over 1994, due
primarily to purchases of several terminals and revenue equipment
by CFMF and CTS. The Company intends to finance the remaining
capital requirements for the year with cash from operations
supplemented by financing arrangements. To supplement cash flows
during the quarter, the Company borrowed $55.0 million under its
$300 million unsecured credit facility.
At March 31, 1995, $110.1 million of letters of credit were
issued under the Company's $300 million unsecured credit
facility. In addition, $70.4 million of letters of credit were
issued and secured with Emery receivables under the Company's
$100 million Emery receivables sale facility.
Also at March 31, 1995, $40.4 million of letters of credit
were issued under several unsecured letter of credit facilities.
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.
PAGE 11
Item 4. Submission of Matters to a Vote of Security Holders
There were presented at the Annual Shareholders Meeting held
April 24, 1995 the following proposals with respective voting
results:
For the purpose of electing certain members of the Board of
Directors, the votes representing shares of Common and Preferred
stock were cast with the following results:
Nominee For Withheld
Earl F. Cheit 35,642,260 415,436
G. Robert Evans 35,648,311 409,385
Gerhard E. Liener 35,639,936 417,760
Richard B. Madden 35,644,115 413,581
The following directors did not stand for election and
continued in office as a director after the Annual Shareholders
Meeting: Robert Alpert, Margaret G. Gill, Robert Jaunich II,
Donald E. Moffitt, Ronald E. Poelman, Robert D. Rodgers, William
D. Walsh and Robert P. Wayman.
The appointment of Arthur Andersen LLP as independent public
accountants for the year 1995 was approved by the following vote:
For 35,711,958; Against 156,874; Abstaining 188,864.
The proposal to adopt the Consolidated Freightways, Inc.
Amended and Restated Equity Incentive Plan for Non-Employee
Directors was approved by the following vote: For 30,151,372;
Against 5,521,535; Abstaining 384,789.
The stockholder proposal to declassify the Board of
Directors for the purpose of Director elections was defeated by
the following votes: For 10,660,220; Against 17,110,038;
Abstaining 5,359,556; Broker non-votes 2,927,882.
The stockholder proposal to eliminate the 80% vote
requirement in the by-laws to change the structure of the Board
of Directors was defeated by the following vote: For 9,813,034;
Against 22,322,701; Abstaining 994,079; Broker non-votes
2,927,882.
PAGE 12
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts
(10.1) Consolidated Freightways, Inc. Amended
and Restated Equity Incentive Plan for
Non-Employee Directors. (Previously
filed with the Securities and Exchange
Commission as an attachment to the
Company's 1995 Proxy Statement dated
March 17, 1995.)
(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 March 31, 1995.
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 11, 1995 /s/Gregory L. Quesnel
Gregory L. Quesnel
Executive Vice President
and Chief Financial Officer
May 11, 1995 /s/Gary D. Taliaferro
Gary D. Taliaferro
Vice President and
Controller
Exhibit 11
COMPUTATION OF PER SHARE EARNINGS
The following is the computation of fully-diluted earnings per share:
Three Months Ended
March 31
1995 1994
(Dollars in thousands except per share data)
Net income available to common shareholders $ 19,842 $ 10,522
Non-discretionary adjustments under
the if-converted method:
Addback: Series C, preferred dividends 2,207 --
Addback: Series B, preferred dividends, 2,117 2,078
net of tax benefits
Less: Replacement of funding
adjustment, net of tax benefits (1) (1,664) (2,078)
$ 22,502 $ 10,522
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares (2) 43,274,729 35,962,606
Equivalents - stock options 1,244,429 1,197,039
Series B, Preferred stock
if-converted method 4,142,418 4,124,274
48,661,576 41,283,919
FULLY DILUTED EARNINGS PER SHARE $ 0.46 $ 0.25
(1) Additional payment to the TASP to replace the funding lost under
the if-converted method.
(2) Reflects the converion of Series C Preferred stock to Common stock
in the three months ended March 31, 1995.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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