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, 1996
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 1-5046
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 October 31, 1996: 44,037,941
PAGE 2
CONSOLIDATED FREIGHTWAYS, INC.
FORM 10-Q
Quarter Ended September 30, 1996
___________________________________________________________________________
___________________________________________________________________________
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Statements of Consolidated Income -
Three and Nine Months Ended
September 30, 1996 and 1995 5
Statements of Consolidated Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
PAGE 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
(Dollars in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 114,409 $ 86,345
Trade accounts receivable, net of
allowances 840,823 762,134
Other receivables 49,308 53,784
Operating supplies, at lower of average
cost or market 50,539 45,890
Prepaid expenses 73,269 69,374
Deferred income taxes 134,248 134,035
Total Current Assets 1,262,596 1,151,562
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 181,427 177,614
Buildings and improvements 596,697 562,760
Revenue equipment 1,134,973 1,073,505
Other equipment and leasehold improvements 411,434 377,644
2,324,531 2,191,523
Accumulated depreciation and amortization (1,174,285) (1,115,538)
1,150,246 1,075,985
OTHER ASSETS
Restricted funds 14,232 11,189
Deposits and other assets 104,225 88,573
Unamortized aircraft maintenance, net 122,417 114,636
Costs in excess of net assets of businesses
acquired, net of accumulated amortization 301,122 308,141
541,996 522,539
TOTAL ASSETS $2,954,838 $2,750,086
The accompanying notes are an integral part of these statements.
PAGE 4
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 281,791 $ 269,203
Accrued liabilities 530,586 474,028
Accrued claims costs 162,516 150,643
Current maturities of long-term debt and
capital leases 3,208 2,412
Short-term borrowings 150,000 50,000
Federal and other income taxes 12,218 12,938
Total Current Liabilities 1,140,319 959,224
LONG-TERM LIABILITIES
Long-term debt and guarantees 381,425 384,545
Long-term obligations under capital leases 110,914 110,965
Accrued claims costs 165,086 166,442
Employee benefits 226,520 236,131
Other liabilities and deferred credits 111,692 93,685
Deferred income taxes 80,630 76,734
Total Liabilities 2,216,586 2,027,726
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized
5,000,000 shares:
Series B, 8.5% cumulative, convertible,
$.01 stated value; designated
1,100,000 shares; issued 943,794 and
954,412 shares, respectively 9 10
Additional paid-in capital, preferred stock 143,542 145,156
Deferred TASP compensation (110,298) (114,896)
Total Preferred Shareholders' Equity 33,253 30,270
Common stock, $.625 par value; authorized
100,000,000 shares; issued 51,512,452
and 51,451,490 shares, respectively 32,196 32,157
Additional paid-in capital, common stock 240,536 239,696
Cumulative translation adjustment (1,411) (2,028)
Retained earnings 618,129 608,399
Cost of repurchased common stock
(7,480,893 and 7,549,174 shares,
respectively) (184,451) (186,134)
Total Common Shareholders' Equity 704,999 692,090
Total Shareholders' Equity 738,252 722,360
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,954,838 $2,750,086
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
<S> 1996 1995 1996 1995
REVENUES <C> <C> <C> <C>
CF MotorFreight $ 644,956 $ 593,710 $ 1,826,539 $ 1,801,227
Con-Way Transportation Services 331,090 294,751 949,584 857,763
Emery Worldwide 497,860 434,318 1,420,788 1,280,462
1,473,906 1,322,779 4,196,911 3,939,452
COSTS AND EXPENSES
CF MotorFreight
Operating Expenses 562,538 523,770 1,617,058 1,565,465
Selling and Administrative Expenses 65,365 58,661 190,638 178,802
Depreciation 15,653 16,899 48,335 50,129
643,556 599,330 1,856,031 1,794,396
Con-Way Transportation Services
Operating Expenses 245,261 227,916 708,746 647,794
Selling and Administrative Expenses 43,056 33,207 123,775 100,267
Depreciation 13,588 10,500 37,489 29,488
301,905 271,623 870,010 777,549
Emery Worldwide
Operating Expenses 399,529 349,745 1,148,930 1,042,379
Selling and Administrative Expenses 68,788 57,898 196,810 167,384
Depreciation 8,013 6,939 23,368 20,247
476,330 414,582 1,369,108 1,230,010
1,421,791 1,285,535 4,095,149 3,801,955
OPERATING INCOME (LOSS)
CF MotorFreight 1,400 (5,620) (29,492) 6,831
Con-Way Transportation Services 29,185 23,128 79,574 80,214
Emery Worldwide 21,530 19,736 51,680 50,452
52,115 37,244 101,762 137,497
OTHER INCOME (EXPENSE)
Investment income 43 158 266 680
Interest expense (10,134) (9,342) (30,124) (24,760)
Miscellaneous, net (661) 1,443 (1,547) 1,999
(10,752) (7,741) (31,405) (22,081)
Income Before Income Taxes 41,363 29,503 70,357 115,416
Income Taxes 21,509 13,988 36,567 53,508
Net Income 19,854 15,515 33,790 61,908
Preferred Stock Dividends 2,141 2,155 6,458 8,620
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 17,713 $ 13,360 $ 27,332 $ 53,288
Primary average shares outstanding (1) 44,659,341 44,561,758 44,846,589 44,362,108
PRIMARY EARNINGS PER SHARE $ 0.40 $ 0.30 $ 0.61 $ 1.25
FULLY DILUTED EARNINGS PER SHARE $ 0.37 $ 0.28 $ 0.59 $ 1.17
<FN>
(1) Includes the dilutive effect of stock options.
The accompanying notes are an integral part of these statements.
</TABLE>
PAGE 6
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1996 1995
(Dollars in thousands)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 86,345 $ 95,711
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 33,790 61,908
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 119,027 108,963
Increase in deferred income taxes 3,683 5,218
Gains from property disposals, net (3,395) (2,423)
Changes in assets and liabilities:
Receivables (74,213) (133,795)
Prepaid expenses (3,895) (6,205)
Accounts payable 12,588 19,940
Accrued claims costs 10,517 3,229
Income taxes (720) 5,190
Accrued liabilities 56,558 29,074
Other (29,845) (31,432)
Net Cash Provided by Operating Activities 124,095 59,667
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (183,186) (219,340)
Proceeds from sales of property 11,011 8,704
Net Cash Used by Investing Activities (172,175) (210,636)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 98,890
Repayment of long-term debt and capital
lease obligations (2,375) (942)
Net borrowings under revolving lines of credit 100,000 80,000
Proceeds from issuance of common stock 947 3,126
Payments of common dividends (13,199) (12,332)
Payments of preferred dividends (9,229) (11,529)
Net Cash Provided by Financing Activities 76,144 157,213
Increase in Cash and Cash Equivalents 28,064 6,244
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 114,409 $ 101,955
The accompanying notes are an integral part of these statements.
PAGE 7
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
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 1995 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 1995 Annual
Report to Shareholders and related annual report to the Securities and
Exchange Commission on Form 10-K.
2. Dispositions
On August 26, 1996, the Company's Board of Directors approved
proceeding with the distribution to the Company's shareholders of its long-
haul trucking business, subject to certain customary conditions (the
Distribution). Consummation of the Distribution would create two separate,
publicly traded companies, each offering a variety of premium freight
transportation services. On November 7, 1996, the Company's Board of
Directors approved the Distribution effective December 2, 1996, to holders
of record of the Company's common stock at the close of business on
November 15, 1996. Pursuant to the Board's approval, the Company will
distribute all of the outstanding capital stock of its newly created wholly-
owned subsidiary, Consolidated Freightways Corporation (CFC), which
consists of Consolidated Freightways Corporation of Delaware and its
nationwide long-haul motor carrier CF MotorFreight (CFMF) and its Canadian
operations, including Canadian Freightways, Ltd., Epic Express, Milne &
Craighead, Canadian Sufferance Warehouses and other related businesses as
well as the Leland James Service Corporation (LJSC), an administrative
service provider.
In connection with the Distribution, the Company will seek shareholder
approval to change its name to CNF Transportation, Inc. (CNF) at its next
annual meeting of shareholders. CNF will consist of Emery Worldwide, the
international air and ocean freight carrier; Con-Way Transportation
Services, including its three regional less-than-truckload carriers and Con-
Way Truckload Services; Menlo Logistics, a third-party logistics management
firm; Road Systems, a trailer manufacturer; and VantageParts, a retail
distributor of truck parts and supplies.
PAGE 8
The historical consolidated financial statements of the Company
include the results of operations and financial position of the businesses
which will constitute CFC. The unaudited pro forma condensed consolidated
income statements for each of the three quarters and the nine months ended
September 30, 1996, and each of the four quarters and for the year ended
December 31, 1995, have been prepared assuming the Distribution occurred as
of January 1, 1996 and 1995, respectively. The unaudited pro forma
condensed consolidated income statements represent the pro forma results of
continuing operations only and are based upon available information and
upon certain assumptions that the Company believes are reasonable. This
pro forma data does not purport to be indicative of the consolidated
results of operations that would have occurred had the Distribution
occurred on the dates indicated, or which may be attained in the future.
Adjustments made to the pro forma data (which adjustments are discussed in
greater detail in exhibit 99 included herein) primarily include the addback
of intercompany revenue and expense between Menlo Logistics, Road Systems
and VantageParts with CFCD which were previously eliminated; the
elimination of intercompany interest income from interest formerly charged
on advances payable by CFCD to the Company and the tax effects of these
adjustments. In connection with the Distribution, the Company anticipates
incurring costs directly related to the disposition that will be reported
as loss on disposal of discontinued operations in the consolidated
statement of income in the fourth quarter of 1996. The following unaudited
pro forma condensed consolidated statements of income should be read in
conjunction with, and are qualified in their entirety by reference to, the
pro forma condensed consolidated financial statements (including notes
thereto) included as exhibit 99 herein.
Unaudited Pro Forma Condensed Consolidated Statements of Income
Continuing Operations of the Company
(In millions, except per share data)
Nine
Months
_______Three Months Ended___ Ended
Mar 31, June 30, Sept 30, Sept 30,
1996 1996 1996 1996
REVENUES
Con-Way Transportation Services $301.8 $316.7 $331.1 $ 949.6
Emery Worldwide 446.6 476.3 497.9 1,420.8
Other 99.4 101.4 106.8 307.6
$847.8 $894.4 $935.8 $2,678.0
OPERATING INCOME
Con-Way Transportation Services $ 20.4 $ 30.0 $ 29.2 $ 79.6
Emery Worldwide 11.5 18.7 21.5 51.7
Other 3.5 4.1 3.8 11.4
35.4 52.8 54.5 142.7
OTHER INCOME (EXPENSE)
Investment income - .1 - .1
Interest expense (9.7) (9.9) (9.9) (29.5)
Miscellaneous, net .1 (1.6) (2.4) (3.9)
(9.6) (11.4) (12.3) (33.3)
Income before income taxes 25.8 41.4 42.2 109.4
Income taxes 11.4 18.3 18.8 48.5
Net Income 14.4 23.1 23.4 60.9
Preferred Stock Dividends 2.1 2.2 2.2 6.5
Net income available to
common shareholders $ 12.3 $ 20.9 $ 21.2 $ 54.4
Primary earnings per share $ 0.28 $ 0.46 $ 0.47 $ 1.20
Fully diluted earnings
per share $ 0.26 $ 0.43 $ 0.44 $ 1.12
PAGE 9
Year
_______ Three Months Ended _____ Ended
Mar 31, June 30, Sept 30, Dec 31, Dec 31,
1995 1995 1995 1995 1995
REVENUES
Con-Way Transportation
Services $274.9 $288.1 $294.8 $294.4 $1,152.2
Emery Worldwide 412.8 433.4 434.3 485.8 1,766.3
Other 88.2 83.3 107.5 92.6 371.6
$775.9 $804.8 $836.6 $872.8 $3,290.1
OPERATING INCOME
Con-Way Transportation
Services $ 28.8 $ 28.2 $ 23.2 $ 16.4 $ 96.6
Emery Worldwide 13.1 17.7 19.6 31.3 81.7
Other 3.7 1.7 2.5 1.0 8.9
45.6 47.6 45.3 48.7 187.2
OTHER INCOME (EXPENSE)
Investment income - .3 (.2) - .1
Interest expense (6.5) (8.5) (9.1) (9.3) (33.4)
Miscellaneous, net (.4) 1.2 .2 (1.5) (.5)
(6.9) (7.0) (9.1) (10.8) (33.8)
Income before income taxes 38.7 40.6 36.2 37.9 153.4
Income taxes 16.9 17.7 15.8 16.5 66.9
Net Income 21.8 22.9 20.4 21.4 86.5
Preferred Stock Dividends 4.3 2.1 2.2 2.2 10.8
Net income available to
common shareholders $ 17.5 $ 20.8 $ 18.2 $ 19.2 $ 75.7
Primary earnings per share $ 0.44 $ 0.46 $ 0.41 $ 0.43 $ 1.74
Fully diluted earnings
per share $ 0.41 $ 0.43 $ 0.38 $ 0.40 $ 1.62
3. 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 consolidated financial position or results of operations.
PAGE 10
CONSOLIDATED FREIGHTWAYS, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On August 26, 1996, the Company's Board of Directors approved
proceeding with the distribution to the Company's shareholders of its long-
haul trucking business, subject to certain customary conditions (the
Distribution). Consummation of the Distribution would create two separate,
publicly traded companies, each offering a variety of premium freight
transportation services. On November 7, 1996, the Company's Board of
Directors approved the Distribution effective December 2, 1996, to holders
of record of the Company's common stock at the close of business on
November, 15, 1996. Pursuant to the Board's approval, the Company will
distribute all of the outstanding capital stock of its newly created wholly-
owned subsidiary, Consolidated Freightways Corporation (CFC), which
consists of Consolidated Freightways Corporation of Delaware and its
nationwide long-haul motor carrier CF MotorFreight (CFMF) and its Canadian
operations, including Canadian Freightways, Ltd., Epic Express, Milne &
Craighead, Canadian Sufferance Warehouses and other related businesses as
well as the Leland James Service Corporation (LJSC), an administrative
service provider.
The CF MotorFreight segment, as historically presented and as
presented herein, consisted primarily of Consolidated Freightways
Corporation of Delaware and subsidiaries, but also included Menlo Logistics
and several small non-carrier operations that will be retained by the
Company.
General
Total Company revenues in the third quarter of 1996 increased 11.4%
over the same quarter last year with revenue increases at all three of the
Company's reported business segments. Revenues for the nine months ended
September 30, 1996 were up 6.5% and also reflect increased revenues at all
three segments. Each of the three business segments experienced a
significant increase in revenue late in the second quarter and these levels
generally continued throughout the third quarter.
Operating income for the third quarter increased 39.9% and represents
increased operating income at all three reported business segments over the
same quarter last year. Con-Way and Emery posted strong gains over last
year's third quarter following a decline in the year-to-year comparisons
for the first half of 1996. The CFMF segment reported its first quarter of
operating income since the implementation of its freight system
reorganization (Business Accelerator System (BAS)) beginning in October
1995. Nine-month operating income was down 26.0% as a result of operating
losses incurred by CFMF in the first half of this year and lower operating
income for Con-Way and Emery in the first quarter of this year.
PAGE 11
Other expense, net increased in the third quarter compared to the
third quarter last year due primarily to increased interest expense on
additional borrowings under the Company's unsecured credit facilities and
because of gains on sales of properties recognized in miscellaneous, net in
the third quarter of the prior year. Other expense, net for the nine-month
period increased compared with the same period in the prior year due
primarily to increased interest expense on additional borrowings under the
unsecured credit facilities and the $100 million 7.35% Notes issued in June
of 1995.
The effective income tax rate for the third quarter and nine months
ended September 30, 1996, of approximately 52%, increased from the
approximate rates of 47% and 46% for the third quarter and nine months in
1995, respectively, due to a relatively higher proportion of non-deductible
items to taxable income compared with the prior year.
Significant variations in segment revenues and operating income are as
follows:
CF MotorFreight
CF MotorFreight revenues for the third quarter of 1996 increased 8.6%
on a tonnage increase of 7.0%, while nine-month revenues increased 1.4% on
a tonnage decline of 2.6%. The quarterly less-then-truckload (LTL) tonnage
increased 7.6% over last year while the nine-month LTL tonnage was down
.4%. The revenue improvements for the quarter and nine-months reflect
increased acceptance of CFMF's improved service, a slow but gradual
lessening of excess industry capacity, and some signs that pricing declines
are stabilizing although prices are still below prior year levels.
Contributing to increased revenues for the quarter and nine months are
increased revenues from Menlo Logistics which is included with CFMF for
reporting purposes.
CFMF's quarterly operating income of $1.4 million is a $7.0 million
improvement over a $5.6 million operating loss in the prior-year quarter.
This represents CFMF's third consecutive quarterly improvement of operating
results since the implementation of BAS in October 1995 and the first year-
to-year improvement since then. The 1996 nine-month operating loss of
$29.5 million is $36.3 million below the operating income in the same
period in 1995 as a result of operating losses in the first-half of 1996
following implementation of BAS. Higher fuel prices contributed to the
operating losses in the first six months of this year whereas third quarter
fuel price increases were offset in part by fuel surcharges. The quarterly
and nine-month operating results of 1996 include $5.5 million and $15.0
million of operating income, respectively, from Menlo Logistics and CFMF's
Canadian subsidiaries compared with $4.2 million and $10.7 million,
respectively, in the same periods last year.
With revenues recovered to levels above the first nine months of the
prior year, management will continue to focus on reducing expenses and
improving customer service through increased productivity. Productivity
improvements will continue to have two objectives: namely, improving the
consistency of customer service, while managing expense levels. Management
will seek to reduce expenses by improving load factor, reducing linehaul
costs with efficient rail usage, reducing freight handling, and continued
efforts to reduce other operating expenses.
PAGE 12
Con-Way Transportation Services
Con-Way revenues for the third quarter of 1996 were 12.3% above the
same quarter last year and for the nine months ended September 30, 1996,
were 10.7% above the same period last year. The improved revenues were
primarily attributable to increased tonnage levels of 10.3% and 7.9% for
the third quarter and nine-month period, respectively, with LTL tonnage up
7.9% and 6.6% for these same periods compared with the prior year. The
revenue gains are also attributed to Con-Way's enhanced service offerings,
modest economic expansion, and reduced discounting pressure from
competitors.
Operating income was up 26.2% for the quarter, but for the nine months
of 1996 was slightly below last year's level. The third quarter's
improvement was the result of improved revenue levels combined with the
implementation of fuel surcharges late in the second quarter, successful
cost control measures, and some restraint on industry-wide discounting.
Increased fuel costs adversely impacted operating results for the first
half of this year when no surcharge was in place and, combined with a weak
first quarter due in part to weather related factors, caused 1996 nine-
month operating income to be slightly below the prior year.
Management believes the fuel surcharge should help to protect against
expected winter fuel price increases. Going forward, efforts will be
focused on continuing joint service product offerings and improved
productivity in the operations to further constrain costs.
Emery Worldwide
Third-quarter 1996 revenues for Emery increased 14.6% from the same
quarter last year while nine-month revenues were up 11.0%. The increased
revenue levels came from domestic tonnage increases of 20.1% in the third
quarter and 15.9% in the nine months compared with the same periods last
year. International growth also continued to be strong relative to
international economic conditions with a quarterly tonnage increase of
10.7% and a nine-month tonnage improvement of 10.6% over the respective
periods in the prior year. Although price deterioration was not as strong
in the third quarter compared with the nine-month period, pricing levels
continued to be below those of last year.
Emery's third-quarter 1996 operating income exceeded the same quarter
last year by 9.1% while the nine-month improvement was 2.4% over the first
nine months of the prior year. The operating results improved in both
periods despite being adversely impacted by higher jet fuel costs and the
reinstatement of the federal cargo excise tax on August 26, 1996.
Management is seeking to increase revenues through improved customer
service, new service offerings, and better system utilization. Some of the
service offerings include, among others, the opening of the Emery Global
Logistics warehouse at Emery's Dayton Hub, new and expanded agent locations
in key international markets, and the expansion of Emery's global industry-
specific groups. In response to cost increases of jet fuel, management
announced a fuel index fee effective November 1, 1996.
PAGE 13
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $114.4 million in cash and cash
equivalents. Net cash flow from operations during the nine months ended
September 30, 1996, of $124.1 million was primarily the result of income
from operations and depreciation and amortization offset in part by
increased accounts receivable levels. Included in other receivables at
September 30, 1996, was approximately $21 million of reimbursement for
aircraft maintenance performed in connection with certain aircraft lease
agreements, compared with approximately $43 million at September 30, 1995,
of refundable deposits on equipment to be financed through leasing
agreements. Capital expenditures for the nine months ended September 30,
1996, were $183.2 million, a decrease of $36.2 million from the same period
in 1995. Debt repayment and preferred dividend requirements during the nine
months of 1996 were $11.6 million. During 1996, the Company increased its
borrowings under various bank lines by $100 million, bringing total
borrowings under these unsecured lines of credit to $150 million at
September 30, 1996. The Company intends to fund the remaining capital
expenditure requirements for 1996 with cash from operations supplemented by
financing arrangements.
At September 30, 1996, $136.5 million of letters of credit were
outstanding under the Company's $300 million unsecured credit facility. In
addition, $31.6 million of letters of credit were outstanding and secured
with Emery trade receivables under the $35 million Emery receivables
facility. The facility was reduced from $100 million to $35 million during
the quarter, consistent with lower letter of credit requirements at Emery.
Also at September 30, 1996, $24.1 million of letters of credit were
outstanding under several unsecured letter of credit facilities. Under the
above facilities and other offered lines of credit, the Company has $96.9
million available for additional borrowings and letter of credit needs.
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 qualified
independent parties to protect the environment and comply with regulations.
Where clean-up is necessary, the Company takes appropriate action.
Certain statements included herein constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to a number of risks and
uncertainties. In that regard, the following factors, among others, could
cause actual results and other matters to differ materially from those in
such statements: changes in general business and economic conditions;
increasing domestic and international competition and pricing pressure;
changes in fuel prices; uncertainty regarding the Company's ability to
improve results of operations; labor matters, including changes in labor
costs, renegotiation of labor contracts and the risk of work stoppages or
strikes; changes in governmental regulation; environmental and tax matters;
and the effects of the anticipated spin-off of certain businesses as
described herein. As a result of the foregoing, no assurance can be given
as to future results of operations or financial condition.
PAGE 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
As previously reported, 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 Response
Compensation and Liability Act (CERCLA) or other Federal and state
environmental statues at several hazardous waste sites. Under CERCLA, PRP's
are jointly and severally liable for all site remediation and expenses.
After investigating the Company's or its subsidiaries involvement in waste
disposal and waste generation at such sites, the Company has either agreed
to de minimis settlements or, based upon cost studies performed by
independent third parties, believes its obligations with respect to such
sites would not have a material adverse effect on the Company's financial
position or results of operations. Certain legal matters are discussed in
Note 3 in the Notes to Consolidated Financial Statements in Part I of this
form.
ITEM 5. Other Information
On November 7, 1996, the Company's Board of Directors set a record
date of November 15, 1996, and a distribution date of December 2, 1996, for
the spin-off transaction that will split the Company as described in Note 2
to the financial statements. All of the Company's shareholders of record
on November 15, 1996, will receive one share of CFC stock for every two
shares of the Company's common stock owned.
As presented in Exhibit 99 to this Form 10-Q, the Unaudited Pro Forma
Condensed Consolidated Balance Sheet as of September 30, 1996, has been
prepared assuming the Distribution occurred as of that date. The Unaudited
Pro Forma Condensed Consolidated Statements of Income for the nine months
ended September 30, 1996 and year ended December 31, 1995, have been
prepared assuming the spin-off and distribution occurred as of January 1,
1996 and 1995, respectively. The pro forma adjustments are based upon
available information and upon certain assumptions that the Company and CFC
believe are reasonable which are described in the Notes to the Unaudited
Pro Forma Condensed Consolidated Financial Statements. These pro forma
financial statements do not purport to be indicative of the consolidated
results of operations or financial position that would have existed had the
distribution of shares occurred on the dates indicated, or which may be
attained in the future.
PAGE 15
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Per Share Earnings
(12) Computation of Ratios of Earnings to Fixed Charges
(27) Financial Data Schedule
(99) Consolidated Freightways Inc., Pro Forma Condensed
Consolidated Financial Information.
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996
Pro Forma Condensed Consolidated Statement of
Income for the Nine Months Ended September 30,
1996
Pro Forma Condensed Consolidated Statement of Income for
the Year Ended December 31, 1995
(b) Reports on Form 8-K
A Form 8-K, dated September 6, 1996, was filed under Item 5, Other
Events, to report the anticipated spin-off of the Company's less-than-
truckload subsidiary, Consolidated Freightways Corporation of Delaware and
its subsidiaries. Included in the filing was Unaudited Pro Forma Condensed
Consolidated Financial Information of Consolidated Freightways, Inc.,
including an Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1996, an Unaudited Pro Forma Condensed Consolidated Statement of
Income for the Six Months Ended June 30, 1996 and an Unaudited Pro Forma
Condensed Consolidated Statement of Income for the Year Ended December 31,
1995.
PAGE 16
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 14, 1996 /s/Gregory L. Quesnel
Gregory L. Quesnel
Executive Vice President and
Chief Financial Officer
November 14, 1996 /s/Gary D. Taliaferro
Gary D. Taliaferro
Vice President and Controller
<TABLE>
Exhibit 11
<CAPTION>
CONSOLIDATED FREIGHTWAYS, INC.
COMPUTATION OF PER SHARE EARNINGS
The following is the computation of fully diluted earnings per share:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
(Dollars in thousands except per share amounts)
<S>
<C> <C> <C> <C>
Net income available to common shareholders $ 17,713 $ 13,360 $ 27,332 $ 53,288
Non-discretionary adjustments under
the if-converted method:
Addback: Series C, preferred dividends - - - 2,207
Addback: Series B, preferred dividends,
net of tax benefits 2,141 2,155 6,458 6,413
Less: Replacement of funding
adjustment, net of tax benefits (1) (1,721) (1,662) (5,022) (5,008)
Net income available to common shareholders $ 18,133 $ 13,853 $ 28,768 $ 56,900
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common shares 44,023,076 43,508,226 43,992,127 43,400,950
Equivalents - stock options 953,101 1,053,533 953,101 1,041,316
Series B, Preferred stock
if-converted method 4,259,321 4,229,925 4,259,321 4,229,925
49,235,498 48,791,684 49,204,549 48,672,191
FULLY DILUTED EARNINGS PER SHARE $ 0.37 $ 0.28 $ 0.59 $ 1.17
<FN>
(1) Additional payment to the Company's Thrift and Stock Plan (TASP) to replace the funding lost under
if-converted method.
</TABLE>
<TABLE>
Exhibit 12
<CAPTION>
CONSOLIDATED FREIGHTWAYS, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Nine Months Ended
September 30, Year Ended December 31,
1996 1995 1995 1994 1993 1992 1991
<S> (Dollars in thousands)
Fixed Charges: <C> <C> <C> <C> <C> <C> <C>
Interest Expense $ 30,124 $ 24,760 $ 34,325 $ 27,945 $ 30,333 $ 38,893 $ 46,703
Capitalized Interest 1,861 678 1,092 1,042 1,224 543 1,703
Preferred Dividends 9,481 9,617 12,419 12,475 12,551 12,618 12,691
Total Interest 41,466 35,055 47,836 41,462 44,108 52,054 61,097
Interest Component of
Rental Expense 54,181 53,560 73,004 62,304 57,585 55,773 58,052
Total Fixed Charges 95,647 88,615 120,840 103,766 101,693 107,827 119,149
Less:
Capitalized Interest 1,861 678 1,092 1,042 1,224 543 1,703
Preferred Dividends 9,481 9,617 12,419 12,475 12,551 12,618 12,691
Net Fixed Charges $ 84,305 $ 78,320 $ 107,329 $ 90,249 $ 87,918 $ 94,666 $ 104,755
Earnings:
Income (Loss)
Before Income Taxes $ 70,357 $ 115,416 $ 110,873 $ 111,920 $ 91,441 $ (10,733) $ (43,337)
Add: Net Fixed
Charges 84,305 78,320 107,329 90,249 87,918 94,666 104,755
Total Earnings $ 154,662 $ 193,736 $ 218,202 $ 202,169 $ 179,359 $ 83,933 $ 61,418
Ratio of Earnings to
Fixed Charges:
Total Earnings $ 154,662 $ 193,736 $ 218,202 $ 202,169 $ 179,359 $ 83,933 $ 61,418
Fixed Charges (1) 95,647 88,615 120,840 103,766 101,693 107,827 119,149
Ratio 1.6 x 2.2 x 1.8 x 1.9 x 1.8 x 0.8 x(2) 0.5 x(2)
<FN>
(1) Fixed Charges represent interest on capital leases and short-term and long-term debt, capitalized interest,
dividends on shares of the Series B Cumulative Convertible Preferred Stock used to pay debt service on notes
issued by the Company's Thrift and Stock Plan and the applicable portion of the consolidated rent expense
which approximates the interest portion of lease payments.
(2) Earnings were inadequate to cover fixed charges for the periods shown; the deficiency was $23.9 million
and $57.7 million for the years ended December 31, 1992 and 1991, respectively.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 114,409
<SECURITIES> 0
<RECEIVABLES> 860,531
<ALLOWANCES> (19,708)
<INVENTORY> 50,539
<CURRENT-ASSETS> 1,262,596
<PP&E> 2,324,531
<DEPRECIATION> (1,174,285)
<TOTAL-ASSETS> 2,954,838
<CURRENT-LIABILITIES> 1,140,319
<BONDS> 492,339
0
143,551
<COMMON> 272,732
<OTHER-SE> 321,969
<TOTAL-LIABILITY-AND-EQUITY> 2,954,838
<SALES> 0
<TOTAL-REVENUES> 4,196,911
<CGS> 0
<TOTAL-COSTS> 4,095,149
<OTHER-EXPENSES> 31,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,124
<INCOME-PRETAX> 70,357
<INCOME-TAX> 36,567
<INCOME-CONTINUING> 33,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,332
<EPS-PRIMARY> .61
<EPS-DILUTED> .59
</TABLE>
<TABLE> EXHIBIT 99
Consolidated Freightways, Inc.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(In thousands)
(Unaudited)
<CAPTION>
Consolidated
Consolidated Eliminate Pro Forma Freightways, Inc.
Freightways, Inc. CFCD & LJSC (a) Adjustments Pro Forma
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 114,409 $ (32,825) $ 59 (b) $ 81,643
Receivables, net of allowances 890,131 (313,536) - 576,595
Operating supplies, at lower of
average cost or market 50,539 (16,767) 4,701 (b) 38,473
Prepaid expenses 73,269 (36,353) 1,316 (b) 38,232
Deferred income taxes 134,248 (55,405) 78,843
TOTAL CURRENT ASSETS 1,262,596 (454,886) 6,076 813,786
Property, plant and equipment, net 1,150,246 (485,651) 19,336 (b) 723,656
39,725 (c)
OTHER ASSETS
Costs in excess of net assets of businesses
acquired, net of accumulated amortization 301,122 (2,792) 298,330
Restricted funds 14,232 14,232
Deposits and other assets 104,225 (11,553) 5,660 (b) 98,332
Unamortized aircraft maintenance, net 122,417 122,417
541,996 (14,345) 5,660 533,311
TOTAL ASSETS $ 2,954,838 $ (954,882) $ 70,797 $ 2,070,753
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
Consolidated Freightways, Inc.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1996
(In thousands)
(Unaudited)
<CAPTION>
Consolidated
Consolidated Eliminate Pro Forma Freightways, Inc.
Freightways, Inc. CFCD & LJSC(a) Adjustments Pro Forma
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 812,377 $ (295,940) $ 11,740 (b) $ 528,177
Accrued claims costs 162,516 (87,646) 74,870
Current maturities of long-term debt
and capital leases 3,208 3,208
Short-term borrowings 150,000 150,000
Federal and other income taxes payable 12,218 (258) 11,960
TOTAL CURRENT LIABILITIES 1,140,319 (383,844) 11,740 768,215
Long-term debt, guarantees
and capital leases 492,339 (15,100) 477,239
Accrued claims costs 165,086 (102,801) 62,285
Employee benefits and other liabilities 338,212 (132,982) 205,230
Deferred income taxes 80,630 (35,276) 482 (b) 47,326
1,490 (c)
TOTAL LIABILITIES 2,216,586 (670,003) 13,712 1,560,295
TOTAL SHAREHOLDERS' EQUITY 738,252 (284,879) 18,850 (b) 510,458
38,235 (c)
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,954,838 $ (954,882) $ 70,797 $ 2,070,753
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
CONSOLIDATED FREIGHTWAYS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1996
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Consolidated
Consolidated Eliminate Pro Forma Freightways, Inc.
Freightways, Inc. CFCD & LJSC(d) Adjustments Pro Forma Results
<S> <C> <C> <C> <C>
REVENUES
CF MotorFreight $ 1,826,539 $ (1,592,146) $ 73,234 (f) $ 307,627
Con-Way Transportation Services 949,584 949,584
Emery Worldwide 1,420,788 1,420,788
4,196,911 (1,592,146) 73,234 2,677,999
COSTS AND EXPENSES
CF MotorFreight 1,856,031 (1,632,671) (e) 72,868 (f)(g) 296,228
Con-Way Transportation Services 870,010 870,010
Emery Worldwide 1,369,108 1,369,108
4,095,149 (1,632,671) 72,868 2,535,346 (l)
OPERATING INCOME (LOSS)
CF MotorFreight (29,492) 40,525 366 11,399
Con-Way Transportation Services 79,574 79,574
Emery Worldwide 51,680 51,680
101,762 40,525 366 142,653
OTHER INCOME (EXPENSE)
Investment income 266 (214) - 52
Interest expense (30,124) 626 (29,498)
Miscellaneous, net (1,547) 2,586 (4,806) (h) (3,767)
(31,405) 2,998 (4,806) (33,213)
Income (Loss) Before Income Taxes 70,357 43,523 (4,440) 109,440
Income Taxes (Benefits) 36,567 13,700 (1,732) (i) 48,535
Net Income (Loss) 33,790 29,823 (2,708) 60,905
Preferred Stock Dividends 6,458 6,458
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ 27,332 $ 29,823 $ (2,708) $ 54,447
AVERAGE COMMON SHARES OUTSTANDING:
Primary (j) 44,847 45,302
Fully Diluted (k) 49,205 49,735
EARNINGS PER SHARE FROM
CONTINUING OPERATIONS:
Primary (j) $ 0.61 $ 1.20
Fully Diluted (k) $ 0.59 $ 1.12
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED FREIGHTWAYS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1995
(In thousands, except per share data)
(Unaudited)
Consolidated
Consolidated Eliminate Pro Forma Freightways, Inc.
Freightways, Inc. CFCD & LJSC(d) Adjustments Pro Forma Results
<S> <C> <C> <C> <C>
REVENUES
CF MotorFreight $ 2,362,619 $ (2,106,529) $ 115,522 (f) $ 371,612
Con-Way Transportation Services 1,152,164 1,152,164
Emery Worldwide 1,766,301 1,766,301
5,281,084 (2,106,529) 115,522 3,290,077
COSTS AND EXPENSES
CF MotorFreight 2,397,025 (2,149,315) (e) 115,034 (f)(g) 362,744
Con-Way Transportation Services 1,055,591 1,055,591
Emery Worldwide 1,684,567 1,684,567
5,137,183 (2,149,315) 115,034 3,102,902(l)
OPERATING INCOME (LOSS)
CF MotorFreight (34,406) 42,786 488 8,868
Con-Way Transportation Services 96,573 96,573
Emery Worldwide 81,734 81,734
143,901 42,786 488 187,175
OTHER INCOME (EXPENSE)
Investment income 841 (756) - 85
Interest expense (34,325) 918 - (33,407)
Miscellaneous, net 456 850 (1,729) (h) (423)
(33,028) 1,012 (1,729) (33,745)
Income (Loss) Before Income Taxes 110,873 43,798 (1,241) 153,430
Income Taxes (Benefits) 53,508 13,889 (484) (i) 66,913
Net Income (Loss) 57,365 29,909 (757) 86,517
Preferred Stock Dividends 10,799 10,799
NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ 46,566 $ 29,909 $ (757) $ 75,718
AVERAGE COMMON SHARES OUTSTANDING:
Primary (j) 44,362 44,812
Fully Diluted (k) 48,724 49,244
EARNINGS PER SHARE FROM
CONTINUING OPERATIONS:
Primary (j) $ 1.10 $ 1.74
Fully Diluted (k) $ 1.04 $ 1.62
<FN>
The accompanying notes are an integral part of this statement.
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(a) Represents the elimination of the historical assets and
liabilities of CFCD and LJSC.
(b) Represents the transfers of certain assets and liabilities from
LJSC in connection with the transfer of certain administrative
service departments from LJSC to a subsidiary of the Company.
(c) Represents the transfer of certain real properties from CFCD to
a subsidiary of the Company, some of which may be leased back under
short-term operating leases.
(d) Represents the elimination of the historical operating results
of CFCD and LJSC.
(e) The historical financial statements include an allocation of
corporate overhead costs incurred by the Company using both
incremental and proportional methods on a revenue and capital basis.
Although management believes the allocation methods used provide CFCD
with a reasonable share of such expenses, there can be no assurance
that these costs will not increase after the spin-off.
(f) To reflect intercompany sales and expenses between certain
subsidiaries of the Company and CFCD previously eliminated in the
historical consolidated financial statements of the Company. Such
sales are expected to continue after the spin-off, but there can be
no assurance that they will.
(g) To adjust for the effects on depreciation expense and sub-lease
rental income from third parties, resulting from the pro forma
transfers of certain real properties from CFCD to a subsidiary of the
Company.
(h) To eliminate intercompany interest income, net, earned on
balances receivable from CFCD.
(i) To reflect the income tax effects of the pro forma adjustments
using an estimated marginal tax rate of 39%.
(j) Includes the dilutive effect of stock options and, in pro forma,
the conversion into common stock of Series B Thrift and Stock Plan
(TASP) convertible preferred shares for CFCD participants in the
Company's TASP. Also included in the year ended December 31, 1995,
is an addback to earnings of $2.2 million, which represents the
Series C preferred stock dividend as such shares converted to common
stock.
(k) Includes the dilutive effect of stock options and Series B TASP
preferred shares and in pro forma, a change in conversion rate on
certain Series B TASP preferred shares. The nine months ended
September 30, 1996 computation includes an addback to earnings of
$1.4 million and the year ended December 31, 1995 includes an addback
to earnings of $1.8 million representing the Series B convertible
preferred stock dividend net of required replacement funding. Also
included in the year ended December 31, 1995, is an addback to
earnings of $2.2 million, which represents the Series C preferred
stock dividend as such shares converted to common stock.
(l) The Company's pro forma costs and expenses include depreciation
and amortization of approximately $72 million and $84 million for the
nine months ended September 30, 1996 and the year ended December 31,
1995, respectively. Also includes rental expense of approximately
$132 million and $169 million for the same respective periods.
