Exhibit 13
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth, for the periods indicated, the percentages of operating expenses and other items to operating revenue:
|
1999 |
1998 |
1997 |
|
----------------------------------------------
|
|
Operating revenue |
100.0% |
100.0% |
100.0% |
|
Operating expenses and costs: |
|
|
|
|
Salaries, wages and benefits |
60.0% |
61.0% |
60.8% |
|
Operating supplies and expenses |
7.9% |
8.0% |
8.6% |
|
Operating taxes and licenses |
3.9% |
4.2% |
4.1% |
|
Insurance |
3.2% |
3.2% |
3.0% |
|
Communications and utilities |
1.6% |
1.8% |
1.7% |
|
Depreciation and amortization |
5.1% |
5.7% |
6.0% |
|
Rents and purchased transportation |
6.0% |
5.9% |
6.4% |
|
Other |
4.2% |
4.1% |
4.2% |
|
----------------------------------------------
|
|
Total operating expenses and costs |
91.9% |
93.9% |
94.8% |
|
----------------------------------------------
|
|
Operating income |
8.1% |
6.1% |
5.2% |
|
Interest expense |
1.3% |
1.6% |
1.9% |
|
Other income, net |
0.2% |
0.2% |
0.1% |
|
----------------------------------------------
|
|
Income before income taxes |
7.0% |
4.7% |
3.4% |
|
Income taxes |
2.9% |
1.9% |
1.3% |
|
----------------------------------------------
|
|
Net income |
4.1% |
2.8% |
2.1% |
|
=============================== |
RESULTS OF OPERATIONS
1999 Compared to 1998
Operating Revenue
Operating revenue for 1999 was $1,166,675,000, up 18.3%, compared to $986,286,000 for 1998. The growth in operating revenue was primarily the result of increased revenue per hundred weight and increased tonnage from new and
existing customers.
Tonnage handled by the Company during 1999 increased 11.5% over levels handled during 1998. This increase in tonnage was mainly a result of the following:
- Effective April 19, 1999, the Company increased its all-points coverage to 30 states with the additions of the states of New Jersey and Pennsylvania. Then, on October 11, 1999, the Company added the states of North Dakota and South
Dakota to its all-points coverage.
- The Company continued to increase its market penetration into existing service territories, particularly those geographic areas added during recent years. During 1995, the Company expanded its all-points coverage to the states of
Colorado, Florida, Iowa, Nebraska, North Carolina, South Carolina and Wisconsin. 1996 expansions included the states of Delaware, Maryland, Minnesota, Virginia and West Virginia. 1997 and 1998 expansions included the states of New Mexico and Michigan,
respectively.
Revenue per hundred weight for 1999 was up 6.1% from levels experienced in 1998. The factor most impacting revenue per hundred weight was:
- A general rate increase of approximately 5.5% to 5.9% went into effect on November 1, 1998, which impacted rates until October 1999. On October 1, 1999, another general rate increase, averaging 5.2%, went into effect. The increases
applied to the Company's interstate and intrastate common carrier freight rates published in its 5000 series tariff. The company derives approximately 50% of its revenue from the 5000 tariff. The remaining revenue is derived from contracts and
guarantees, which are negotiated throughout the year.
Management expects that growth in operating revenue is sustainable in the near term. In April 2000 the Company will increase its direct, all-points coverage to 39 states with the addition of Connecticut, Maine, Massachusetts, New
Hampshire, New York, Rhode Island and Vermont.
Operating Expenses
Operating expenses as a percentage of operating revenue improved to 91.9% in 1999 from 93.9% in 1998. This overall improvement was primarily attributable to:
- Salaries, wages and benefits as a percentage of operating revenue improved to 60.0% in 1999 from 61.0% in 1998. The decrease is primarily the result of improvements made in wages resulting from ongoing educational programs and
changes in operations providing productivity gains in the form of improved pickup and delivery density, increased line haul load factor and more direct line haul schedules. This improvement was partially offset by increased costs in the area of workmen's
compensation.
- Operating supplies and expenses as a percentage of operating revenue improved to 7.9% in 1999 from 8.0% in 1998. The slight improvement is partially the result of the Company's fuel surcharge, which is included as a reduction in
operating supplies and expenses in 1999. The fuel surcharge was reinstated on August 11, 1999 to help recover the increased costs of fuel. The fuel surcharge is tied to the Department of Energy's National Diesel Fuel Index and is designed to suspend at
the time this national index moves below $1.15 per gallon. The surcharge has ranged from 0.7% to 1.6% during 1999 and remains in effect at this time.
- Operating taxes and licenses as a percentage of operating revenue improved to 3.9% in 1999 from 4.2% in 1998. The improvement was primarily the result of fuel tax expense as a percentage of operating revenue decreasing because of
the increased utilization of purchased transportation and constant fuel tax rates relative to increasing revenue yields.
- Depreciation and amortization as a percentage of operating revenue improved to 5.1% in 1999 from 5.7% in 1998. This improvement was due to improved utilization of equipment and the increased usage of operating lease financing of
revenue equipment. Depreciation expense for 1999 was also reduced by a gain of approximately $853,000 recognized on revenue equipment disposals and recorded as a reduction of depreciation expense. A similar gain was also recognized in 1998.
Improvements in operating expenses as a percentage of operating revenue were partially offset by an increase in the following area:
- Rents and purchased transportation as a percentage of operating revenue increased to 6.0% in 1999 from 5.9% in 1998. The increase was the result of two principal reasons: 1) the increased usage of operating lease financing of
revenue equipment and 2) the Company's increased usage of purchased transportation in selected line-haul lanes relative to overall mileage. These increases were offset by the decreased utilization of owner operators in pickup and delivery operations
beginning in the third quarter of 1998. Management expects rents and purchased transportation as a percentage of operating revenue to remain at current levels.
Other
Interest expense as a percentage of operating revenue decreased to 1.3% in 1999, compared to 1.6% in 1998. This improvement is primarily the result of lower interest rates during the first part of 1999, as well as 1999 debt levels
that were relatively constant during much of the year as compared with an increased revenue base.
The effective tax rate of the Company was 40.9% for 1999, up from 40.6% for 1998. This increase was mostly due to increased state tax rates. Net income for 1999 was $48,116,000, up 75.0%, from $27,501,000 for 1998.
1998 Compared to 1997
Operating Revenue
Operating revenue for 1998 was $986,286,000, up 13.3%, compared to $870,319,000 for 1997. The growth in operating revenue was primarily the result of increased tonnage from new and existing customers and increased revenue per
hundred weight.
Tonnage handled by the Company during 1998 increased 9.2% over levels handled during 1997. This increase in tonnage was mainly a result of the following:
- Effective January 1, 1998, the Company increased its all-points coverage to 28 states with the addition of the state of Michigan.
- The Company continued to increase its market penetration into existing service territories, particularly those geographic areas added during 1995, 1996 and 1997. During 1995, the Company expanded its all-points coverage to the
states of Colorado, Florida, Iowa, Nebraska, North Carolina, South Carolina and Wisconsin. 1996 expansions included the states of Delaware, Maryland, Minnesota, Virginia and West Virginia. Effective August 4, 1997, all-points coverage was added to the
state of New Mexico.
- The continued increase in intrastate tonnage following the deregulation of intrastate commerce effective January 1, 1995.
- Freight volumes handled with marketing partners in Alaska, Canada, Guam, Hawaii, Mexico and Puerto Rico continued to increase at a rapid pace. The initial marketing partnership commenced in 1996 with service to Canada and Mexico.
Puerto Rico was added in 1997, with service to Alaska, Guam and Hawaii added in 1998.
Revenue per hundred weight for 1998 was up 3.6% from levels experienced in 1997. Factors most impacting revenue per hundred weight were:
- General rate increases of approximately 5.5% and 5.5% to 5.9%, effective January 1, 1998 and November 1, 1998, respectively. The increases applied to the Company's interstate and intrastate common carrier freight rates published in
its 5000 series tariff. The Company derives approximately 50% of its revenue from the 5000 tariff. The remaining revenue is derived from contracts and guarantees, which are negotiated throughout the year.
- A fuel surcharge, included in revenue during 1998 and 1997, was in effect during 1997, but not in effect for the majority of 1998. The Company initiated a fuel surcharge, in effect from September 16, 1996 until January 7, 1998, to
help recover the increased costs of fuel. This surcharge is tied to the Department of Energy's National Diesel Fuel Index and ranged from 0.7% to 1.6% during the time it was in effect. The surcharge was designed to suspend at the time this national
index moved below $1.15 per gallon.
Operating Expenses
Operating expenses as a percentage of operating revenue improved to 93.9% in 1998 from 94.8% in 1997. This overall improvement was primarily attributable to:
- Operating supplies and expenses as a percentage of operating revenue improved to 8.0% in 1998 from 8.6% in 1997. This improvement primarily related to lower diesel prices, which was partially offset by increased maintenance costs
of equipment and facilities.
- Depreciation as a percentage of operating revenue improved to 5.7% in 1998 from 6.0% in 1997. This improvement was largely due to the increased usage of operating lease financing of revenue equipment. Depreciation expense for 1998
was also reduced by a gain of approximately $965,000 recognized on revenue equipment disposals and recorded as a reduction of depreciation expense. There were no such disposals in 1997.
- Rents and purchased transportation as a percentage of operating revenue improved to 5.9% in 1998 from 6.4% in 1997. The improvement was a result of three principal reasons: 1) Short-term transportation equipment rental declined as
compared with 1997. The August 1997 strike by the International Brotherhood of Teamsters against United Parcel Service created an increase in freight volumes resulting in a temporary need for additional equipment. 2) During the third quarter of 1998 the
Company decreased its utilization of owner operators in its pickup and delivery operations, and 3) the Company's usage of purchased transportation in selected line haul lanes has declined in relation to overall mileage. These improvements were partially
offset by increased usage of operating lease financing.
Improvements in operating expenses as a percentage of operating revenue were partially offset by an increase in the following area:
- Salaries, wages and benefits as a percentage of operating revenue increased to 61.0% in 1998 from 60.8% in 1997. This increase was largely the result of significantly increased costs in the areas of workmen's compensation and
health care. The increase was partially offset by improvements made in salaries and wages resulting from ongoing educational programs and changes in operations providing productivity gains in the form of improved pickup and delivery density, increased
line haul load factor and more direct line haul schedules.
Other
Interest expense as a percentage of operating revenue decreased to 1.6% in 1998, compared to 1.9% in 1997. This improvement was primarily the result of lower interest rates during 1998, as well as 1998 debt levels that were
relatively constant as compared with an increased revenue base.
The effective tax rate of the Company was 40.6% for 1998, up from 39.2% for 1997. This increase was primarily due to higher federal tax rates applied to the increased level of 1998 taxable income. The increased federal tax was
partially offset by reduced state tax expenses from state incentives on Company business expansions. Net income for 1998 was $27,501,000, up 54.5%, from $17,801,000 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements during 1999 consisted of $135,564,000 in investing activities. The Company invested $142,483,000 in capital expenditures during 1999 comprised of $40,154,000 in additional revenue equipment, $80,117,000 in new
customer center facilities or the expansion of existing facilities and $22,212,000 in other equipment. Management expects capital expenditures for the full year of 2000 will be $148,000,000, primarily due to anticipated investments in new and existing
customer center facilities. However, the actual amount of capital expenditures required in 2000 will be dependent on the growth rate of the Company and the timing and size of any future expansions of service territory, and progress in site selection and
construction of several customer center projects. At December 31, 1999, the Company had commitments for land, customer centers, revenue and other equipment of approximately $57,209,000.
The Company provided for its capital resource requirements in 1999 with cash from operations and financing activities. Cash from operations totaled $93,145,000 during 1999 compared to $87,720,000 provided by operations during 1998.
Financing activities augmented cash flow by $44,490,000 in 1999, utilizing the primary sources of credit financing; revolving lines of credit and the Master Shelf facility.
- The Company experiences periodic cash flow fluctuations common to the industry. Cash outflows are heaviest during the first part of any given year while cash inflows are normally weighted towards the last two quarters of the year.
To smooth these fluctuations and to provide flexibility to fund future growth, the Company utilizes a variable-rate, unsecured revolving line of credit of $160,000,000 provided by Bank of America (agent), Chase Bank of Texas, N.A., Wachovia Bank, N.A.,
ABN-AMRO Bank N.V. and Bank One. At December 31, 1999, $129,000,000 was outstanding on the revolving line of credit, leaving $31,000,000 available for borrowing. The Company also has a short-term, unsecured revolving $15,000,000 line of credit with Bank
of America. At December 31, 1999, there were no borrowings outstanding on this line of credit. The line of credit is also used to obtain letters of credit for the Company's self-insurance program. At December 31, 1999, the Company had obtained letters
of credit totaling $2,501,000 for this purpose.
- To assist in financing longer-lived assets, the Company has an uncommitted Master Shelf Agreement with the Prudential Insurance Company of America which provides for the issuance of up to $190,000,000 in medium to long-term
unsecured notes at an interest rate calculated at issuance. At December 31, 1999, the Company had $119,250,000 outstanding under this facility.
- During 1999, the Company entered into a short-term, variable-rate, unsecured revolving line of credit of $20,000,000 provided by The Bank of Tokyo-Mitsubishi, Ltd. At December 31, 1999, the Company had $20,000,000 available under
this short-term line of credit.
Management expects that the Company's existing working capital and its available lines of credit are sufficient to meet the Company's commitments as of December 31, 1999, and to fund current operating and capital needs. However, if
additional financing is required, management believes it will be available.
The Company uses off-balance sheet financing in the form of operating leases primarily in the following areas; land and structures, revenue equipment and other equipment. At December 31, 1999, future rental commitments on operating
leases were $143,715,000 (See Note 6 of the Notes to Consolidated Financial Statements). The Company prefers to utilize operating leases for these areas and plans to use them in the future when such financing is available and suitable.
The industry in which the Company operates is undergoing consolidation, and, as a result, the Company is from time to time presented with opportunities to acquire the operations of other carriers. Should the Company choose to pursue
any of these opportunities, it may issue securities and/or incur debt.
YEAR 2000 ISSUES
The Company established contingency plans for all mission critical systems as well as significant customers and suppliers. These plans were reviewed and enhanced as additional information from significant customers and suppliers
became available. The costs incurred specifically to address Year 2000 readiness were not material to the Company because the systems 1) did not require significant modifications to make them Year 2000 ready, 2) were replaced for other business reasons
or 3) were already Year 2000 ready. Since entering the Year 2000, the Company has not experienced any major disruptions impacting its customers or suppliers. The Company does not anticipate any additional Year 2000 issues, but it recognizes that failure
to resolve any further Year 2000 issues on a timely basis could significantly limit its ability to process its daily business transactions for a period of time, especially if such failure is coupled with third party or infrastructure failures. Similarly,
the Company could be significantly affected by the failure of one or more significant business partners or components of the infrastructure to conduct their respective operations after 1999. Adverse effects could include, but are not limited to, loss of
communication links with customer centers, inability to process transactions or engage in similar normal business activities.
The foregoing statements regarding the Company's state of readiness, costs of conversion, risks and contingency plans for Year 2000 are based on management's current estimates and evaluations using available information. There can be
no assurances that management's estimates and evaluations will prove to be accurate, and actual results could differ materially from those currently anticipated. Factors which might cause material changes include, but are not limited to, the readiness of
third parties and the Company's ability to respond to unforeseen Year 2000 complications.
MARKET RISK
Market risks relating to the Company's operations result primarily from changes in interest rates. The Company does not use financial instruments for trading purposes and is not a party to any derivatives. The following table
provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents the Company's debt obligations, principal cash flows, related weighted-average interest rates by expected maturity dates
and fair values.
|
Interest Rate Sensitivity |
|
Principal Amount by Expected Maturity |
|
Average Interest Rate |
|
(Dollars in Thousands)
|
2000
|
2001
|
2002
|
2003
|
2004
|
There-after |
Total
|
Fair Value
12/31/99 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Long-Term Debt, Including Current Portion
|
|
|
|
|
|
|
Fixed Rate |
$ |
13,030 |
$ |
14,735 |
$ |
12,681 |
$ |
12,619 |
$ |
12,540 |
$ |
70,110 |
$ |
135,715 |
$ |
134,965 |
|
Avg. Interest Rate |
7.72% |
7.76% |
7.72% |
7.75% |
7.78% |
7.95% |
|
|
| |
|
|
|
|
|
|
|
|
|
Variable Rate |
$ |
- |
$ |
- |
$ |
- |
$ |
129,000 |
$ |
- |
$ |
- |
$ |
129,000 |
$ |
129,000 |
|
Avg. Interest Rate |
6.25% |
6.60% |
6.70% |
6.80% |
6.83% |
|
|
|
ENVIRONMENTAL
At December 31, 1999, the Company had no outstanding inquiries with any state or federal environmental agency.
INFLATION
Most of the Company's expenses are sensitive to inflation as increases in inflation generally result in increased costs. The effect of inflation on the operating results of the Company was minimal during 1999.
SEASONALITY
In the trucking industry, results of operations show a seasonal pattern because customers reduce shipments during winter months. In addition, the Company's operating expenses as a percentage of operating revenues have historically
been higher during the winter.
RECENT EVENTS
On January 19, 2000, the Company announced that on April 17, 2000, it will open 17 additional customer centers to complete its coverage of the northeastern United States, extending service to the states of Connecticut, Maine,
Massachusetts, New Hampshire, New York, Rhode Island and Vermont.
American Freightways Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Data)
| |
December 31, |
| |
1999 |
1998 |
| |
------------------------------- |
|
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents (Note 10) |
$ |
5,345 |
$ |
3,274 |
|
Trade receivables, less allowance for doubtful
accounts (1999 - $3,016, 1998 - $1,937) |
128,417
|
94,464
|
|
Operating supplies and inventories |
4,946 |
4,139 |
|
Prepaid expenses |
14,520 |
11,318 |
|
Deferred income taxes (Note 4) |
17,922 |
19,089 |
|
Income taxes receivable |
9,760 |
2,763 |
| |
------------------------------- |
|
Total current assets
|
180,910 |
135,047 |
|
Property and equipment (Notes 3 and 6): |
|
|
|
Land and structures |
271,376 |
214,061 |
|
Revenue equipment |
411,967 |
389,867 |
|
Service, office and other equipment |
156,443 |
136,160 |
|
Land improvements |
4,551 |
3,600 |
|
Construction in progress |
52,854 |
34,017 |
|
Accumulated depreciation and amortization |
(314,264) |
(272,960) |
| |
------------------------------- |
|
|
582,927 |
504,745 |
|
Other assets: |
|
|
|
Bond funds (Notes 3 and 10) |
358 |
896 |
|
Other |
2,660 |
1,373 |
| |
------------------------------- |
| |
3,018 |
2,269 |
| |
------------------------------- |
| |
$ |
766,855 |
$ |
642,061 |
| |
===================== |
| |
December 31, |
| |
1999 |
1998 |
| |
------------------------------- |
|
Liabilities and shareholders' equity |
|
|
|
Current liabilities: |
|
|
|
Trade accounts payable |
$ |
25,729 |
$ |
16,766 |
|
Accrued expenses (Note 2) |
90,655 |
70,809 |
|
Current portion of long-term debt |
13,030 |
19,679 |
| |
------------------------------- |
|
Total current liabilities
|
129,414 |
107,254 |
|
Long-term debt, less current portion (Notes 3 and 10)
|
251,685 |
206,115 |
|
Deferred income taxes (Note 4)
|
75,032 |
72,678 |
|
Shareholders' equity (Notes 3, 5, 7 and 8): |
|
|
|
Common stock, par value $.01 per share; authorized
250,000 shares; issued and outstanding 32,259
shares in 1999 and 31,695 in 1998 |
323
|
317
|
|
Additional paid-in capital |
112,641 |
106,053 |
|
Retained earnings |
197,885 |
149,769 |
|
Treasury stock, at cost; 15 shares in 1999 and 1998 |
(125) |
(125) |
| |
------------------------------- |
|
|
310,724 |
256,014 |
|
Commitments (Note 6)
|
- -------------------------------
|
| |
$ |
766,855 |
$ |
642,061 |
| |
===================== |
See accompanying notes.
American Freightways Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
| |
Year ended December 31, |
| |
1999 |
1998 |
1997 |
| |
--------------------------------------------- |
|
Operating revenue
|
$
|
1,166,675
|
$
|
986,286
|
$
|
870,319
|
|
Operating expenses and costs: |
|
|
|
|
Salaries, wages and benefits |
700,139 |
601,813 |
528,695 |
|
Operating supplies and expenses |
92,550 |
79,219 |
75,085 |
|
Operating taxes and licenses |
45,291 |
41,687 |
35,339 |
|
Insurance |
37,617 |
31,964 |
26,327 |
|
Communications and utilities |
19,018 |
17,361 |
14,907 |
|
Depreciation and amortization |
58,984 |
55,712 |
52,596 |
|
Rents and purchased transportation |
69,679 |
58,093 |
55,215 |
|
Other |
49,029 |
40,227 |
36,899 |
| |
--------------------------------------------- |
| |
1,072,307 |
926,076 |
825,063 |
| |
--------------------------------------------- |
|
Operating income
|
94,368 |
60,210 |
45,256 |
|
Other income (expense): |
|
|
|
|
Interest expense |
(15,237) |
(15,530) |
(16,256) |
|
Interest income |
311 |
307 |
247 |
|
Gain (loss) on disposal of assets (Note 11) |
1,938 |
1,203 |
(52) |
|
Other, net |
43 |
117 |
83 |
| |
---------------------------------------------- |
| |
(12,945) |
(13,903) |
(15,978) |
| |
---------------------------------------------- |
|
Income before income taxes
|
81,423 |
46,307 |
29,278 |
|
Federal and state income taxes (Note 4): |
|
|
|
|
Current |
29,786 |
11,136 |
5,310 |
|
Deferred |
3,521 |
7,670 |
6,167 |
| |
---------------------------------------------- |
| |
33,307 |
18,806 |
11,477 |
| |
---------------------------------------------- |
|
Net income |
$ |
48,116 |
$ |
27,501 |
$ |
17,801 |
| |
============================== |
|
Per share (Notes 1 and 8): |
|
|
|
|
Net income - basic
|
$ |
1.51 |
$ |
0.87 |
$ |
0.57 |
|
Net income - assuming dilution |
$ |
1.47 |
$ |
0.87 |
$ |
0.56 |
| |
============================== |
|
Average shares outstanding (Notes 1 and 8):
|
|
|
|
|
Basic
|
31,956 |
31,624 |
31,372 |
|
Assuming dilution |
32,673 |
31,689 |
31,672 |
| |
---------------------------------------------- |
See accompanying notes.
American Freightways Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In Thousands)
| |
Common Stock |
|
|
|
|
| |
------------------------ |
Additional |
|
|
|
| |
Shares
|
Par
Value |
Paid-In
Capital |
Retained
Earnings |
Treasury
Stock |
Total
|
| |
---------------------------------------------------------------------------------------------------- |
|
Balances at January 1, 1997 |
31,242 |
$ |
312 |
$ |
101,519 |
$ |
104,467 |
$ |
- |
$ |
206,298 |
|
Stock option and
purchase plans |
326 |
4 |
3,313 |
- |
- |
3,317 |
|
Net income |
- |
- |
- |
17,801 |
- |
17,801 |
| |
---------------------------------------------------------------------------------------------------- |
|
Balances at December 31, 1997 |
31,568 |
316 |
104,832 |
122,268 |
- |
227,416 |
|
Stock option and purchase plans |
127 |
1 |
1,221 |
- |
- |
1,222 |
|
Purchase of 15 treasury shares |
- |
- |
- |
- |
(125) |
(125) |
|
Net income |
- |
- |
- |
27,501 |
- |
27,501 |
| |
---------------------------------------------------------------------------------------------------- |
|
Balances at December 31, 1998 |
31,695 |
317 |
106,053 |
149,769 |
(125) |
256,014 |
|
Stock option and purchase plans |
564 |
6 |
6,588 |
- |
- |
6,594 |
|
Net income |
- |
- |
- |
48,116 |
- |
48,116 |
| |
----------------------------------------------------------------------------------------------------- |
|
Balances at December 31, 1999 |
32,259 |
$ |
323 |
$ |
112,641 |
$ |
197,885 |
$ |
(125) |
$ |
310,724 |
| |
========================================================== |
See accompanying notes.
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| |
Year ended December 31, |
| |
1999 |
1998 |
1997 |
| |
------------------------------------------------------- |
| |
(In Thousands) |
|
Operating activities |
|
|
|
|
Cash received from customers |
$ |
1,128,859 |
$ |
968,497 |
$ |
856,742 |
|
Cash paid to suppliers and employees |
(984,726) |
(851,762) |
(763,134) |
|
Interest received |
311 |
307 |
247 |
|
Interest paid |
(15,542) |
(15,438) |
(15,635) |
|
Income taxes paid |
(35,757) |
(13,884) |
(1,936) |
| |
------------------------------------------------------- |
|
Net cash provided by operating activities |
93,145 |
87,720 |
76,284 |
| |
|
|
|
|
Investing activities |
|
|
|
|
Proceeds from sales of equipment |
6,919 |
3,222 |
2,483 |
|
Capital expenditures |
(142,483) |
(94,392) |
(67,880) |
| |
------------------------------------------------------- |
|
Net cash used by investing activities |
(135,564) |
(91,170) |
(65,397) |
| |
|
|
|
|
Financing activities |
|
|
|
|
Proceeds from notes payable and
long-term borrowings |
117,000
|
45,657
|
55,400
|
|
Principal payments on long-term debt |
(78,079) |
(41,771) |
(71,731) |
|
Proceeds from issuance of common stock |
5,569 |
1,208 |
2,805 |
|
Purchase of treasury stock |
- |
(125) |
- |
| |
------------------------------------------------------- |
|
Net cash provided (used) by financing activities |
44,490 |
4,969 |
(13,526) |
| |
------------------------------------------------------- |
|
Net increase (decrease) in cash and
cash equivalents |
2,071
|
1,519
|
(2,639)
|
|
Cash and cash equivalents at beginning of year |
3,274 |
1,755 |
4,394 |
| |
------------------------------------------------------- |
|
Cash and cash equivalents at end of year |
$ |
5,345 |
$ |
3,274 |
$ |
1,755 |
| |
=============================== |
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
| |
Year ended December 31, |
| |
1999 |
1998 |
1997 |
| |
-------------------------------------------------------- |
| |
(In Thousands) |
|
Reconciliation of net income to net cash provided by operating activities: |
|
|
|
|
Net income |
$ |
48,116 |
$ |
27,501 |
$ |
17,801 |
|
Adjustments to reconcile net income to net
cash provided by operating activities: |
|
|
|
|
Depreciation |
58,984 |
55,654 |
52,484 |
|
Amortization |
- |
58 |
112 |
|
Provision for losses on accounts receivable |
3,907 |
2,142 |
1,633 |
|
Current tax effect of exercise
of stock options |
1,025
|
14
|
278
|
|
(Gain) loss on sales of equipment |
(1,938) |
(1,203) |
52 |
|
Casualty loss on destroyed equipment |
336 |
280 |
153 |
|
Deferred income taxes |
3,521 |
7,670 |
6,167 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Trade receivables |
(37,860) |
(17,906) |
(13,660) |
|
Operating supplies and inventories |
(807) |
(1,257) |
(389) |
|
Prepaid expenses |
(3,202) |
(2,647) |
(4,023) |
|
Income taxes receivable |
(6,997) |
(2,762) |
3,096 |
|
Other assets |
(749) |
(375) |
259 |
|
Trade accounts payable |
8,963 |
3,856 |
3,485 |
|
Accrued expenses |
19,846 |
16,695 |
8,836 |
| |
-------------------------------------------------------- |
|
Total adjustments |
45,029 |
60,219 |
58,483 |
| |
-------------------------------------------------------- |
|
Net cash provided by operating activities |
$ |
93,145 |
$ |
87,720 |
$ |
76,284 |
| |
=============================== |
See accompanying notes.
American Freightways Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of American Freightways Corporation and its subsidiaries (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated.
Business
The Company primarily operates as a regional and an interregional, scheduled, for hire, less-than-truckload motor carrier, serving all points in 32 contiguous states from a network of 237 customer centers, which constitutes the Company's only
business segment. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have been within management's expectations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue and direct shipment costs upon the delivery of the related freight.
Property and Equipment
Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method over the estimated useful lives of 3 to 12 years for revenue and service equipment, 15 to
40 years for structures and improvements and 3 to 10 years for furniture and office equipment. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Gains and losses are recognized in the year of disposal.
Gains and losses on revenue equipment are recorded as adjustments to depreciation expense.
Insurance
As of December 31, 1999, the Company was generally self-insured up to specified limits for workers' compensation and cargo loss and damage claims. In the states of Colorado, Delaware, Iowa, Maryland, Minnesota, Nebraska, New Jersey, New Mexico,
Pennsylvania, South Dakota, Texas and Wisconsin, however, workers' compensation claims are insured under a $750,000 deductible plan. In the state of North Dakota, workers' compensation claims are insured under the mandatory state plan as private plans are
not permitted.
General and automobile liability claims are insured with a retention limit of $750,000 per occurrence, with excess coverage on a fully insured basis providing catastrophic coverage.
Income Taxes
Deferred income taxes are accounted for under the liability method. Deferred income tax assets and liabilities reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes.
Earnings Per Share
The Company calculates earnings per common share under the following methods:
Earnings per share - basic is computed based on the weighted average number of shares outstanding during each year.
Earnings per share - assuming dilution is computed based on the weighted average number of shares outstanding during each year, adjusted to include common stock equivalents attributable to dilutive stock options.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly, recognizes no compensation expense for the stock option grants.
Impairment of Assets
The Company accounts for any impairment of its long-lived assets using Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Under SFAS No.
121, impairment losses are recognized when information indicates the carrying amount of long-lived assets, identifiable intangibles and goodwill related to those assets will not be recovered through future operations or sale.
Advertising Costs
Advertising costs are expensed to operations in the period incurred. Advertising costs for 1999, 1998 and 1997 were $1,620,000, $685,000 and $541,000, respectively.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee (AcSEC) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Under the SOP, qualifying computer software costs
are required to be capitalized and amortized against income over the software's estimated useful life. The impact of adoption in 1999 was not material.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement has been amended by SFAS No. 137 and is effective for all quarters of fiscal years beginning
after June 15, 2000. It establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability at its fair value. The Company is currently evaluating the requirements of
SFAS No. 133 and does not anticipate that the adoption will have a material effect on earnings or the financial position of the Company.
Reclassifications
Certain amounts previously reported in 1998 and 1997 have been reclassified to conform with the 1999 presentation.
2. Accrued Expenses
| |
1999 |
1998 |
| |
-------------------------------- |
| |
(In Thousands) |
| |
|
|
|
Accrued salaries, wages and benefits |
$ |
32,426 |
$ |
25,546 |
|
Taxes other than income |
6,081 |
7,098 |
|
Accident liability, cargo loss and damage, health,
and workers' compensation claims reserves |
48,437
|
33,892
|
|
Other |
3,711 |
4,273 |
| |
-------------------------------- |
| |
$ |
90,655 |
$ |
70,809 |
| |
===================== |
3. Long-term Debt
| |
1999 |
1998 |
| |
-------------------------------- |
| |
(In Thousands) |
| |
|
|
|
Bonds payable (1) |
$ |
5,590 |
$ |
6,360 |
|
Revolving credit agreements (2) |
129,000 |
78,000 |
|
Mortgage notes (3) |
638 |
801 |
|
Unsecured senior notes (4) |
129,250 |
140,250 |
|
Other-computer equipment (5) |
237 |
383 |
| |
-------------------------------- |
| |
264,715 |
225,794 |
|
Less current portion |
(13,030) |
(19,679) |
| |
-------------------------------- |
| |
$ |
251,685 |
$ |
206,115 |
| |
===================== |
(1) Represents the Company's liability under a loan agreement with Arkansas Development Finance Authority, issuer of economic development revenue bonds to construct customer centers and a general office facility. The loan agreement provides that the
Company will make payments sufficient to pay the principal and interest on the bonds. The bonds have annual maturity dates through 2009. The bonds bear interest at fixed rates ranging from 4% to 5% and are collateralized by land and structures with a net
book value of $7,538,000 at December 31, 1999. The loan agreement requires that certain bond service funds be maintained. As of December 31, 1999, there was $358,000 in a debt service reserve fund.
(2) The revolving credit agreements at December 31, 1999, include an unsecured revolving credit agreement which provides for available borrowings of $160,000,000. Borrowings under this revolving credit agreement at December 31, 1999 totaled
$129,000,000. The term of this agreement extends to April 1, 2003 (unless terminated or renewed). Interest is applied to outstanding borrowings at variable interest rates based on the London Interbank rate or the prime rate. The weighted average rate
on outstanding borrowings at December 31, 1999 was 6.96%. The agreement contains covenants which limit, among other things, indebtedness, loans, investments and dividend payments, as well as require the Company to meet certain financial tests. The Company
pays an annual commitment fee based on the unused commitment. At December 31, 1999, the commitment fee was 0.1875%. As of December 31, 1999, the amount available for additional borrowing under this line of credit was $31,000,000.
The Company also has $15,000,000 of available borrowings and letters of credit at December 31, 1999, under a separate unsecured revolving credit agreement. The terms of this agreement provide for borrowings up to $15,000,000 at a rate of interest
agreed upon at the time of any borrowings. There were no borrowings outstanding at December 31, 1999. This agreement matures March 31, 2000, unless terminated or renewed. At December 31, 1999, the Company had utilized this line of credit to obtain
letters of credit totaling $2,501,000.
The Company also has $20,000,000 of available borrowings at December 31, 1999, under a separate unsecured revolving credit agreement. The terms of this agreement provide for borrowings up to $20,000,000 at a rate of interest agreed upon at the time of
any borrowings. There were no borrowings outstanding at December 31, 1999.
(3) Mortgage notes are due monthly or annually to November 2003 at an average interest rate of 8.30%. The notes are collateralized by land and structures with a net book value of $4,353,000 at December 31, 1999.
(4) Includes an unsecured senior note for $10,000,000 payable in equal annual installments of $5,000,000 through November 2001. The note bears interest at a fixed rate of 8.91% payable semi-annually.
Also includes seven notes totaling $119,250,000; all issued under an unsecured and uncommitted $190,000,000 Master Shelf Agreement with the following characteristics:
|
Outstanding
Principal |
Maturity
Date |
Interest
Rate |
|
--------------------------------------------------- |
|
$ |
3,250,000 |
August 2000 |
6.25% |
|
2,000,000 |
October 2000 |
6.00 |
|
4,000,000 |
April 2001 |
7.55 |
|
15,000,000 |
January 2005 |
8.85 |
|
20,000,000 |
June 2005 |
6.92 |
|
25,000,000 |
May 2006 |
7.51 |
|
$ |
50,000,000 |
April 2012 |
8.11% |
All notes have fixed interest rates, payable quarterly. These note agreements contain covenants which limit, among other things, loans, indebtedness, investments and dividend payments, and require the Company to meet certain financial tests.
(5) Represents the Company's liability under a loan agreement with IBM Credit Corporation. Payments are due monthly until June 2001. The note bears interest at 5.51%.
Annual maturities on long-term debt are $13,030,000 in 2000, $14,735,000 in 2001, $12,681,000 in 2002, $141,619,000 in 2003, $12,540,000 in 2004 and $10,110,000 thereafter.
Interest costs of $1,555,000, $1,044,000 and $831,000 in 1999, 1998 and 1997, respectively, were capitalized as part of the construction cost of certain property and equipment.
4. Federal and State Income Taxes
Significant components of the Company's deferred tax liabilities and assets as of December 31, 1999 and 1998, respectively, are as follows:
| |
1999 |
1998 |
| |
------------------------------ |
| |
(In Thousands) |
| |
|
|
|
Noncurrent deferred tax liabilities: |
|
|
|
Tax over book depreciation |
$ |
76,167 |
$ |
74,361 |
|
State loss and credit carryovers |
(1,135) |
(1,683) |
| |
------------------------------ |
|
Net noncurrent deferred tax liabilities |
$ |
75,032 |
$ |
72,678 |
| |
==================== |
| |
|
|
|
Current deferred tax assets: |
|
|
|
Accrued expenses not deductible until paid |
$ |
24,736 |
$ |
18,498 |
|
Allowance for doubtful accounts |
807 |
507 |
|
Revenue recognition differences |
459 |
1,016 |
| |
------------------------------ |
|
Total current deferred tax assets |
26,002 |
20,021 |
| |
|
|
|
Current deferred tax liabilities: |
|
|
|
Prepaid expenses |
(8,080) |
(932) |
| |
------------------------------ |
|
Net current deferred tax assets |
$ |
17,922 |
$ |
19,089 |
| |
==================== |
The reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:
| |
1999 |
1998 |
1997 |
| |
----------------------------------------------- |
| |
(In Thousands) |
| |
|
|
|
|
Income tax at the statutory federal rate of 35% |
$ |
28,498 |
$ |
16,207 |
$ |
10,247 |
|
Federal income tax effects of: |
|
|
|
|
State income taxes |
(1,702) |
(666) |
(552) |
|
Nondeductible expenses |
532 |
480 |
405 |
|
Other |
1,115 |
882 |
(199) |
| |
----------------------------------------------- |
|
Federal income taxes |
28,443 |
16,903 |
9,901 |
|
State income taxes |
4,864 |
1,903 |
1,576 |
| |
----------------------------------------------- |
| |
$ |
33,307 |
$ |
18,806 |
$ |
11,477 |
| |
================================ |
|
Effective income tax rate |
40.9% |
40.6% |
39.2% |
| |
================================ |
Tax benefits of stock option and purchase plans recorded as paid-in capital and which did not reduce income tax expense amounted to $1,025,000, $14,000 and $512,000 in 1999, 1998 and 1997, respectively.
5. Employee Benefit and Compensation Plans
Stock Purchase Plan
During 1999, the Company's stock purchase plan, covering substantially all employees of the Company, expired. The Company adopted a new plan, the 1999 Stock Purchase Plan (the "1999 Purchase Plan"), which covers substantially all employees of the
Company. The 1999 Purchase Plan will remain in effect until April 30, 2009. A total of 1,446,572 shares of common stock remain reserved for issuance under this plan at December 31, 1999. The plan contains two six-month offering periods commencing May 1
and November 1 of each year. Each offering period, an eligible employee may enroll to purchase up to the lesser of $2,000 or 400 shares of Company stock. The price per share is 85% of the lower of the fair market value at the date of grant or the date
of exercise, which is six months from the date of grant.
Shares have been issued under the expired plan during 1997, 1998 and 1999 as follows:
|
Issue Date |
Number of Shares Issued |
Per Share Exercise Price |
|
---------------------------------------------------------------------------------------------------------------- |
|
April 30, 1997 |
71,557 |
$ 12.01 |
|
October 31, 1997 |
87,397 |
8.29 |
|
April 30, 1998 |
59,297 |
10.20 |
|
October 31, 1998 |
70,318 |
7.23 |
|
April 30, 1999 |
71,199 |
10.31 |
|
October 31, 1999 |
109,995 |
7.38 |
Shares issued under the 1999 Purchase Plan totaled 53,428, with an exercise price of $14.61 per share. During November 1999, employees enrolled for options to purchase 111,119 shares under this plan. These shares will be issued in April 2000.
Stock Options and Stock Appreciation Rights
The 1993 Stock Option Plan provides for the issuance of qualified or nonqualified options to purchase common stock of the Company and the awarding of stock appreciation rights payable in shares or cash. The stock appreciation rights currently
outstanding were issued in 1993 and are payable only in cash. No option or right may be issued for less than the fair market value of the stock on the date of grant. The options and rights vest over a five year period from the date of grant and will
expire if not exercised after ten years from the date of grant. The Company also reserves shares for issuance under the 1999 Chairman Stock Option Plan and the Nonemployee Director Stock Option Plans.
Collective activity within the plans is summarized as follows:
| |
Stock Appreciation Rights |
Shares Under Option |
Price Range |
Weighted Average Price |
| |
----------------------------------------------------------------- |
|
Outstanding at January 1, 1997 |
123,050 |
1,565,770 |
$ 3.00 - |
$22.13 |
$12.93 |
|
Granted |
- |
414,200 |
11.00 - |
15.94 |
11.16 |
|
Exercised |
(20,940) |
(176,340) |
3.00 - |
17.88 |
8.36 |
|
Canceled |
(11,460) |
(204,460) |
6.31 - |
21.38 |
12.92 |
| |
----------------------------------------------------------------- |
|
Outstanding at December 31, 1997 |
90,650 |
1,599,170 |
3.00 - |
22.13 |
13.06 |
|
Granted |
- |
515,550 |
9.69 - |
11.31 |
10.12 |
|
Exercised |
- |
(13,080) |
6.31 - |
7.63 |
7.50 |
|
Canceled |
(3,600) |
(93,850) |
6.31 - |
22.13 |
12.58 |
| |
----------------------------------------------------------------- |
|
Outstanding at December 31, 1998 |
87,050 |
2,007,790 |
3.00 - |
22.13 |
12.33 |
|
Granted |
- |
704,250 |
11.16 - |
21.09 |
11.31 |
| |
|
|
|
|
|
|
Exercised |
(39,580) |
(360,875) |
3.00 - |
21.38 |
10.33 |
|
Canceled |
(1,290) |
(128,780) |
10.19 - |
21.38 |
11.76 |
| |
----------------------------------------------------------------- |
|
Outstanding at December 31, 1999 |
46,180 |
2,222,385 |
$ 6.31 - |
$22.13 |
$12.42 |
| |
=========================================== |
The following table summarizes information concerning currently outstanding and exercisable options:
| |
Options Outstanding |
|
Options Exercisable |
| |
--------------------------------------------------- |
|
-------------------------------- |
|
Range of Exercise Prices |
Number Outstanding |
Weighted Average Remaining Life (Years) |
Weighted Average Exercise Price |
|
Number Exercisable |
Weighted Average Exercise Price |
|
----------------------------------------------------------------------------------------------------------------------- |
|
$6-$10 |
110,940 |
6.5 |
$ 9.02 |
|
49,740 |
8.21 |
|
$10-$15 |
1,850,965 |
6.7 |
11.56 |
|
740,679 |
12.60 |
|
$15-$20 |
108,930 |
4.4 |
17.75 |
|
104,904 |
17.80 |
|
Greater than $20 |
151,550 |
5.2 |
21.38 |
|
120,060 |
21.38 |
| |
----------------------------------- |
|
|
---------------- |
|
|
Total |
2,222,385 |
6.5 |
|
|
1,015,383 |
|
| |
==================== |
|
|
========= |
|
The number of shares of common stock reserved for granting future options under these plans at December 31 was 2,578,240 in 1999; 864,870 in 1998 and 1,460,950 in 1997. At December 31, 1999, options were exercisable to purchase 1,015,383 shares.
Expense related to the change in value of stock appreciation rights for 1999 totaled $454,000. There was no benefit or expense related to the changes in 1998 or 1997.
Accounting for Stock-Based Compensation
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation expense. If the Company had elected to
recognize compensation expense based on the fair value of options granted at grant date as prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," net income and earnings per share - assuming dilution would have been reduced to the pro
forma amounts indicated in the table below:
|
(In Thousands, Except Per Share Amounts) |
1999 |
1998 |
1997 |
| |
------------------------------------- |
|
Net income - as reported |
$ |
48,116 |
$ |
27,501 |
$ |
17,801 |
|
Net income - pro forma |
46,428 |
26,219 |
16,951 |
|
Earnings per share - assuming dilution - as reported |
1.47 |
0.87 |
0.56 |
|
Earnings per share - assuming dilution - pro forma |
$ |
1.42 |
$ |
0.83 |
$ |
0.54 |
The pro forma effect on net income for the years presented is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995.
The fair value of options was estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:
| |
1999 |
1998 |
1997 |
| |
Option
Plans |
Purchase
Plans |
Option
Plans |
Purchase
Plans |
Option
Plans |
Purchase
Plans |
| |
-------------------------------------------------------------------- |
|
Expected dividend yield |
0% |
0% |
0% |
0% |
0% |
0% |
|
Expected stock price volatility |
35.5% |
37.2% |
33.8% |
38.5% |
29.8% |
34.9% |
|
Risk-free interest rate |
4.67% |
5.33% |
5.62% |
4.63% |
6.06% |
5.69% |
|
Expected life of options |
4.3 years |
0.5 years |
4.3 years |
1 year |
4.4 years |
1 year |
|
Weighted average
value per option |
$4.34
|
$3.76
|
$3.68
|
$2.58
|
$3.87
|
$3.65
|
Retirement Plan
The Company maintains a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax deferred contributions to the plan. The plan
permits, at the discretion of the Board of Directors, elective and matching employer contributions. During 1999, the Company made elective contributions of 2 1/2% of each eligible participant's compensation, in addition to a 25% match of the first 6% of
compensation contributed by participants. The Company's contributions to the plan totaled $14,631,000, $12,717,000 and $10,786,000 for 1999, 1998 and 1997, respectively.
6. Leases and Commitments
Rent expense, exclusive of amounts related to purchased transportation, totaled approximately $38,719,000 for 1999, $31,324,000 for 1998 and $25,054,000 for 1997. The future minimum rental commitments under noncancelable operating leases having
initial or remaining terms in excess of one year as of December 31, 1999 are as follows:
| |
Total
|
Structures
|
Revenue Equipment |
Other Equipment |
| |
------------------------------------------------------------------ |
| |
(In Thousands) |
| |
|
|
|
|
|
2000 |
$ 41,237 |
$ 9,474 |
$16,589 |
$15,174 |
|
2001 |
35,957 |
6,729 |
15,813 |
13,415 |
|
2002 |
27,560 |
5,392 |
15,912 |
6,256 |
|
2003 |
16,143 |
4,319 |
11,824 |
- |
|
2004 |
7,912 |
3,563 |
4,349 |
- |
|
Thereafter |
14,906 |
11,653 |
3,253 |
- |
| |
------------------------------------------------------------------ |
| |
$143,715 |
$41,130 |
$67,740 |
$34,845 |
| |
===================================== |
Certain leases have renewal options for periods from one to five years at the fair rental value of the related property at renewal. Certain of the lease agreements contain fixed price purchase options. The lease agreements require the lessee to pay
property taxes, maintenance and operating expenses.
Commitments for land, customer centers and revenue equipment (including the cost to complete construction in progress) aggregated approximately $57,209,000 at December 31, 1999.
7. Common Stock
On August 17, 1998, the Company declared a dividend of one common share purchase right ("Right") for each outstanding share of common stock, ("Common Shares") of the Company at August 31, 1998 and generally to shares issuable after that date. The
Rights are not currently exercisable and will automatically trade with the common stock. However, if a person or group acquires more than 15% of the Common Shares or announces a tender or exchange offer for more than 15% of the Common Shares, the Rights
will become exercisable and each right holder (other than the prospective acquiror) may use the Rights to purchase $25 worth of Common Shares at one half of the then market price. The Rights will expire on August 17, 2003, unless extended or earlier
redeemed.
8. Earnings per Share
Net income for purposes of basic earnings per share and earnings per share - assuming dilution was $48,116,000, $27,501,000 and $17,801,000 for the years 1999, 1998 and 1997, respectively. A reconciliation of average shares outstanding for both
computations is presented below:
| |
1999 |
1998 |
1997 |
| |
---------------------------------- |
| |
(In Thousands) |
| |
|
|
|
|
Average shares outstanding - basic |
31,956 |
31,624 |
31,372 |
|
Effect of dilutive stock options |
717 |
65 |
300 |
| |
---------------------------------- |
|
Average shares outstanding - assuming dilution |
32,673 |
31,689 |
31,672 |
| |
======================= |
Antidilutive stock options are not included in the earnings per share calculation. Average antidilutive options were 244,000 in 1999; 1,545,000 in 1998 and 489,000 in 1997.
9. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 1999 and 1998:
| |
Three months ended |
| |
March 31 |
June 30 |
September 30 |
December 31 |
| |
------------------------------------------------------------- |
| |
(In Thousands, Except Per Share Data) |
|
1999 |
|
|
|
|
|
Operating revenue |
$ |
265,404 |
$ |
291,173 |
$ |
303,617 |
$ |
306,480 |
|
Operating expenses and costs |
250,577 |
266,400 |
276,100 |
279,229 |
|
Net income |
6,775 |
13,122 |
14,386 |
13,833 |
|
Net income per share: |
|
|
|
|
|
Basic |
.21 |
.41 |
.45 |
.43 |
|
Assuming dilution |
$ |
.21 |
$ |
.40 |
$ |
.44 |
$ |
.42 |
| |
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
Basic |
31,738 |
31,860 |
32,026 |
32,200 |
|
Assuming dilution |
32,229 |
32,643 |
32,977 |
32,842 |
|
|
Three months ended |
| |
March 31 |
June 30 |
September 30 |
December 31 |
| |
------------------------------------------------------------- |
| |
(In Thousands, Except Per Share Data) |
|
1998 |
|
|
|
|
|
Operating revenue |
$ |
230,649 |
$ |
246,402 |
$ |
254,047 |
$ |
255,188 |
|
Operating expenses and costs |
221,344 |
230,515 |
236,835 |
237,382 |
|
Net income |
3,172 |
7,658 |
8,191 |
8,480 |
|
Net income per share: |
|
|
|
|
|
Basic |
.10 |
.24 |
.26 |
.27 |
|
Assuming dilution |
$ |
.10 |
$ |
.24 |
$ |
.26 |
$ |
.27 |
| |
|
|
|
|
|
Average shares outstanding: |
|
|
|
|
|
Basic |
31,568 |
31,612 |
31,639 |
31,679 |
|
Assuming dilution |
31,625 |
31,752 |
31,670 |
31,710 |
10. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
Cash and cash equivalents - the carrying amount reported in the consolidated balance sheets for cash and cash equivalents approximates fair value.
Bond funds - the Company's debt service reserve fund is invested in money market funds and the carrying amount reported in the consolidated balance sheets for bond funds approximates fair value.
Long-term debt - the fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows:
| |
Carrying Amount |
Fair Value |
| |
-------------------------------------- |
| |
(in thousands) |
|
1999 |
|
|
|
Cash and cash equivalents |
$ 5,345 |
$ 5,345 |
|
Bond funds |
358 |
358 |
|
Long-term debt |
264,715 |
263,965 |
| |
|
|
|
1998 |
|
|
|
Cash and cash equivalents |
$ 3,274 |
$ 3,274 |
|
Bond funds |
896 |
896 |
|
Long-term debt |
225,794 |
239,923 |
11. Involuntary Conversion
During 1999 the Company experienced an involuntary conversion of certain assets. This involuntary conversion resulted in the recognition of a gain of approximately $1,760,000, which is included in gain (loss) on disposal of assets in the consolidated
statements of income.
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
American Freightways Corporation
We have audited the accompanying consolidated balance sheets of American Freightways Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Freightways Corporation and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
Little Rock, Arkansas
January 20, 2000
