______________________________________________________________________________
______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 23, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 1-8544
AMERICAN PRESIDENT COMPANIES, LTD.
(Exact name of registrant as specified in its charter)
Delaware 94-2911022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Broadway
Oakland, California 94607
(Address of principal executive offices)
Registrant's telephone number: (510) 272-8000
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 (X) No ( ).
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 21, 1994
____________________________ _______________________________
Common Stock, $.01 par value 27,302,492
______________________________________________________________________________
______________________________________________________________________________
AMERICAN PRESIDENT COMPANIES, LTD.
INDEX
PART I. FINANCIAL INFORMATION Page
_____________________
Item 1. Consolidated Financial Statements
Statement of Income 3
Balance Sheet 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 14-23
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 24-25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
The consolidated financial statements presented herein include the
accounts of American President Companies, Ltd. and its wholly-owned
subsidiaries (the "company") and have been prepared by the company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. The company believes that the disclosures are adequate to make
the information presented not misleading, although certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the company's results of operations, financial position and
cash flows. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the company's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 1-8544).
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
_______________________________________________________________________________________________
(In thousands, except Quarter Ended 38 Weeks Ended
per share amounts) September 23 September 17 September 23 September 17
1994 1993 1994 1993
_______________________________________________________________________________________________
REVENUES $ 672,121 $ 625,409 $ 2,028,777 $ 1,840,241
_______________________________________________________________________________________________
EXPENSES
Operating, Net of Operating-
Differential Subsidy 593,717 537,076 1,806,775 1,618,631
General and Administrative 16,769 13,623 55,804 40,645
Depreciation and Amortization 24,459 25,349 77,294 80,050
_______________________________________________________________________________________________
Total Expenses 634,945 576,048 1,939,873 1,739,326
_______________________________________________________________________________________________
OPERATING INCOME 37,176 49,361 88,904 100,915
OTHER INCOME (EXPENSE)
Interest Income 3,746 648 9,807 2,846
Interest Expense (6,839) (3,537) (20,584) (13,271)
Gain on Sale of Investment 8,934
_______________________________________________________________________________________________
Income Before Taxes 34,083 46,472 78,127 99,424
Federal, State and
Foreign Tax Expense 11,520 20,938 26,407 40,530
_______________________________________________________________________________________________
NET INCOME $ 22,563 $ 25,534 $ 51,720 $ 58,894
_______________________________________________________________________________________________
Less Dividends on
Preferred Stock 1,688 1,688 5,063 5,063
NET INCOME APPLICABLE TO
COMMON STOCK $ 20,875 $ 23,846 $ 46,657 $ 53,831
_______________________________________________________________________________________________
_______________________________________________________________________________________________
EARNINGS PER COMMON SHARE
_______________________________________________________________________________________________
Primary Earnings
Per Common Share $ 0.74 $ 0.85 $ 1.64 $ 1.95
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Fully Diluted Earnings
Per Common Share $ 0.70 $ 0.80 $ 1.60 $ 1.86
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DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.075 $ 0.30 $ 0.225
_______________________________________________________________________________________________
_______________________________________________________________________________________________
See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEET (Unaudited)
________________________________________________________________________________________________
(In thousands, except share amounts) September 23 December 31
1994 1993
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ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 44,049 $ 84,053
Short-Term Investments 197,902
Trade and Other Receivables 269,981 271,053
Fuel and Operating Supplies 38,898 35,354
Prepaid Expenses and Other 49,561 48,378
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Total Current Assets 600,391 438,838
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PROPERTY AND EQUIPMENT
Ships 678,105 676,854
Containers, Chassis and Rail Cars 764,904 750,557
Leasehold Improvements and Other 257,831 249,636
Construction in Progress 95,717 74,138
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1,796,557 1,751,185
Accumulated Depreciation and Amortization (874,964) (825,003)
________________________________________________________________________________________________
Property and Equipment, Net 921,593 926,182
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INVESTMENTS AND OTHER ASSETS 121,800 89,357
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Total Assets $ 1,643,784 $ 1,454,377
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________________________________________________________________________________________________
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt
and Capital Leases $ 4,746 $ 4,395
Accounts Payable and Accrued Liabilities 404,417 383,029
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Total Current Liabilities 409,163 387,424
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DEFERRED INCOME TAXES 134,805 130,228
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OTHER LIABILITIES 113,905 118,966
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LONG-TERM DEBT 378,135 250,610
CAPITAL LEASE OBLIGATIONS 13,733 16,696
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Total Long-Term Debt and Capital Lease Obligations 391,868 267,306
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COMMITMENTS AND CONTINGENCIES
________________________________________________________________________________________________
REDEEMABLE PREFERRED STOCK, $.01 Par Value,
Stated at $50.00, Authorized-2,000,000
Shares Series C, Shares Issued and Outstanding-
1,500,000 in 1993 and 1992 75,000 75,000
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STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
27,291,000 in 1994 and 26,837,000 in 1993 27,291 26,837
Additional Paid-In Capital 66,569 61,656
Retained Earnings 425,183 386,960
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Total Stockholders' Equity 519,043 475,453
________________________________________________________________________________________________
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $ 1,643,784 $ 1,454,377
________________________________________________________________________________________________
________________________________________________________________________________________________
See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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(In thousands) 38 Weeks Ended
September 23 September 17
1994 1993
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 51,720 $ 58,894
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 77,294 80,050
Deferred Income Taxes 8,248 13,379
Change in Receivables 8,542 (42,436)
Issuance of Notes Receivable on Sales of Real Estate (7,470) (3,015)
Change in Fuel and Operating Supplies (3,544) (5,396)
Change in Prepaid Expenses and Other Current Assets (4,854) 1,917
Gain on Sale of Assets (2,280) (13,977)
Change in Accounts Payable and Accrued Liabilities 25,292 36,039
Other 1,600 12,950
________________________________________________________________________________________________
Net Cash Provided by Operating Activities 154,548 138,405
________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (78,568) (113,466)
Proceeds from Sales of Property and Equipment 4,227 3,968
Proceeds from Sale of Long-Term Investment 11,310
Purchase of Short-Term Investments (291,951)
Proceeds from Sales of Short-Term Investments 94,049 38,846
Transfers from Capital Construction Fund 8,843
Deposit to Capital Construction Fund (36,860) (6,140)
Other (2,342) 1,313
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Net Cash Used in Investing Activities (311,445) (55,326)
________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Debt 147,348 419,506
Repayments of Debt (19,881) (462,331)
Repayments of Capital Lease Obligations (2,680) (112,678)
Dividends Paid (13,231) (11,026)
Other 5,101 7,676
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Net Cash Provided by (Used in)
Financing Activities 116,657 (158,853)
________________________________________________________________________________________________
Effect of Exchange Rate Changes on Cash 236 (1,895)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (40,004) (77,669)
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Cash and Cash Equivalents at Beginning of Period 84,053 92,835
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Cash and Cash Equivalents at End of Period $ 44,049 $ 15,166
________________________________________________________________________________________________
________________________________________________________________________________________________
SUPPLEMENTAL DATA:
________________________________________________________________________________________________
CASH PAID FOR:
Interest $ 16,638 $ 22,050
Income Taxes, Net of Refunds $ 11,953 $ 13,789
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See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Significant Accounting Policies
Capitalized Interest
For the third quarter and the three quarters ending September 23,
1994, the company capitalized interest of $1.5 million and $4.4 million,
respectively, related to cash expenditures for the construction of the C11-
class and K10-class vessels. For the third quarter and the three quarters
ending September 17, 1993, the company capitalized interest of $0.5 million
and $0.6 million, respectively, related to cash expenditures for the
construction of the C11-class vessels.
Income Taxes
The company's estimated effective income tax rate for 1994 is 34%,
compared with 41% in 1993. The 1994 effective tax rate includes the effect of
revisions of prior years' estimated tax liabilities. The 1993 effective tax
rate includes an adjustment of $3.2 million to reflect the effect of an
increase in the maximum corporate federal income tax rate to 35%.
Reclassifications
Certain 1993 amounts have been reclassified to conform with the 1994
presentation.
Note 2. United States Maritime Administration Agreements
Operating-Differential Subsidy Agreement
The company and the United States Maritime Administration ("MarAd")
are parties to an Operating-Differential Subsidy ("ODS") agreement expiring
December 31, 1997, which provides for payment by the U.S. government to
partially compensate the company for the relatively greater expense of vessel
operation under United States registry. For the quarters ending September 23,
1994 and September 17, 1993, subsidy was $13.9 million and $14.7 million,
respectively, and for the three quarters ending September 23, 1994 and
September 17, 1993, subsidy was $43.9 million and $45.3 million, respectively,
and has been included as a reduction of operating expenses. The ODS agreement
also requires the company to replace the capacity of its existing vessels as
they reach the end of their statutory lives if a construction differential
subsidy, provided by the U.S. government, is made available. This subsidy has
not been made available since 1981.
In June 1992, the Bush Administration announced that no new ODS
agreements would be entered into and existing ODS agreements would be allowed
to expire. The Clinton Administration and Congress have been reviewing U.S.
maritime policy. In March 1994, the Clinton Administration's maritime support
proposal was sent to Congress, and introduced in the U.S. House of
Representatives as H.R. 4003 and in the Senate as S. 1945. The House approved
H.R. 4003, which would have provided subsidies for approximately 52 U.S.-flag
vessels over the next ten years, or an annual subsidy of $2.1 million per
vessel for vessels enrolled in the program. However, Congress adjourned
without enacting this legislation. In October 1994, President Clinton issued
a statement that his Administration would work with the Congress to enact
maritime support legislation in 1995. The
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 2. United States Maritime Administration Agreements (continued)
Operating-Differential Subsidy Agreement (continued)
company is not able to predict whether or when maritime support legislation
will be enacted or what terms such legislation may have, if enacted.
While the company continues to encourage efforts to enact maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, in July 1993, the company filed
applications with MarAd to operate under foreign flag its six C11-class
containerships, presently under construction, and to transfer to foreign flag
seven of the 15 U.S.-flag containerships in its trans-Pacific fleet. On
October 13, 1994, the company requested that MarAd act by November 1, 1994 on
the company's request for authority to operate its C11-class vessels under
foreign flag. MarAd action on both applications is still pending, and while
no assurances can be given as to whether the authority will be granted, the
company expects to receive a response from MarAd within the next few months.
Management of the company believes that, in the absence of ODS or an
equivalent government support program, it will be generally no longer
commercially viable to own or operate containerships in foreign trade under
the U.S. flag after the expiration of its ODS agreement because of the higher
labor costs and the more restrictive design, maintenance and operating
standards applicable to U.S.-flag liner vessels. The company continues to
evaluate its strategic alternatives in light of the pending expiration of its
ODS agreement and the uncertainties as to whether a new U.S. government
maritime support program acceptable to the company will be enacted, whether
sufficient labor efficiencies can be achieved through the collective
bargaining process, and whether the company's applications to flag its vessels
under foreign registry will be approved. While no assurances can be given,
management of the company believes that it will be able to structure its
operations to enable it to continue to operate on a competitive basis without
direct U.S. government support.
Capital Construction Fund
The company also has an agreement with MarAd pursuant to which the
company has established a Capital Construction Fund ("CCF") to which the
company makes contributions to provide funding for certain U.S.-built assets
and for the repayment of certain vessel acquisition debt. In September 1994,
the company made a deposit of $36.9 million to its CCF. Also in September
1994, the company sold an undivided interest in $40 million of its trade
accounts receivable to its CCF for $36.9 million in cash. At September 23,
1994 the CCF's $36.9 million investment in the company's trade accounts
receivable, net of an unamortized discount of $3.1 million, is included in
Investments and Other Assets on the accompanying Consolidated Balance Sheet.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 23, 1994 and
December 31, 1993, were as follows:
________________________________________________________________________________________________
(In thousands) September 23 December 31
1994 1993
________________________________________________________________________________________________
Accounts Payable $ 59,394 $ 39,101
Accrued Liabilities 256,832 271,477
Current Portion of Accrued Claims 23,100 11,500
Income Taxes Payable 7,757 1,551
Unearned Revenue 57,334 59,400
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Total Accounts Payable and Accrued Liabilities $ 404,417 $ 383,029
________________________________________________________________________________________________
________________________________________________________________________________________________
Note 4. Long-Term Debt
Long-Term Debt at September 23, 1994 and December 31, 1993 consisted
of the following:
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(In thousands) September 23 December 31
1994 1993
________________________________________________________________________________________________
8% Senior Debentures $150 million Face Amount
Due on January 15, 2024 (1) $ 147,138
7 1/8% Senior Notes $150 million Face Amount
Due on November 15, 2003 (1) 148,024 $ 147,915
Series I 8% Vessel Mortgage Bonds
Due Through 1997(2) 61,941 81,000
8% Refunding Revenue Bonds Due on November 1, 2009 12,000 12,000
Refunding Revenue Bonds, at Various Rates Not to
Exceed 12%, Due on November 1, 2009 6,495 6,495
Note Payable at 9% Due Through 1997 2,841 3,577
Notes Payable at Prime plus 1% 572 616
Note Payable at 10% Due Through 1998 185
________________________________________________________________________________________________
Total Debt 379,196 251,603
Current Portion (1,061) (993)
________________________________________________________________________________________________
Long-Term Debt $ 378,135 $ 250,610
________________________________________________________________________________________________
________________________________________________________________________________________________
(1) In November 1993, the company filed a shelf registration statement
covering the issuance from time to time of up to $400 million of debt
securities of varying terms and amounts. Pursuant to this registration
statement, in November 1993, the company issued 7 1/8% Senior Notes with
a face amount of $150 million. The unamortized discount was $2.0
million and $2.1 million at September 23, 1994 and December 31, 1993,
respectively. The effective interest rate of this debt is 7.325%, and
interest payments are due semiannually. Also pursuant to this
registration statement, in January 1994, the company issued 8% Senior
Debentures with a face amount of $150 million. These senior debentures
had an unamortized discount of $2.9 million at September 23, 1994. The
effective interest rate on this debt is 8.172%, and interest payments
are due semiannually.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
(2) Principal payments are due in equal semiannual installments. The
company has the option to issue Series II Bonds due sequentially in
semiannual payments at the end of the term of the Series I Bonds in lieu
of up to five cash payments, which it has not exercised. Principal
payments are classified as long-term debt on the basis that the company
issues Series II Bonds totaling $23.8 million per year in lieu of the
next five semiannual cash payments.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
As an alternative to borrowing under its credit agreement, the company
has an option under that agreement to sell up to $150 million of certain
accounts receivable to the banks. This alternative is subject to less
restrictive financial covenants than the borrowing option.
Note 5. Stockholders' Equity
Earnings Per Common Share
For the periods presented, primary earnings per share were computed by
dividing net income, reduced by the amount of the preferred stock dividends,
by the weighted average number of common shares and common equivalent shares
outstanding. Fully diluted earnings per share were computed based on the
assumption that the Series C Preferred Stock was converted. The number of
shares used in these computations were as follows:
________________________________________________________________________________________________
Weighted Average Number of Common Shares
________________________________________________________________________________________________
(In millions) Quarter Ended 38 Weeks Ended
September 23 September 17 September 23 September 17
1994 1993 1994 1993
________________________________________________________________________________________________
Primary 28.3 27.9 28.4 27.6
Fully Diluted 32.3 31.9 32.3 31.7
________________________________________________________________________________________________
________________________________________________________________________________________________
Cash Dividends
On October 7, 1994, the Board of Directors declared a quarterly cash
dividend of $0.10 per share of common stock, payable on November 30, 1994 to
common stockholders of record on November 15, 1994. The Board of Directors
also declared a cash dividend of $1.125 on the 9% Series C Cumulative
Convertible Preferred Stock, payable on December 15, 1994 to preferred
stockholders of record on December 1, 1994.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. Stockholders' Equity (continued)
Stock Incentive Plans
At the 1994 Annual Meeting of Stockholders on April 28, 1994, the
company received stockholder approval to increase the number of shares of
common stock reserved for issuance under the 1989 Stock Incentive Plan by
2,000,000 shares. Pursuant to the 1989 Stock Incentive Plan, the company
granted options to acquire 1,238,908 shares to 380 key employees of the
company on April 28, 1994. These options have an exercise price of $22.38 and
vest between 1995 and 2002 based upon the achievement of stock price
appreciation targets. The percentage of the options that vest during
specified time periods will depend on the amount of stock price appreciation
in those time periods. After five years, the options will vest as to 60% of
the covered shares if not otherwise vested, and after nine years, the options
will vest as to the remaining 40% if not otherwise vested. These options
expire in July 2003.
In addition, pursuant to the 1992 Directors Stock Option Plan, the
company granted options to acquire 32,000 shares to eight non-employee
directors of the company on April 29, 1994. These options have an exercise
price of $20.625 and become exercisable in three equal installments on the
anniversaries of the date of grant, and expire in April 2004.
Note 6. Commitments and Contingencies
Commitments
In May 1993, the company entered into contracts for the construction
and purchase of six new C11-class containerships from Howaldtswerke-Deutsche
Werft AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $535 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and aggregate
progress payments of $14 million were made to HDW during the first three
quarters of 1994. The remaining progress payments are due in installments of
$17 million and $20 million in 1994 and 1995, respectively, and the final 80%
is due upon delivery of the vessels in 1995. In March 1994, the company
entered into a loan agreement with European banks to finance approximately
$400 million of the purchase price of the six C11-class vessels. Principal
payments on any draw-downs would be due in semiannual installments over a 12-
year period commencing six months after the delivery of each vessel. Interest
rates would be based upon various margins over LIBOR or the banks' cost of
funds as elected by the company. The remaining costs of these vessels are
expected to be financed with a portion of the net proceeds from the company's
November 1993 and January 1994 public debt offerings and with cash from
operations.
In connection with the construction and purchase of the ships from
HDW, the company entered into foreign currency contracts to buy Deutsche marks
in the future to lock in the U.S. dollar cost of the Deutsche-mark denominated
price of the vessels. Any gains or losses on these contracts will be deferred
and recognized as an adjustment to the cost basis of the ships when the
related payments are made. At September 23, 1994, the company had contracts
to purchase $227.7 million in Deutsche marks.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
In December 1993, the company entered into contracts with Daewoo for
the construction and purchase of three diesel-powered K10-class containerships
to be delivered in 1996. The total estimated project cost for construction of
these vessels is $194 million. A progress payment of $18 million was made to
Daewoo in 1993. The remaining progress payments are due in two $18 million
installments in 1995 and 70% upon delivery of the vessels in 1996. The
remaining costs of these vessels are expected to be financed with a portion of
the net proceeds from the company's November 1993 and January 1994 public debt
offerings and cash from operations. The alliance agreements with MOL, NLL and
OOCL described below may impact the deployment and/or the ultimate ownership
of the K10-class vessels.
At September 23, 1994, the company had outstanding purchase
commitments to acquire facilities, equipment and services totaling $63
million. In addition, the company has commitments to purchase terminal
services for its major Asian operations. These commitments range from one to
ten years, and the amounts of the commitments under these contracts are based
upon the actual services performed. At September 23, 1994, the company had
outstanding letters of credit totaling $10.5 million, which guarantee the
company's performance under certain of its commitments.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
In June 1994, the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6.3
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12.4 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $37.7 million in the 29th and
30th years, also depending upon the final scope of development and consumer
price index increases.
The company and Orient Overseas Container Line, a Hong Kong shipping
company ("OOCL"), are parties to agreements enabling them to exchange vessel
space and coordinate vessel sailings through 2005. Currently, each party is
guaranteed vessel space and buys extra space as needed. Since December 1993,
the company has been required to purchase additional vessel space from OOCL
and to compensate OOCL for this space at a rate currently calculated at $6.6
million per year, accrued ratably over each year. This commitment reduces as
the company increases the capacity it can exchange with OOCL, which is
expected to begin with the delivery of the company's C11-class vessels in
1995.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
On April 26, 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. Each party is committed to
purchase a minimum amount of vessel space at contract rates and may buy
available extra space as needed. The company's minimum space purchase
commitment exceeds that of TMM by approximately $5.3 million per year.
On September 5, 1994, the company, Mitsui OSK Lines, Ltd. ("MOL"), and
OOCL signed an agreement to exchange vessel space, coordinate vessel sailings
and cooperate in the use of port terminals and equipment for ocean
transportation services in the Asia-U.S. West Coast trade. The carriers
currently expect to commence service under this agreement in late 1995 or
early 1996. The three carriers and Nedlloyd Lines B.V. ("NLL") signed a
separate agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment in the Asia-U.S. East
Coast trade via Panama. The four carriers currently expect to initiate a
weekly, all-water service under this agreement in April 1995. Both agreements
are subject to government approvals in the U.S. and Japan.
Additionally, on September 22, 1994, the four carriers and CGM Orient,
S.A. ("CGM") and Malaysian International Shipping Corporation BHD ("MISC")
signed an agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment for ocean transportation
services in the Northern Europe-Far East trade. On October 27, 1994, CGM
announced its withdrawal from this trade, and MISC and NLL have agreed to
assume its rights and obligations under the agreement. The carriers currently
expect to commence service under the agreement in January 1996. Prior to the
commencement of this alliance, the company will enter the Northern Europe-Far
East trade by chartering vessel space from MOL.
The company's net commitment under the alliance agreements depends
upon pending U.S. government approvals and final vessel space allocation.
The company has entered into employment agreements with certain of its
executive officers. The agreements provide for certain payments to each
officer upon termination of employment, other than as a result of death,
disability in most cases, or justified cause, as defined. The aggregate
estimated commitment under these agreements was $15.9 million at September 23,
1994.
Contingencies
The company is a party to various legal proceedings, claims and
assessments arising in the course of its business activities. Based upon
information presently available, and in light of legal and other defenses and
insurance coverage and other potential sources of payment available to the
company, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse
impact on the company's consolidated financial position or operations.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 7. Business Segment Information
________________________________________________________________________________________________
(In millions) Quarter Ended 38 Weeks Ended
September 23 September 23 September 23 September 23
1994 1993 1994 1993
________________________________________________________________________________________________
Revenues
Transportation $ 672.1 $ 623.3 $ 2,012.6 $ 1,831.8
Real Estate 2.1 16.2 8.5
________________________________________________________________________________________________
Total Revenues $ 672.1 $ 625.4 $ 2,028.8 $ 1,840.3
________________________________________________________________________________________________
Operating Income
Transportation $ 37.2 $ 48.3 $ 79.9 $ 96.3
Real Estate 1.0 9.0 4.6
________________________________________________________________________________________________
Total Operating Income $ 37.2 $ 49.3 $ 88.9 $ 100.9
________________________________________________________________________________________________
American President Companies, Ltd. and Subsidiaries
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter Year to Date
(In millions) 1994 1993 Change 1994 1993 Change
_______________________________________________________________________________________________
REVENUES
_______________________________________________________________________________________________
International Transportation $ 498 $ 475 5% $ 1,468 $ 1,379 6%
North America Transportation 174 148 18% 545 452 20%
Real Estate 2 (100%) 16 9 90%
_______________________________________________________________________________________________
OPERATING INCOME
Transportation $ 37 $ 48 (23%) $ 80 $ 96 (17%)
Real Estate 1 (100%) 9 5 94%
_______________________________________________________________________________________________
_______________________________________________________________________________________________
Transportation operating income declined in the third quarter and
first three quarters of 1994 from the third quarter and first three quarters
of 1993, primarily due to increases in certain operating costs, and increased
expenditures of $5 million in the third quarter of 1994 and $19 million in the
first three quarters of 1994 on corporate initiatives to improve the company's
financial and order cycle processes. These cost increases were partially
offset by increased stacktrain volumes and revenue per forty-foot equivalent
unit ("FEU") in the company's North America business and volume improvements
in the company's U.S. import business. Additionally, in the third quarter of
1994, U.S. export volumes declined due to the company's loss of its position
as primary carrier of military cargo, which it held from June 1993 through May
1994, partially offset by higher export revenue per FEU in the third quarter.
The company completed the sales of its remaining real estate holdings
in the second quarter of 1994. In the first three quarters of 1994 real
estate sales contributed $9 million to operating income compared with $5
million in the first three quarters of 1993, $1 million of which was in the
third quarter of 1993.
INTERNATIONAL TRANSPORTATION (1)
(Volumes in thousands of FEUs)
Third Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Import
Volumes 56.3 53.1 6% 158.5 152.3 4%
Average Revenue per FEU $ 4,178 $ 4,187 0% $ 4,121 $ 4,125 0%
________________________________________________________________________________________________
Export
Volumes 35.5 37.2 (5%) 114.6 109.6 5%
Average Revenue per FEU $ 3,324 $ 3,204 4% $ 3,174 $ 3,285 (3%)
________________________________________________________________________________________________
Intra-Asia
Volumes 40.6 40.2 1% 134.0 122.2 10%
Average Revenue per FEU $ 1,849 $ 1,857 0% $ 1,883 $ 1,871 1%
________________________________________________________________________________________________
________________________________________________________________________________________________
(1) Volumes and revenue per FEU data are based upon shipments originating
during the period, which differs from the percentage-of-completion
method which is used for financial reporting purposes.
The company's U.S. import volumes increased in the third quarter and
first three quarters of 1994 compared with the same periods in 1993 primarily
due to service enhancements in the People's Republic of China in 1994, and
increased demand in this market resulting from improved U.S. economic
conditions in the third quarter of 1994. Volumes of U.S. export cargo
declined in the third quarter of 1994 compared with the third quarter of 1993
due to the loss of the company's position as preferred carrier of military dry
cargo in June 1994. The company's position as preferred carrier for U.S.
military cargo from June 1993 to May 1994 contributed to increased export
volumes for the first three quarters of 1994 compared with the same period in
1993. The company's intra-Asia volumes increased marginally in the third
quarter of 1994 compared with last year's third quarter due to increased
shipments of refrigerated cargo, partially offset by lower volumes of
commercial dry cargo. Intra-Asia volumes for the first three quarters of 1994
increased compared with the first three quarters of 1993 as a result of the
company's expanded service to and from China and the growing economies in
Southeast and West Asia and the Middle East in 1994. Additionally,
refrigerated cargo volumes in this market have grown substantially since last
year.
Average revenue per FEU for the company's U.S. import shipments was
relatively unchanged in the third quarter and first three quarters of 1994,
compared with the same periods in 1993, as competitive pressures in this
market have continued to hold import rates down. Average revenue per FEU in
the company's U.S. export market increased in the third quarter of 1994,
compared with last year's third quarter due to a greater proportion of higher-
rated refrigerated cargo in this market and less lower-rated military dry
cargo. For the first three quarters of 1994, average revenue per FEU in the
company's U.S. export market were lower than for the 1993 period due to
reduced rates in the first half of the year resulting from weak market
conditions and increased competition. Average revenue per FEU in the
company's intra-Asia market was relatively unchanged in the third quarter of
1994 compared with last year's third quarter as volumes of lower-rated
commercial dry cargo from the Middle East were offset by increased volumes of
refrigerated cargo. Average revenue per FEU in the company's intra-Asia
market increased slightly in the first three quarters of 1994 compared with
the first three quarters of 1993, primarily attributable to an increase in
higher-rated commercial refrigerated cargo, partially offset by competitive
rate pressures.
Utilization of the company's containership capacity in the first three
quarters of 1994 was 89% and 95% for import and export shipments,
respectively, compared with 89% and 91%, respectively, in the first three
quarters of 1993. Import capacity in the first three quarters of 1994 was
increased by additional vessel space purchased from Orient Overseas Container
Line ("OOCL") since December 1993. The increase in vessel utilization in the
company's U.S. export market in the first three quarters of 1994 resulted
primarily from higher volumes of export cargo carried by the company.
Accounts receivable from shippers in the People's Republic of China
increased 80% between year end 1993 and the end of the third quarter of 1994,
and represented approximately 18% of the company's outstanding receivables at
September 23, 1994, compared with approximately 12% at December 31, 1993.
This increase is related in part to a significant increase in revenues from
the People's Republic of China. In addition, the company and other ocean
carriers engage agents in the People's Republic of China to book cargo and
collect from shippers and, due to local practices, collections of accounts
receivable by the agents and remittances to carriers have not been made on a
timely basis. The company believes that as of September 23, 1994 it has
adequately accrued for expected uncollectible accounts receivable, but no
assurances can be given to that effect. Additionally, the company is working
with other carriers in this trade to change the local practices to accelerate
agents' collections from the customers and remittances to the carriers.
The company expects continuing competitive pressures on the company's
U.S. import and intra-Asia rates at least for the balance of the year. The
fact that the company is no longer the primary trans-Pacific carrier for
military dry cargo as it had been from June 1993 through May 1994, will
continue to impact U.S. export volumes. Operating costs are expected to be
adversely affected by the continued weakness of the U.S. dollar against the
Japanese yen, and relatively higher fuel costs.
The company and OOCL, a Hong Kong shipping company, are parties to
agreements enabling them to exchange vessel space and coordinate vessel
sailings through 2005. The agreements permit both companies to offer faster
transit times, more frequent sailings between key markets in Asia and the U.S.
West Coast, and to share terminals and several feeder operations within Asia.
Under the slot-sharing agreement, the company and OOCL have designated a
combined total of approximately 7,000 FEUs per week in the eastbound direction
and 5,400 FEUs per week in the westbound direction to be allocated to each
company based upon proportions specified in the agreement. Since December
1993, the company has been required to purchase additional vessel space from
OOCL for approximately $7 million annually, accrued ratably over each year.
This commitment reduces as the company increases the capacity it can exchange
with OOCL, which is expected to begin with the delivery of the company's C11-
class vessels in 1995.
In April 1994, the company and Transportacion Maritima Mexicana
("TMM"), a Mexican transportation company, entered into an agreement enabling
them to reciprocally charter vessel space for a period of three years. Under
the agreement, cargo will be transported between major Asian ports and certain
ports on the Pacific Coast of the U.S. and Mexico. The company will charter
from TMM between 200 and 240 FEUs per week in the eastbound direction, and 115
FEUs per week in the westbound direction. Each party is committed to purchase
a minimum amount of vessel space at contract rates and may buy available extra
space as needed. The company's minimum space purchase commitment exceeds that
of TMM by approximately $5 million per year.
On September 5, 1994, the company, Mitsui OSK Lines, Ltd. ("MOL"), and
OOCL signed an agreement to exchange vessel space, coordinate vessel sailings
and cooperate in the use of port terminals and equipment for ocean
transportation services in the Asia-U.S. West Coast trade. The carriers
currently expect to commence service under this agreement in late 1995 or
early 1996. The three carriers and Nedlloyd Lines B.V. ("NLL") signed a
separate agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment in the Asia-U.S. East
Coast trade via Panama. The four carriers currently expect to initiate a
weekly, all-water service under this agreement in April 1995. Both agreements
are subject to government approvals in the U.S. and Japan.
Additionally, on September 22, 1994, the four carriers and CGM Orient,
S.A. ("CGM") and Malaysian International Shipping Corporation BHD ("MISC")
signed an agreement to exchange vessel space, coordinate vessel sailings and
cooperate in the use of port terminals and equipment for ocean transportation
services in the Northern Europe-Far East trade. On October 27, 1994, CGM
announced its withdrawal from this trade, and MISC and NLL have agreed to
assume its rights and obligations under the agreement. The carriers currently
expect to commence service under the agreement in January 1996. Prior to the
commencement of this alliance, the company will enter the Northern Europe-Far
East trade by chartering vessel space from MOL.
The company's net commitment under the alliance agreements depends
upon pending U.S. government approvals and final vessel space allocation.
The company is party to an Operating-Differential Subsidy ("ODS")
agreement with the U.S. government, expiring on December 31, 1997, which
provides for payment by the U.S. government to partially compensate the
company for the relatively greater expense of vessel operation under U.S.
registry. ODS payments to the company were approximately $44 million and $45
million in the first three quarters of 1994 and 1993, respectively, and
totaled $65 million in 1993.
In June 1992, the Bush Administration announced that no new ODS
agreements would be entered into and existing ODS agreements would be allowed
to expire. The Clinton Administration and Congress have been reviewing U.S.
maritime policy. In March 1994, the Clinton Administration's maritime support
proposal was sent to Congress, and introduced in the U.S. House of
Representatives as H.R. 4003 and in the Senate as S. 1945. The House approved
H.R. 4003, which would have provided subsidies for approximately 52 U.S.-flag
vessels over the next ten years, or an annual subsidy of $2.1 million per
vessel for vessels enrolled in the program. However, Congress adjourned
without enacting this legislation. In October 1994, President Clinton issued
a statement that his Administration would work with the Congress to enact
maritime support legislation in 1995. The company is not able to predict
whether or when maritime support legislation will be enacted or what terms
such legislation may have, if enacted.
While the company continues to encourage efforts to enact maritime
support legislation, prospects for passage of a program acceptable to the
company are unclear. Accordingly, in July 1993, the company filed
applications with the United States Maritime Administration ("MarAd") to
operate under foreign flag its six C11-class containerships, presently under
construction, and to transfer to foreign flag seven of the 15 U.S.-flag
containerships in its trans-Pacific fleet. On October 13, 1994, the company
requested that MarAd act by November 1, 1994 on the company's request for
authority to operate its C11-class vessels under foreign flag. MarAd action
on both applications is still pending, and while no assurances can be given as
to whether the authority will be granted, the company expects to receive a
response from MarAd within the next few months.
Management of the company believes that, in the absence of ODS or an
equivalent government support program, it will be generally no longer
commercially viable to own or operate containerships in foreign trade under
the U.S. flag after the expiration of its ODS agreement because of the higher
labor costs and the more restrictive design, maintenance and operating
standards applicable to U.S.-flag liner vessels. The company continues to
evaluate its strategic alternatives in light of the pending expiration of its
ODS agreement and the uncertainties as to whether a new U.S. government
maritime support program acceptable to the company will be enacted, whether
sufficient labor efficiencies can be achieved through the collective
bargaining process, and whether the company's applications to flag its vessels
under foreign registry will be approved. While no assurances can be given,
management of the company believes that it will be able to structure its
operations to enable it to continue to operate on a competitive basis without
direct U.S. government support.
NORTH AMERICA TRANSPORTATION (1)
(Volumes in thousands of FEUs)
Third Quarter Year to Date
1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Revenues (2) (In millions)
<c.
Stacktrain $ 125 $ 103 21% $ 385 $ 311 24%
Non-Stacktrain 49 45 11% 160 141 14%
________________________________________________________________________________________________
Stacktrain Volumes
North America 93.1 79.8 17% 286.8 237.4 21%
International 48.6 46.4 5% 143.2 138.0 4%
________________________________________________________________________________________________
Stacktrain Average
Revenue per FEU (2) $ 1,338 $ 1,291 4% $ 1,342 $ 1,312 2%
________________________________________________________________________________________________
________________________________________________________________________________________________
(1) Volumes and revenue per FEU data are based upon shipments originating
during the period, which differs from the percentage-of-completion
method which is used for financial reporting purposes.
(2) In addition to domestic third party business, the transportation of
containers for the company's international customers is a significant
component of the company's stacktrain operations. The effect of these
shipments on domestic operations is eliminated in consolidation and
therefore excluded above in Revenues and Stacktrain Average Revenue per
FEU.
Revenues from the company's North America transportation operations
increased in the third quarter and first three quarters of 1994 compared with
the same periods in 1993, primarily as a result of higher North America
stacktrain volumes. The increase in stacktrain volumes in the 1994 periods
was due to the improvement in the U.S. economy, increases in Mexican and
Canadian shipments, particularly automotive shipments between the U.S. and
Mexico, and competitor equipment shortages. The company added 1,000
containers to its fleet during the first quarter of 1994, which enabled it to
meet increasing demand. Stacktrain average revenue per FEU increased in the
third quarter and first three quarters of 1994 compared with the same periods
in 1993 due to an improvement in cargo mix and increased rates in certain
stacktrain markets in the 1994 periods. The company's North America non-
stacktrain revenues also improved in the third quarter and first three
quarters of 1994 compared with the same periods in 1993, primarily due to
increased volumes resulting from an improved U.S. economy.
During the remainder of 1994, the company intends to continue to add
to its fleet of containers, chassis and rail cars via short- and long-term
operating leases and purchases in anticipation of growth in demand in the
North America stacktrain market. There can be no assurances, however, that
such demand will materialize.
TRANSPORTATION OPERATING EXPENSES
(In millions, except Third Quarter Year to Date
Operating Cost per FEU) 1994 1993 Change 1994 1993 Change
________________________________________________________________________________________________
Land Transportation $ 237 $ 217 9% $ 733 $ 649 13%
Cargo Handling 136 123 10% 401 368 9%
Vessel, Net 84 72 17% 246 214 15%
Transportation Equipment 48 43 12% 146 131 12%
Information Systems 11 11 0% 36 34 6%
Other 78 70 12% 238 219 9%
________________________________________________________________________________________________
Total $ 594 $ 536 11% $ 1,800 $ 1,615 11%
________________________________________________________________________________________________
Operating Cost per FEU (1) $ 2,633 $ 2,550 3% $ 2,594 $ 2,599 0%
Percentage of Transportation
Revenues 88% 86% 89% 88%
________________________________________________________________________________________________
________________________________________________________________________________________________
(1) Operating expenses used in this calculation include costs associated
with certain International and North America revenues that are not
volume related.
Land transportation expenses increased in the third quarter and first
three quarters of 1994 from the 1993 periods, due to the increases in North
America stacktrain volumes in the 1994 periods. The increases in cargo
handling expenses in the 1994 periods compared with the 1993 periods are
attributable to increased stevedoring costs, which were impacted by higher
labor rates in Asia and handling of increased cargo to and from China, West
Asia and Southeast Asia. Additionally, for the first three quarters of 1994,
cargo handling expenses were impacted by labor contract rate increases in the
U.S. These increases were partially offset by a favorable land rent
settlement in Taiwan in the third quarter of 1994. Vessel expenses increased
in the third quarter of 1994 compared with last year's third quarter due to an
increase in fuel cost from an average of $13.06 per barrel in the third
quarter of 1993 to $16.55 per barrel in this year's third quarter. Vessel
expenses were also impacted in the third quarter and first three quarters of
1994 by increased charter hire activity resulting from expanded service to
China, an increase in Latin American activity and additional vessel space
purchased from OOCL and TMM. Transportation equipment costs increased in the
1994 periods compared with the 1993 periods due to the addition of 1,000
leased containers during the first quarter of 1994 for use in North America
stacktrain operations, and increased repair and maintenance costs.
Information services costs were unchanged for the third quarter of 1994
compared to the same quarter last year, but increased for the year-to-date
period due to software purchases in the first quarter of 1994. Other
operating expenses increased in the 1994 periods compared with the 1993
periods primarily due to higher employee costs, particularly in Asia, and the
fact that 1993 expense amounts are net of a $3 million gain on the sale of a
vessel.
Certain of the company's collective bargaining agreements covering
shipboard and shoreside employees in the U.S. expired in June 1994.
Negotiations with all but one of the respective unions have resulted in new
agreements expiring in June 1995 or December 1997. Negotiations with the
remaining union have resulted in a framework agreement, which, if concluded,
would expire in June 1998. It is currently anticipated that negotiation of
the remaining provisions of this agreement will be concluded within the next
few months, although no assurances can be given to that effect.
General and administrative expenses increased 23% and 37% in the third
quarter and first three quarters of 1994 compared with the 1993 periods,
primarily due to increased expenditures of $5 million and $19 million in the
third quarter and first three quarters of 1994, respectively, on corporate
initiatives to improve the company's financial and order cycle processes.
Total spending on corporate initiatives is expected to be approximately $30
million in 1994. Expenditures on corporate initiatives are expected to
continue in 1995 and 1996. The company currently anticipates that, during
1995 and 1996, between 550 and 900 positions will be eliminated as a result of
order cycle process changes, and approximately 50 positions will be eliminated
as a result of financial process changes. The actual number of position
reductions, however, will not be finally determined until design and
implementation of the new processes in 1995 and 1996. The company also
expects to eliminate its administrative offices in Hong Kong by the second
quarter of 1995, and to combine certain functions with those performed in
Oakland. An evaluation of this consolidation is currently underway to
determine which positions will be eliminated or relocated. Costs associated
with eliminating or relocating these positions cannot yet be estimated.
Depreciation and amortization expense decreased 4% and 3% in the third
quarter and first three quarters of 1994 compared with the third quarter and
first three quarters of 1993, respectively, primarily due to certain equipment
reaching the end of its depreciable life during 1993. Net interest expense
increased from $2.9 million in the third quarter of 1993 to $3.1 million in
the third quarter of 1994. Interest expense from the Senior Notes and
Debentures issued in the fourth quarter of 1993 and the first quarter of 1994,
respectively, was partially offset by increased interest income in 1994 due to
higher cash balances and higher interest rates. Net interest expense was
$10.8 million for the first three quarters of 1994 compared with $10.4 million
in the first three quarters of 1993, as the increase in interest income in
1994 nearly offset the increase in interest expense.
The company's estimated effective income tax rate for 1994 is 34%,
compared with 41% in 1993. The 1994 effective tax rate includes the effect of
revisions of prior years' estimated tax liabilities. The 1993 effective tax
rate includes an adjustment of $3.2 million to reflect the effect of an
increase in the maximum corporate federal income tax rate to 35%.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
____________________________________________________________________________________________
September 23 December 31
As of: 1994 1993
____________________________________________________________________________________________
Cash, Cash Equivalents and
Short-Term Investments $ 242 $ 84
Working Capital 191 51
Total Assets 1,644 1,454
Long-Term Debt and Capital
Lease Obligations (1) 397 272
____________________________________________________________________________________________
September 23 September 17
For the quarter ending: 1994 1993
____________________________________________________________________________________________
Cash Provided by Operations $ 155 $ 138
____________________________________________________________________________________________
NET CAPITAL EXPENDITURES
Ships $ 19 $ 75
Containers, Chassis and Rail Cars 34 25
Leasehold Improvements and Other 26 13
____________________________________________________________________________________________
Total $ 79 $ 113
____________________________________________________________________________________________
INVESTING ACTIVITIES
Deposits to Capital Construction Fund $ (37) $ (6)
Proceeds from Sale of Long-term
Investment 11
____________________________________________________________________________________________
FINANCING ACTIVITIES
Borrowings $ 147 $ 420
Repayment of Debt and Capital Leases (23) (575)
Dividend Payments (13) (11)
____________________________________________________________________________________________
____________________________________________________________________________________________
(1) Includes current and long-term portions.
In January 1994, the company issued $150 million 30-year Senior
Debentures at an effective interest rate of 8.2%, the net proceeds from which
were $147 million. The net proceeds from the issuance of this debt, combined
with a portion of the net proceeds from the 10-year Senior Note offering of
$150 million in November 1993, will be used to finance vessel purchases, other
capital expenditures and for general corporate purposes.
In September 1994, the company made a deposit of $37 million to its
Capital Construction Fund ("CCF"). Also in September 1994, the company sold
an undivided interest in $40 million of its trade accounts receivable to its
CCF for $37 million in cash.
In the first quarter of 1993, the company used $131 million cash and
borrowings under its previous revolving credit agreement to purchase leased
ships, repay the related capital lease obligations and to retire $95 million
of 11% public notes. Also in the first half of 1993, the company sold its
investment in Amtech Corporation, the proceeds from which were $11 million,
resulting in a pretax contribution of $9 million.
In 1993, the company began a fleet modernization program pursuant to
which it has placed orders for the construction of six new C11-class
containerships ("C11s") and three new Kl0-class containerships ("K10s") for an
aggregate cost of approximately $729 million. OOCL has placed orders to
purchase six vessels similar in size and speed to the company's C11s. The
company's C11s and OOCL's similar vessels will be delivered in 1995 and 1996.
The company and OOCL have agreed to initially operate these vessels under
their existing trans-Pacific coordinated sailing and slot-sharing agreements,
and after January 1, 1996, under their Asia-U.S. West Coast alliance agreement
with MOL. The company's deployments will require U.S. government approval,
and no assurances can be given as to whether approval will be granted. The
deployment of the 12 new C11-type vessels by the company and OOCL, replacing
16 older vessels, will increase the combined trans-Pacific capacity of the
company and OOCL by approximately 15%. The company expects growth in demand
in the trans-Pacific market and believes that the increase in combined
capacity will be sufficient to permit the company and OOCL to maintain their
combined relative market share in that market. However, other competing ocean
carriers have also placed orders for the construction of new vessels, and no
assurances can be given with respect to anticipated growth in demand,
utilization of the increased capacity or the potential negative impact of the
increased capacity on rates.
The company's K10s, in combination with capacity from its six C11s,
were ordered to replace four L9-class vessels chartered by the company for use
in its West Asia/Middle East service. Delivery of the K10s is scheduled for
1996, which is when the charters of the L9s will expire. The alliance
agreements with MOL, NLL and OOCL may impact the deployment and/or the
ultimate ownership of the K10s. Deployment of the company's K10s may also be
subject to U.S. government approval.
The C11-class vessels are being constructed by Howaldtswerke-Deutsche
Werft AG, of Germany ("HDW") (three ships) and Daewoo Shipbuilding and Heavy
Machinery, Ltd., of Korea ("Daewoo") (three ships). The total estimated
project cost for the construction of these vessels is $535 million. A $52
million progress payment was made in 1993 upon contract effectiveness,
approximately half of which was paid to HDW and half to Daewoo, and aggregate
progress payments of $14 million were made to HDW in the first three quarters
of 1994. The remaining progress payments are due in installments of $17
million and $20 million in 1994 and 1995, respectively, and the final 80% is
due upon delivery of the vessels in 1995. In March 1994, the company entered
into a loan agreement with European banks to finance approximately $400
million of the purchase price of the six C11-class vessels. Principal
payments on any draw-downs would be due in semiannual installments over a 12
year period commencing six months after the delivery of each vessel. Interest
rates would be based upon various margins over LIBOR or the banks' cost of
funds as elected by the company. The remaining costs of these vessels are
expected to be financed with a portion of the net proceeds from the company's
November 1993 and January 1994 public debt offerings and with cash from
operations.
The K10s are being constructed by Daewoo. The total estimated project
cost for construction of these vessels is $194 million. A progress payment of
$18 million was made to Daewoo in 1993. The remaining progress payments are
due in two $18 million installments in 1995 and 70% upon delivery of the
vessels in 1996. The costs of these vessels are expected to be financed with
a portion of the net proceeds from the company's November 1993 and January
1994 public debt offerings and with cash from operations.
Other than vessel progress payments, the company's capital
expenditures in the third quarter and first three quarters of 1994 were
primarily for purchases of containers, chassis, leasehold improvements and an
office in Mexico. In the third quarter and first three quarters of 1993,
capital expenditures were for the buy-out of certain vessel capital leases,
purchases of refrigerated containers, replacement of transportation equipment
and the expansion of facilities in key markets.
Capital expenditures in 1994 are expected to total approximately $160
million, including $31 million for vessel progress payments. The remaining
planned 1994 capital expenditures are for purchases of refrigerated
containers, chassis, terminal improvements in North America and Asia, and
computer systems, and will be financed with cash from operations, financing
arrangements and the net proceeds from the company's November 1993 and January
1994 public debt offerings. At September 23, 1994, the company had
outstanding purchase commitments to acquire facilities, equipment and services
totaling $63 million, including a commitment of approximately $29 million for
railcars that are in the process of being leased.
In 1993, the company entered into a 30-year lease with the Port of Los
Angeles for a new terminal facility. In connection with that lease, the
company has agreed to provide at least six gantry cranes and certain
intermodal handling equipment by the inception of the lease in 1997, the
estimated minimum cost of which, if purchased, is approximately $70 million.
In June 1994 the company and the Port of Seattle signed a lease
amendment for the improvement and expansion of its existing terminal facility.
Under the amended lease, the facility would be expanded from 83 acres to
approximately 160 acres. The expansion is expected to be completed during
1997, and the lease term would be 30 years from completion. In addition, the
company has the option to expand the terminal by an additional 30 acres. The
annual rent payment for the company's existing facility was approximately $6
million in 1993. The minimum annual rent payment, for the first full year
after completion, under the amended lease is estimated to be $12 million,
depending upon the final scope of development and consumer price index
increases. The minimum annual rent payment increases in five year increments
over the term of the lease, to approximately $38 million in the 29th and 30th
years, also depending upon the final scope of development and consumer price
index increases.
On March 25, 1994, the company entered into a credit agreement with a
group of banks that provides for an aggregate commitment of up to $200 million
for a five-year period. The credit agreement contains various financial
covenants that require the company to meet certain levels of interest
coverage, leverage and net worth. The borrowings bear interest at rates based
upon various indices as elected by the company. The annual commitment fee is
a maximum of one-half of one percent of the available amount. Any outstanding
borrowings under this agreement would be classified as long-term. There have
been no borrowings under this agreement.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The company is a party to various pending legal proceedings, claims
and assessments arising in the course of its business activities, including
actions relating to trade practices, personal injury or property damage,
alleged breaches of contracts, torts, labor matters, employment practices, tax
matters and miscellaneous other matters. Some of these proceedings involve
claims for punitive damages, in addition to other specific relief.
Among these actions are approximately 1,300 cases pending against the
company, together with numerous other ship owners and equipment manufacturers,
involving injuries or illnesses allegedly caused by exposure to asbestos or
other toxic substances on ships. In one case, Miller, Administrator of Estate
of Moline vs. American Mail Line, et. al., U.S. District Court, Northern
District of Ohio, C86-821, a judgment was entered in May 1991 awarding
punitive damages of $50,000 per named defendant, along with compensatory
damages aggregating $166,000. In March 1993, the U.S. Court of Appeals for
the Sixth Circuit vacated the punitive damages award, holding that punitive
damages are not available in a general maritime law unseaworthiness action for
wrongful death of a seaman, remanded the case for consideration of defendants'
claims for indemnity and contribution, and otherwise affirmed the judgment of
the District Court. The plaintiff filed a petition for certiorari with the
U.S. Supreme Court in August 1993. The Court refused review of the case
without comment on October 12, 1993.
The company insures its potential liability for bodily injury to
seamen through mutual insurance associations. Industry-wide resolution of
asbestos-related claims at significantly higher than expected amounts could
result in additional contributions to those associations.
In December 1989, the government of Guam filed a complaint with the
Federal Maritime Commission ("FMC") alleging that American President Lines,
Ltd. and an unrelated company charged excessive rates for carrying cargo
between the U.S. and Guam, in violation of the Shipping Act, 1916 and the
Intercoastal Shipping Act of 1933, and seeking an undetermined amount of
reparations. Three private shippers are also complainants in this proceeding.
Evidentiary hearings are continuing and a decision by the FMC is not expected
until 1995.
In March 1992, in connection with the same matter, the government of
Guam and four private shippers filed a class action complaint in the United
States District Court, District of Columbia, based on the same allegations,
seeking an undetermined amount of damages on behalf of all shippers of cargo
to and from Guam on the company's vessels and the vessels of the other named
defendant. In January 1993, the class action complaint was dismissed. In
July 1994, the decision of dismissal was affirmed by the U.S. Court of Appeals
for the Circuit of the District of Columbia. That dismissal has become final.
On April 28, 1994, a lawsuit, Hockert Pressman & Flohr Money Purchase
Plan, et. al. vs. American President Companies, Ltd., et. al., was filed
against the company and certain of its officers in United States District
Court for the Northern District of California. The suit alleges that the
company and certain officers made false and misleading statements about the
company's operating and financial performance in violation of federal
securities laws, and seeks unspecified damages on behalf of a purported class
of stockholders who purchased shares of the company's common stock during the
period October 7, 1993 through March 30, 1994. The company believes that it
has meritorious defenses and intends to defend itself vigorously against this
lawsuit.
Based upon information presently available, and in light of legal and
other defenses and insurance coverage and other potential sources of payment
available to the company, management does not expect the legal proceedings
described, individually or in the aggregate, to have a material adverse impact
on the company's consolidated financial position or operations.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following document is an exhibit to this Form 10-Q:
Exhibit
No. Description of Document
_______ _______________________
10.1 Employment Agreement between the company and Timothy J. Rhein dated
July 28, 1992.
10.2 Employment Agreement between the company and Joji Hayashi dated July
28, 1992.
10.3 Employment Agreement between the company and James S. Marston dated
July 28, 1992.
10.4 Employment Agreement between the company and John G. Burgess dated
July 28, 1992.
10.5 Employment Agreement between the company and Michael Diaz dated July
28, 1992.
27 Financial Data Schedules filed under Article 5 of Regulation S-X for
the third quarter of 1994 Form 10-Q.
(b) Reports on Form 8-K
No current report on Form 8-K was filed during the quarter for which
this report on Form 10-Q is filed.
American President Companies, Ltd. and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN PRESIDENT COMPANIES, LTD.
Dated: November 4, 1994 By /s/ William J. Stuebgen
________________________ _________________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer