Draft 5/9/96 7:06 PM
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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 April 5, 1996
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 May 3, 1996
___________________________ __________________________
Common Stock, $.01 par value 25,723,449
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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 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12-19
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
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 29, 1995 (Commission File No. 1-
8544).
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
_____________________________________________________________________________
14 Weeks Ended
(In thousands, except per share amounts)April 5, 1996 April 7, 1995
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REVENUES $726,337 $740,661
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EXPENSES
Operating, Net of Operating-
Differential Subsidy 663,527 687,402
General and Administrative 13,622 21,340
Depreciation and Amortization 31,621 28,314
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Total Expenses 708,770 737,056
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OPERATING INCOME 17,567 3,605
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Interest Income 6,745 6,128
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Interest Expense (17,734) (8,023)
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Income Before Taxes 6,578 1,710
Federal, State and Foreign Tax Expense 2,697 650
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NET INCOME $ 3,881 $ 1,060
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Less Dividends on Preferred Stock 1,688
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $ 3,881 $ (628)
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EARNINGS (LOSS) PER COMMON SHARE
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Primary $ 0.15 $ (0.02)
Fully Diluted 0.15 (0.02)
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DIVIDENDS PER COMMON SHARE $ 0.10 $ 0.10
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See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEET (Unaudited)
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April 5 December 29
(In thousands, except share amounts) 1996 1995
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ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 138,882 $ 76,564
Short-Term Investments 151,167 59,086
Trade and Other Receivables, Net 243,962 245,490
Fuel and Operating Supplies 33,787 40,358
Prepaid Expenses and Other Current Assets 58,242 80,840
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Total Current Assets 626,040 502,338
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PROPERTY AND EQUIPMENT
Ships 902,466 1,091,991
Containers, Chassis and Rail Cars 792,322 801,274
Leasehold Improvements and Other 285,428 284,850
Construction in Progress 4,858 25,333
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1,985,074 2,203,448
Accumulated Depreciation and Amortization(828,862) (961,971)
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Property and Equipment, Net 1,156,212 1,241,477
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INVESTMENTS AND OTHER ASSETS 143,917 134,968
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Total Assets $1,926,169 $1,878,783
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt
and Capital Leases $ 3,217 $ 11,810
Accounts Payable and Accrued Liabilities 426,222 425,378
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Total Current Liabilities 429,439 437,188
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DEFERRED INCOME TAXES 145,119 157,480
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OTHER LIABILITIES 144,051 127,858
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LONG-TERM DEBT 735,300 685,954
CAPITAL LEASE OBLIGATIONS 936 1,133
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Total Long-Term Debt and
Capital Lease Obligations 736,236 687,087
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
25,707,000 in 1996 and 25,669,000 in 1995 25,707 25,669
Additional Paid-In Capital 2,749 1,943
Retained Earnings 442,868 441,558
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Total Stockholders' Equity 471,324 469,170
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Total Liabilities and
Stockholders' Equity $1,926,169 $1,878,783
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See notes to consolidated financial statements.
American President Companies, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
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14 Weeks Ended
(In thousands) April 5, 1996 April 7, 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 3,881 $ 1,060
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation and Amortization 31,621 28,314
Deferred Income Taxes 1,636 137
Change in Receivables 1,528 171
Change in Fuel and Operating Supplies 6,571 (2,893)
Change in Prepaid Expenses and
Other Current Assets 10,265 141
(Gain) Loss on Sale of Property and Equipment (1,864) 423
Change in Accounts Payable and
Accrued Liabilities 5,443 (28,825)
Change in Restructuring Charge Liability (4,599)
Other (18,559) 1,950
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Net Cash Provided by Operating Activities 35,923 478
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (75,004) (37,786)
Proceeds from Sales of Property and Equipment 159,515 333
Purchase of Short-Term Investments (220,442) (40,890)
Proceeds from Sales of Short-Term Investments 128,361 132,112
Other (3,045) (3,210)
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Net Cash Provided by (Used in)
Investing Activities (10,615) 50,559
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CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Debt 62,215
Repayments of Capital Lease Obligations (8,790) (1,507)
Repayments of Debt (12,918) (10,244)
Dividends Paid (2,569) (4,419)
Debt Issue Costs (1,554)
Other 842 346
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Net Cash Provided by (Used in)
Financing Activities 37,226 (15,824)
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Effect of Exchange Rate Changes on Cash (216) (99)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 62,318 35,114
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Cash and Cash Equivalents at Beginning of Period 76,564 39,754
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Cash and Cash Equivalents at End of Period $138,882 $ 74,868
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SUPPLEMENTAL DATA:
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CASH PAID FOR:
Interest, Net of Capitalized Interest $ 16,049 $ 8,858
Income Taxes, Net of Refunds $ 4,785 $ 2,426
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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
Fiscal Year and Quarters
The company's fiscal year ends on the last Friday in
December, resulting in a 52- or 53-week year. In a 52-week
year, the first and fourth quarters are 14 weeks, and the
second and third quarters are 12 weeks, which differs from a 53-
week year, in which the fourth quarter is 15 weeks. The
company's 1996 and 1995 fiscal years are 52-week years.
Allowance for Doubtful Accounts
At April 5, 1996 and December 29, 1995, the allowance for
doubtful accounts, included in Trade and Other Receivables on
the accompanying Consolidated Balance Sheet, amounted to $22.9
million and $22.5 million, respectively.
Capitalized Interest
Interest costs of $0.1 million relating to cash paid for
construction of port facilities and $2.6 million relating to
cash paid for the construction of vessels were capitalized in
the first quarter of 1996 and 1995, respectively.
Income Taxes
The provision for income taxes has been calculated using
the effective tax rate estimated for the respective years. The
company's estimated income tax rate for 1996 is 41%. The 1996
effective tax rate includes the increased effect of
nondeductible items on estimated annual income. The full year
effective tax rate for 1995 was 43%, which was adjusted in the
fourth quarter to reflect the increased effect of nondeductible
items on annual income after the restructuring charge. The
effective income tax rate for the first quarter of 1995 was
38%.
Note 2. United States Maritime Agreements
Operating-Differential Subsidy Agreement
Amounts paid under the companyOs Operating-Differential
Subsidy ("ODS") agreement with the United States Maritime
Administration ("MarAd") were $13.6 million and $16.4 million
for the quarters ended April 5, 1996 and April 7, 1995,
respectively, and have been included as a reduction of
operating expenses. The reduction in subsidy in 1996 reflects
the sale by the company of six U.S. flag vessels to Matson
Navigation Company, Inc. ("Matson") in December 1995 and
January 1996 as discussed in Note 6.
Capital Construction Fund
At April 5, 1996 and December 29, 1995, the Capital
Construction Fund consisted of an investment of $71.1 million
in the company's trade accounts receivable and 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 April 5, 1996
and December 29, 1995 were as follows:
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(In thousands) April 5 December 29
1996 1995
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Accounts Payable $ 66,700 $ 58,144
Accrued Liabilities 247,680 243,228
Current Portion of Insurance Claims 17,233 19,564
Income Taxes 2,119 5,855
Unearned Revenue 58,224 59,722
Restructuring Charge 34,266 38,865
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Total Accounts Payable and Accrued Liabilities $ 426,222 $ 425,378
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In the fourth quarter of 1995, the company recorded a one-
time charge of $48.4 million related to the accelerated
completion of its reengineering program and other
organizational changes. The charge included $36.4 million
related to the elimination of approximately 950 positions in
company operations that are being reorganized or reduced in
size. As of April 5, 1996, a total of $9.3 million in
severance payments have been made, $4.4 million of which were
made in the first quarter of 1996, and $4.8 million of
equipment and leasehold improvements have been written off for
closed offices and projects eliminated.
Note 4. Long-Term Debt
Long-Term Debt at April 5, 1996 and December 29, 1995
consisted of the following:
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(In thousands) April 5 December 29
1996 1995
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Vessel Mortgage Notes Due Through 2008 (1) $ 396,870 $338,044
8% Senior Debentures $150 million Face Amount,
Due on January 15, 2024 (2) 147,176 147,169
7 1/8% Senior Notes $150 million Face Amount,
Due on November 15, 2003 (2) 148,272 148,227
Series I 8% Vessel Mortgage Bonds
Due Through 1997 (3) 23,824 33,353
8% Refunding Revenue Bonds Due on November 1, 2009 12,000 12,000
Other 7,158 7,161
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Total Long-Term Debt $ 735,300 $ 685,954
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(1)The company has taken delivery of six new C11-class
vessels. To finance a portion of the purchase of these
vessels, the company borrowed approximately $340 million in
1995 and $62 million in 1996 under a loan agreement with
European banks pursuant to vessel mortgage notes due
through 2008. Principal payments are due in semiannual
installments over a 12-year period commencing six months
after the delivery of the respective vessels. The interest
rates on the notes are based upon
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
various margins over LIBOR or the banks' cost of funds, as
elected by the company. Until the sixth anniversary of the
delivery date, the company may defer up to four principal
payments. Aggregate deferred payments are due at the end
of the term of the notes. Principal payments on this debt
are classified as long-term on the basis that the company
has the ability to defer at least two payments. The notes
issued under this loan agreement are collateralized by the
C11-class vessels.
The company entered into interest rate swap agreements on
four of the vessel mortgage notes with a notional amount of
$272.4 million to exchange the variable interest rates on
such notes for fixed rates for periods ranging between 7
and 12 years. The current variable interest rates for all
of the vessel mortgage notes range between 6.165% and
6.83%. As a result of the swaps, the effective interest
rates range between 6.5% and 7.531% for the first five
years after inception, and 6.625% and 7.656% for the
remaining terms of the swaps. Net payments or receipts
under the agreements will be included in interest expense.
(2)Pursuant to a shelf registration statement, the company
issued 7 1/8% Senior Notes and 8% Senior Debentures in
November 1993 and January 1994, respectively. Interest
payments are due semiannually. The Senior Notes had an
effective interest rate of 7.325%, and an unamortized
discount of $1.7 million and $1.8 million at April 5, 1996
and December 29, 1995, respectively. The Senior Debentures
had an effective interest rate of 8.172%, and an
unamortized discount of $2.8 million at April 5, 1996 and
December 29, 1995.
(3)Principal payments on the companyOs Series I Vessel
Mortgage Bonds are due in equal semiannual installments
totaling $23.8 million per year. 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 two of the remaining cash payments, which
it has not yet exercised. Principal amounts are classified
as long-term debt based on the company's ability to issue
Series II Bonds in lieu of the remaining semiannual cash
payments. The bonds issued under this loan agreement are
collateralized by the five C10-class vessels.
The company has a credit agreement with a group of banks
which provides for an aggregate commitment of $200 million
through March 1999. The credit agreement, as amended in 1995,
contains, among other things, various financial covenants that
require the company to meet certain levels of interest and
fixed charge coverage, leverage and net worth. The borrowings
bear interest at rates based upon various indices as elected by
the company. 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 of its accounts receivable to the
banks. This alternative is subject to less restrictive
financial covenants than the borrowing option.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 5. Stockholders' Equity
Common Stock
On April 30, 1996, the Board of Directors approved a
program to repurchase, from time to time, up to an aggregate of
$50 million of its common stock through open market or
privately negotiated transactions.
Earnings (Loss) Per Common Share
For the quarter ended April 5, 1996, earnings per common
share on a primary and fully diluted basis were computed by
dividing net income by the weighted average number of common
shares and common equivalent shares outstanding. For the
quarter ended April 7, 1995, the loss per common share on a
primary and fully diluted basis was computed by dividing net
income, reduced by the amount of the dividends on the 9% Series
C Cumulative Convertible Preferred Stock ("Series C Stock"), by
the weighted average number of common shares outstanding. The
number of shares used in these computations were as follows:
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Weighted Average Number of Common and Common Equivalent Shares
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14 Weeks Ended
(In millions) April 5, 1996 April 7, 1995
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Primary 26.1 27.3
Fully Diluted 26.4 27.3
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Weighted average shares for the first quarter of 1996
reflects the repurchase of six million shares of the company's
common stock in August through October 1995.
Supplemental Earnings Per Share Data
In July 1995, the Series C Stock was converted into
3,961,498 shares of common stock. Had the Series C Stock been
converted at the beginning of 1995, primary and fully diluted
earnings (loss) per share for the quarter ended April 7, 1995
would have been $0.03 compared with $(0.02) as reported.
Stock Bonus Plan
During the first quarter of 1996, the company issued 5,185
shares of common stock and 13,298 phantom shares under the 1995
Stock Bonus Plan (the "Plan"). The Plan permits certain
executives and key employees to receive all or part of their
bonuses in the form of shares of common stock or phantom
shares. In addition, non-employee directors may elect to
receive all or part of their annual retainers and/or meeting
fees in the form of shares of common stock or phantom shares.
Participants receive a premium in the form of additional shares
equal to 17.6% of the number of shares of common stock or
phantom shares received, which vest over a two year period.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies
Commitments
Alliances
In connection with the sale of the companyOs K10-class
vessel construction contract to a third party in September
1995, the company, Mitsui OSK Lines, Ltd. ("MOL"), Orient
Overseas Container Line ("OOCL") and Nedlloyd Lines B.V.
("NLL"), formed a joint venture company to charter back the K10
vessels for seven years, in which their respective shares are
each 25%. OOCL has agreed to subcharter the K10s from the
joint venture for seven years for use in the Asia-Europe trade,
replacing three of its 2,800 twenty-foot equivalent units F-
class vessels. The three replaced F-class vessels are being
chartered to the joint venture for ten years, and the company
has agreed, in turn, to charter the three F-class vessels from
the joint venture for four years. The charters for two such
vessels have been assigned by the company to Transportacion
Maritima Mexicana, with recourse, for a period of three years.
The company plans to deploy the third F-class vessel, upon
scheduled delivery in late May 1996, in its West Asia/Middle
East service.
The company and Matson commenced service under a 10-year
alliance in February 1996. Pursuant to the terms of this
alliance, the company sold Matson six of its U.S. flag ships
(three C9-class vessels and three C8-class vessels) and certain
of its assets in Guam for approximately $163 million in cash.
One of the ships was sold in December 1995. The remaining five
vessels were sold in January 1996. The net gain on the sale of
the four vessels used in the alliance and the assets in Guam,
after deducting related costs, is estimated to be $2.5 million,
depending upon final vessel modifications and drydock costs.
The net gain on the sale will be deferred and amortized over
the 10-year term of the alliance. The gain on the sale of the
fifth vessel was $1.6 million. Four of these vessels, together
with a fifth Matson vessel, are currently being used in the
alliance. Matson is operating the vessels in the alliance,
which serves the U.S. West Coast, Hawaii, Guam, Korea and
Japan, and has the use of substantially all the westbound
capacity. The company has the use of substantially all the
alliance vessels' eastbound capacity.
Facilities, Equipment and Services
The company had outstanding purchase commitments to
acquire cranes, facilities, equipment and services totaling
$74.1 million at April 5, 1996. 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 April 5, 1996, the
company had outstanding letters of credit totaling $27.5
million, which guarantee the company's performance under
certain of its commitments.
American President Companies, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies (continued)
Commitments (continued)
Employment Agreements
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 $13.1 million at April 5,
1996.
Contingencies
In October 1995, Lykes Steamship Company, Inc. ("Lykes")
filed a petition seeking protection from its creditors under
Chapter 11 of the U.S. Bankruptcy laws. The company chartered
four L9-class vessels from Lykes, and Lykes operates three
Pacesetter vessels chartered from the company. One L9 has been
redelivered to Lykes, and the remaining three L9s and the three
Pacesetters are currently being operated by the company and
Lykes, respectively, under Bankruptcy Court order dated April
4, 1996. The L9-class vessels are used in the company's West
Asia/Middle East service. The potential consequences of Lykes'
petition are not expected to have a material adverse impact on
the companyOs consolidated financial position or results of
operations.
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.
Note 7. Sale of Domestic Distribution Services
On May 2, 1996, the company sold the domestic distribution
services segment of its freight brokerage business, to Hub
Group, Inc. ("Hub") for approximately $8 million in cash and
notes, subject to downward adjustment based on the results of a
financial audit being performed on the segment sold. Subject
to such adjustment, if any, the company will realize a pre-tax
gain of approximately $7 million. In addition, the company and
Hub entered into a 10-year agreement whereby the company will
provide stacktrain services to Hub. The segment sold
represented approximately 6% of the companyOs consolidated 1995
revenues. Subsequent to the date of this report the company
will file an amendment to its Form 8-K relating to this
transaction that includes proforma financial statements
reflecting the effects of this transaction.
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the quarter ended April
5, 1996 should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the company's Annual Report on Form 10-K
for the year ended December 29, 1995.
RESULTS OF OPERATIONS
First Quarter First Quarter
(In millions) 1996 Change 1995
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Revenues
International Transportation $ 536 2% $527
North America Transportation 190 (11%) 214
_____________________________________________________________________________
Operating Income $ 18 >100% $ 4
_____________________________________________________________________________
Pretax Income $ 7 >100% $ 2
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_____________________________________________________________________________
Operating income for the first quarter of 1996 was $18
million compared with operating income of $4 million in the
first quarter of 1995. Included in operating income for the
first quarter of 1996 was a $2 million gain from the sale of a
vessel.
In the 1996 first quarter, the company's earnings improved
as a result of reduced per unit operating costs, reduced
general and administrative expenses, and an improvement in
volumes and average revenue per forty-foot equivalent unit
("FEU") in the company's intra-Asia market as compared with the
1995 first quarter. The decrease in expenses and increase in
the intra-Asia market revenue were offset in part by reductions
in volumes and average revenue per FEU in the company's U.S.
import market compared with 1995.
INTERNATIONAL TRANSPORTATION (1)
First Quarter First Quarter
(Volumes in thousands of FEUs) 1996 Change 1995
_____________________________________________________________________________
Import
Volumes 47.1 (10%) 52.4
Average Revenue per FEU $3,899 (4%) $4,069
_____________________________________________________________________________
Export
Volumes 42.5 (4%) 44.2
Average Revenue per FEU $3,211 1% $3,170
_____________________________________________________________________________
Intra-Asia
Volumes 47.2 3% 46.0
Average Revenue per FEU $2,177 9% $1,996
_____________________________________________________________________________
Asia-Europe
Volumes 8.9 N/A 0.3
Average Revenue per FEU $2,279 (16%) $2,706
_____________________________________________________________________________
_____________________________________________________________________________
(1)Volumes and average revenue per FEU data are based upon
shipments originating during the period, which differs from
the percentage-of-completion method used for financial
reporting purposes.
The company's U.S. import volumes decreased in the first
quarter of 1996 compared with the same period last year due to
significant decreases in shipments of commercial dry cargo,
primarily from Hong Kong, Taiwan and China, attributable to
lower overall volumes, excess capacity and strong competition
in this market. Volumes of the company's U.S. export cargo
decreased in the first quarter of 1996 compared with the first
quarter of 1995, due primarily to the sale by the company of
six ships and its Guam business to Matson, which resulted in a
decrease in the companyOs available vessel capacity in this
market, and lower military volumes. Additionally, the company
carried heavier cargo in the first quarter of 1996, which
constrained utilization of available vessel capacity.
Utilization of the company's share of alliance trans-Pacific
containership capacity in the first quarter of 1996 was 66% and
89% for U.S. import and U.S. export shipments, respectively,
compared with 83% and 98%, respectively, in the first quarter
of 1995. The company's intra-Asia volumes increased in the
first quarter of 1996 compared with last year's first quarter
primarily as a result of increased shipments to and from Kobe,
Japan, which were adversely affected in the first quarter of
1995 by the January 1995 earthquake.
Service between Asia and Europe by the company began in
March 1995 with shipments to Denmark, the United Kingdom and
the Netherlands, primarily from Hong Kong, the People's
Republic of China and Taiwan. Shipments from the Netherlands,
Belgium and Germany to Asia began in the second quarter of
1995. In the first quarter of 1996, volumes from Asia to
Europe were primarily from Hong Kong, the People's Republic of
China and Japan, and included such commodities as general
merchandise, electronic goods and footwear. First quarter 1996
volumes from Europe to Asia were primarily general merchandise,
paper products, and industrial machinery and parts from the
Netherlands, the United Kingdom and Denmark.
Average revenue per FEU for the company's U.S. import
shipments decreased in the first quarter of 1996 compared with
the first quarter of 1995 due to decreases in negotiated
service contract rates beginning in late 1995. In late 1995,
the company initiated pricing actions for specific commodities
in specific trade lanes in response to competitive conditions
and loss of market share in its U.S. import market.
Subsequently, competitors and the company have further lowered
rates, and considerable rate instability in the U.S. import
market continues to exist. Destabilization of rates, if
extensive, could have a material adverse impact on carriers in
this trade, including the company.
Average revenue per FEU in the company's U.S. export
market increased slightly in the first quarter of 1996 from
last year's first quarter due to an increase in commercial dry
cargo rates as a result of general rate increases effective mid-
1995, partially offset by a decrease in rates for military
cargo. Average revenue per FEU in the company's intra-Asia
market increased in the first quarter of 1996 compared with the
first quarter of 1995, attributable to an increase in the
proportion of higher-rated refrigerated cargo and general rate
increases in the second and third quarters of 1995. In the
first quarter of 1995, the companyOs Asia-Europe market
consisted only of the westbound service which included higher-
rated cargo than the eastbound service, resulting in a decrease
in average revenue per FEU in the first quarter of 1996 as
compared to the first quarter of 1995.
Other international transportation revenues, which include
cargo handling, freight consolidation, logistics services and
charter hire revenues, totaled $92 million and $79 million in
the 1996 and 1995 first quarters, respectively. This increase
reflects increased cargo handling revenues in Asia and North
America resulting from the company's alliances, and increased
charter hire revenues.
The company incurred incremental operating expenses and a
loss of ocean freight revenues during the first half of 1995 as
a result of the earthquake in Kobe, Japan, in January 1995, in
which the ocean terminal leased by the company was extensively
damaged. The company expects substantially all of these
expenses and lost revenues to be recovered through its business
interruption insurance and is in the process of finalizing its
claim. Management has recorded its best estimate of the
recovery.
The alliance agreements between the company, OOCL, MOL,
NLL and Malaysian International Shipping Corporation BHD, were
fully implemented in the first quarter of 1996. Also
implemented in the first quarter of 1996 was the alliance
between the company and Matson. The company and Transportacion
Maritima Mexicana ("TMM") were parties to an agreement for a
reciprocal charter of vessel space, which ended in September
1995. The company and TMM have entered into a memorandum of
understanding with respect to the negotiation of a new three-
year agreement for reciprocal charters of vessel space
beginning in May or June 1996 and a possible joint service. It
is currently expected that a final agreement will be completed
by the end of May 1996. However, no assurances can be given as
to whether or when those negotiations will be successfully
completed. The company and TMM have agreed to continue to
exchange vessel space pending finalization of a new agreement.
Under the company's ODS agreement with MarAd, expiring
December 31, 1997, payments to the company were approximately
$14 million and $16 million in first quarter of 1996 and 1995,
respectively. The company expects ODS payments in 1996 to be
between $30 million and $35 million as a result of its sale of
six U.S. flag vessels to Matson, compared with $62 million in
1995.
Proposed maritime support legislation for a 10-year
subsidy program with up to $100 million in annual payments to
be requested and appropriated on a year-to-year basis has
passed the U.S. House of Representatives and is awaiting
consideration before the U.S. Senate. It would provide $2.3
million per vessel in 1996, compared with $3.1 million per
vessel under ODS. 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.
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 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 an acceptable new
U.S. government maritime support program will be enacted,
whether sufficient labor efficiencies can be achieved through
the collective bargaining process, and whether the company's
remaining application 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.
In April 1996, legislation was introduced in the U.S.
House of Representatives that would substantially modify the
Shipping Act of 1984 (the "Shipping Act"). The Shipping Act,
among other things, provides the company with certain immunity
from antitrust laws and requires the company and other carriers
in U.S. foreign commerce to file tariffs publicly. This
legislation, the Ocean Shipping Reform Act ("HR2149"), would,
if enacted, be
phased in during 1997 and 1998 and would eliminate government
tariff filing and enforcement, allow confidential and
independent contracts between shippers and ocean carriers,
strengthen provisions that prohibit predatory activities by
foreign carriers and prescribe certain oversight
responsibilities within the government while continuing the
company's existing antitrust immunity. The Ocean Shipping
Reform Act is currently awaiting introduction in the U.S.
Senate. The company is unable to predict whether this or other
proposed legislation will be enacted or whether, if enacted, it
will contain terms similar to those proposed. Enactment of
legislation modifying the Shipping Act, depending upon its
terms, could have a material adverse impact on the competitive
environment in which the company operates and on the company's
results of operations.
The company currently expects challenging and uncertain
conditions in the international shipping market throughout
1996, characterized by excess capacity, flat or lower volumes
and reduced rates on its U.S. import business. Additionally,
the company expects strong markets in its intra-Asia,
refrigerated and U.S. export trades. Whether these conditions
materialize, and the severity of the challenges the company
faces, depend upon developments such as, but not limited to,
the timing and extent of industry deregulation, changes in
market growth rates, general economic conditions in the markets
served, the amount and timing of an anticipated significant
increase in industry capacity, the extent of rate reductions in
the company's markets and successful continuation of the
company's alliances.
NORTH AMERICA TRANSPORTATION (1)
First Quarter First Quarter
(Volumes in thousands of FEUs) 1996 Change 1995
_____________________________________________________________________________
Revenues (2) (In millions)
Stacktrain $ 140 (2%) $ 143
Non-Stacktrain 50 (29%) 71
_____________________________________________________________________________
Stacktrain Volumes
North America 114.8 4% 110.3
International 43.0 (16%) 51.5
_____________________________________________________________________________
Stacktrain Average
Revenue per FEU (2) $1,220 (6%) $1,297
_____________________________________________________________________________
_____________________________________________________________________________
(1)Volumes and revenue per FEU data are based upon shipments
originating during the period, which differs from the
percentage-of-completion method used for financial reporting
purposes.
(2)In addition to third party business, which is referred to
above as North America Volumes, the transportation of
containers for the company's international customers is a
significant component of its stacktrain operations. These
shipments are referred to above as International Stacktrain
Volumes and, since they are eliminated in consolidation, are
excluded from Revenues and Stacktrain Average Revenue per
FEU.
Revenues from the company's North America transportation
operations decreased in the first quarter of 1996 compared with
the first quarter of 1995, primarily as a result of reduced non-
stacktrain volumes. The decrease in non-stacktrain volumes was
caused by significant reductions in business from certain major
freight brokerage customers and decreases in domestic
automotive shipments as a result of the General Motors strike.
The company's North America stacktrain revenues also decreased
in the first quarter of 1996 compared with the same period in
1995, primarily due to a decrease in average revenue per FEU
reflecting lower rates due to increased competition, and
industry-wide softness in demand and excess capacity.
On May 2, 1996, the company sold the domestic distribution
services segment of its freight brokerage business, to Hub
Group, Inc. This transaction is more fully described in Note 7
of Notes to Consolidated Financial Statements. The sale will
reduce revenues and related operating costs in the companyOs
North America operations in future quarters. There can be no
assurances that operating costs will be reduced in amounts
sufficient to offset the reduction in revenues resulting from
the sale
During the remainder of 1996, the company expects modest
growth in demand in the North America stacktrain market. Demand
for automotive shipments is expected to be strong but is
dependent upon conditions in the U.S. and Mexican economies and
the extent to which U.S. automakers continue to operate in
Mexico, among other factors. No assurances can be given that
growth in these markets will materialize.
TRANSPORTATION OPERATING EXPENSES
(In millions, except First Quarter First Quarter
Operating Cost per FEU) 1996 Change 1995
_____________________________________________________________________________
Land Transportation $ 252 (10%) $ 280
Cargo Handling 158 4% 152
Vessel, Net 110 23% 89
Transportation Equipment 58 6% 55
Information Systems 11 (25%) 15
Other 75 (22%) 96
_____________________________________________________________________________
Total $ 664 (3%) $ 687
_____________________________________________________________________________
Operating Cost per FEU (1) $2,548 (6%) $2,715
_____________________________________________________________________________
Percentage of Transportation Revenue 91% 93%
_____________________________________________________________________________
_____________________________________________________________________________
(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 decreased in the first
quarter of 1996 from the first quarter of 1995, due to
decreases in domestic automotive and freight brokerage volumes
and decreases in company controlled trucking expenses as a
result of the companyOs sale of its U.S. trucking operations in
June 1995. Cargo handling expenses increased in the first
quarter of 1996 compared with 1995, as result of higher volumes
from the companyOs alliances, primarily in Europe and Latin
America. This increase was partially offset by lower costs
resulting from a weaker Japanese yen compared with the U.S.
dollar in the first quarter of 1996 compared with the first
quarter of 1995. Vessel expenses increased in the first
quarter of 1996 compared with the first quarter of 1995 as a
result of increased fuel costs related to the new C11-class
vessels, increased purchases of vessels space from the alliance
partners in the Asia-Europe and Asia-Latin America services,
and lower subsidy payments resulting from the sale of six U.S.
flag vessels to Matson. Partially offsetting these increases
were cost savings as a result of the sale of vessels to Matson.
Transportation equipment costs increased in the first quarter
of 1996 compared with the first quarter of 1995 due to
increased container lease costs. The decrease in information
systems costs in the first quarter of 1996 compared with the
first quarter of 1995 was due primarily to lower salary costs
resulting from the elimination of positions in late 1995.
Other operating expenses decreased in the first quarter of 1996
compared with the first quarter of 1995 due to favorable
foreign currency rate changes in Asia in 1996, particularly in
Japan. Also contributing to the decrease in other operating
expenses were costs savings related to the 1995 elimination the
company's administrative offices in Hong Kong and position
eliminations related to the company's reengineering program.
Certain of the company's collective bargaining agreements
covering seagoing and shoreside unions in the U.S. expire in
June and July 1996. The company currently expects that new
agreements will be negotiated with the respective unions prior
to the expiration of the current contracts, although no
assurances can be given to that effect. Failure to reach
agreement with a union on an acceptable labor contract could
result in a strike or other labor difficulties, which could
have a material adverse effect on the company's operating
results.
General and administrative expenses decreased 36% in the
first quarter of 1996 compared with the first quarter of 1995.
Expenditures for corporate initiatives to improve the company's
financial and order cycle processes were approximately $7
million in the first quarter of 1995. There were no such
expenditures in the first quarter of 1996. In addition, salary
costs decreased due to eliminations of positions.
Depreciation and amortization expense increased 12% in the
first quarter of 1996 compared with the first quarter of 1995
primarily as a result of the deployment of the six new C11-
class vessels and other capital spending.
Net interest expense increased from $2 million in the
first quarter of 1995 to $11 million in the first quarter of
1996, primarily due to debt incurred in connection with the C11-
class vessels purchased during 1995 and January 1996.
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
April 5 December 29
As of: 1996 1995
_____________________________________________________________________________
Cash, Cash Equivalents and
Short-Term Investments $ 290 $ 136
Working Capital 197 65
Total Assets 1,926 1,879
Long-Term Debt and Capital
Lease Obligations (1) 739 699
_____________________________________________________________________________
April 5 April 7
For the quarter ending: 1996 1995
_____________________________________________________________________________
Cash Provided by Operations $ 36 $ 0
_____________________________________________________________________________
Investing Activities
Proceeds from the Sales of
Property and Equipment $ 160 $ 0
Net Capital Expenditures
Ships $ 65 $ 20
Containers, Chassis and Rail Cars 2 8
Leasehold Improvements and Other 8 10
_____________________________________________________________________________
Total Net Capital Expenditures $ 75 $ 38
_____________________________________________________________________________
Financing Activities
Borrowings $ 62
Repayment of Debt and Capital Leases (22) $ (12)
Dividend Payments (3) (4)
_____________________________________________________________________________
_____________________________________________________________________________
(1)Includes current and long-term portions.
In the first quarter of 1996, the company sold Matson five
U.S. flag ships (three C9-class vessels and two C8-class
vessels) and certain of its assets in Guam for approximately
$158 million in cash. This transaction is more fully described
in Note 6 of Notes to Consolidated Financial Statements.
The company took delivery of the final C11-class vessel in
January 1996. To finance a portion of this vessel, the company
borrowed approximately $62 million in 1996 in the form of
vessel mortgage notes under a loan agreement with European
banks. This debt is more fully described in Note 4 of Notes to
Consolidated Financial Statements.
In addition to vessel expenditures of $65 million, the
company made capital expenditures in the first quarter of 1996
of $10 million primarily for purchases of chassis, containers
and terminal and leasehold improvements. Capital expenditures
in 1996 are expected to be approximately $235 million,
including $65 million of vessel costs. The balance is expected
to be spent primarily on terminal equipment in North America
and Asia, terminal improvements in North America and chassis
and computer systems. The company has outstanding purchase
commitments to acquire cranes, facilities, equipment and
services totaling $74 million. In the first quarter of 1995,
in addition to vessel expenditures of $20 million, the
company's other capital expenditures totaled $18 million and
were primarily for purchases of chassis and terminal and
leasehold improvements.
On April 30, 1996, the Board of Directors approved a
program to repurchase, from time to time, up to an aggregate of
$50 million of its common stock through open market or
privately negotiated transactions. These repurchases are
expected to be made with cash on hand.
On April 30, 1996, the Board of Directors declared a
quarterly cash dividend of $0.10 per share of common stock,
payable on May 31, 1996 to common stockholders of record on May
15, 1996.
The company believes its existing resources, cash flows
from operations and borrowing capacity under its existing
credit facilities (See Note 4 of Notes to Consolidated
Financial Statements for a description of these facilities)
will be adequate to meet its liquidity needs for the
foreseeable future.
Certain Factors That May Affect Operating Results
Statements prefaced with "expects", "anticipates",
"estimates", "believes" and similar words are forward looking
statements based on the company's current expectations as to
prospective events, circumstances and conditions over which it
may have little or no control and as to which it can give no
assurances. All forward looking statements, by their nature,
involve risks and uncertainties that could cause actual results
to differ materially from those projected.
The severity of the challenging conditions expected for
the company and the shipping industry generally, and the impact
of those conditions on the company's operating results, will
depend on factors such as the timing and extent of an
anticipated slowing of market growth in certain markets served
by the company, the amount and timing of an anticipated
significant increase in industry capacity due to new vessel
deliveries to competing carriers, rate reductions in some
market segments due to this additional capacity and other
factors, successful continuation of the company's alliances,
which comprise a significant factor in the company's long-term
strategy to remain competitive, and the pace and degree of
industry deregulation, including whether an acceptable maritime
support program and proposed amendments to the Shipping Act of
1984 are enacted.
Demand in the trans-Pacific market is dependent on factors
such as the quantity of available import and export cargo in
this market and economic conditions in the U.S. and other
Pacific Basin countries. The magnitude of the impact on the
company of any growth or contraction in the trans-Pacific
market will depend on whether and when new vessels ordered by
competing carriers are delivered and where they are ultimately
deployed and further vessel orders, if any, by competing
carriers. Because a number of competing ocean carriers have
placed orders for the construction of a significant number of
new vessels, growth in capacity in the trans-Pacific market in
1996 and 1997 is expected to be significantly greater than
growth in demand.
Growth in demand in the North America stacktrain market
and demand for automotive shipments will depend on conditions
in the U.S. and Mexican economies, including the relative
values of the U.S. Dollar and the Mexican Peso, and the extent
to which U.S. automakers continue to operate in Mexico, among
other factors.
Savings in operating expenses, if any, in connection with
the company's reengineering program and organizational changes
will depend on the ultimate future effectiveness and results of
those efforts. There can be no assurance that the company will
be able to realize these savings, and changes in the timing of
any anticipated savings by the company, or the failure to
realize some or all of these savings, could materially and
adversely affect the company's operating results.
Other risks and uncertainties include the degree and rate
of market growth or contraction in other markets served by the
company and the company's ability to respond in mitigation of
any contraction or to take advantage of such growth, changes in
the cost of fuel, the status of labor relations, the amplitude
of recurring seasonal business fluctuations and the
continuation and effectiveness of the Trans-Pacific
Stabilization Agreement and the various shipping conferences to
which the company belongs. The inability of the company to
negotiate acceptable labor agreements could result in work
stoppages, strikes or other labor difficulties or in higher
labor costs, which could have a material adverse effect on the
company's operating results. The company has in the past
experienced such difficulties and there can be no assurance
that any such difficulties will not occur in the future.
Also, the company is subject to inherent risks of
conducting business internationally, including unexpected
changes in, or imposition of, legislative or regulatory
requirements, fluctuations in the relative values of the U.S.
dollar and the various foreign currencies with which the
company is paid and funds its local operations, tariffs and
other trade barriers and restrictions affecting its customers,
potentially longer payment cycles, potentially greater
difficulty in accounts receivable collection, potentially
adverse taxes and the burden of complying with a variety of
foreign laws. In addition, in connection with its
international operations, the company is subject to general
geopolitical risks, such as political and economic instability
and changes in diplomatic and trade relationships affecting it
or its customers.
The company expressly disclaims any obligation or
undertaking to update any forward looking statements contained
herein in the event of any change in the company's expectations
with regard thereto or with regard to current or prospective
conditions or circumstances on which any such statement is
based.
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 2,390 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. On May 2, 1996, an order was entered in
the United States District Court for the Eastern District of
Pennsylvania administratively dismissed most of such cases
without prejudice and with all statutes of limitation tolled,
and with reinstatement permitted upon fulfillment by plaintiffs
of certain specified conditions. The company is presently
unable to ascertain or predict the potential impact of this
order on the disposition or eventual outcome of such cases.
The company insures its potential liability for bodily
injury to seamen through mutual insurance associations.
Industry-wide resolution of asbestos-related claims and
resolutions of claims against bankrupt shipping companies at
higher than expected amounts could result in additional
contributions to those associations by the company and other
association members.
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 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 have been concluded and an
initial decision by the FMC administrative law judge is
expected in June 1996.
In 1995, lawsuits were filed against the company and the
U.S. Department of Transportation by certain of the company's
unions and union members challenging MarAd's November 15, 1994
action granting the company the waiver allowing it to operate
the C11-class vessels under foreign flag. On June 29, 1995, the
U.S. District Court granted summary judgment in favor of MarAd
and the company, which the unions appealed. On March 22, 1996,
the U.S. Court of Appeals for the District of Columbia
dismissed the unionsO appeal.
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 documents are exhibits to this Form 10-Q:
Exhibit No. Description of Document
_____________________________________________________________________________
10.1 Amendment No. 1 to Second Amended and Restated Agreement
to Acquire and Charter dated January 4, 1996 by and among
American President Companies, Ltd. (as Transferor), M.V.
President Kennedy, Ltd., M.V. President Adams, Ltd., M.V.
President Jackson, Ltd., M.V. President Polk, Ltd., M.V.
President Truman, Ltd. and APL Shipholdings, Ltd.
(Transferees), Kreditanstalt fur Wiederaufbau (as Agent
and Lender); Commerzbank AG, Hamburg (as Syndicate
Agent); Commerzbank AG (Kiel Branch), Dresdner Bank AG
(Hamburg), Vereins-und Westbank AG, Deutsche Schiffsbank
AG, Norddeutsche Landesbank-Girozentrale, Deutsche
Verkehrs-Bank AG (Hamburg Branch), Banque Internationale
a Luxembourg S.A. (as the Syndicate).
10.2 Second Amendment to the American President Companies,
Ltd. Retirement Plan (As Amended and Restated Effective
January 1, 1993), effective January 1, 1993.**
10.3 Third Amendment to the American President Companies, Ltd.
Retirement Plan (As Amended and Restated Effective
January 1, 1993), effective January 1, 1997.**
10.4 Second Amendment to the American President Companies,
Ltd. SMART Plan (Second Amendment and Restatement
Effective as of January 1, 1993), effective January 1,
1993.**
10.5 Third Amendment to the American President Companies, Ltd.
SMART Plan (Second Amendment and Restatement Effective as
of January 1, 1993), effective April 1, 1996.**
27 Financial Data Schedules filed under Article 5 of
Regulation S-X for the first quarter ended April 5, 1996.
**Denotes management contract or compensatory plan.
(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: May 10, 1996 By /s/ William J. Stuebgen
_______________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer