______________________________________________________________________________
______________________________________________________________________________
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 4, 1997
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
APL LIMITED
(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 2, 1997
___________________________ __________________________
Common Stock, $.01 par value 24,636,744
______________________________________________________________________________
______________________________________________________________________________
APL LIMITED
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 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 11-18
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
The consolidated financial statements presented herein
include the accounts of APL Limited 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 27, 1996 (Commission File No. 1-
8544).
APL Limited and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
_________________________________________________________________
14 Weeks Ended
(In thousands, except
per share amounts) April 4, 1997 April 5, 1996
_________________________________________________________________
Revenues $678,850 $726,337
_________________________________________________________________
Expenses 687,696 708,770
_________________________________________________________________
Operating Income (Loss) (8,846) 17,567
Interest Income 6,611 6,745
Interest Expense (15,600) (17,734)
_________________________________________________________________
Income (Loss) Before Taxes (17,835) 6,578
Federal, State and Foreign Tax
Expense (Benefit) (8,028) 2,697
_________________________________________________________________
Net Income (Loss) $(9,807) $ 3,881
_________________________________________________________________
_________________________________________________________________
Earnings (Loss) Per Common Share
_________________________________________________________________
Primary $ (0.40) $ 0.15
Fully Diluted $ (0.40) $ 0.15
_________________________________________________________________
Dividends Per Common Share $ 0.10 $ 0.10
_________________________________________________________________
_________________________________________________________________
See notes to consolidated financial statements.
APL Limited and Subsidiaries
CONSOLIDATED BALANCE SHEET (Unaudited)
________________________________________________________________
April 4 December 27
(In thousands, except share amounts) 1997 1996
________________________________________________________________
ASSETS
Current Assets
Cash and Cash Equivalents $ 118,847 $ 102,370
Short-Term Investments 141,796 180,628
Trade and Other Receivables, Net 212,412 242,460
Fuel and Operating Supplies 28,731 29,220
Prepaid Expenses and Other Current Assets 58,427 61,804
_________________________________________________________________
Total Current Assets 560,213 616,482
_________________________________________________________________
Property and Equipment
Ships 903,326 903,227
Containers, Chassis and Rail Cars 769,476 764,294
Leasehold Improvements and Other 255,983 252,466
Construction in Progress 44,715 29,078
_________________________________________________________________
1,973,500 1,949,065
Accumulated Depreciation
and Amortization (848,879) (825,846)
_________________________________________________________________
Property and Equipment, Net 1,124,621 1,123,219
_________________________________________________________________
Investments and Other Assets 147,066 140,477
_________________________________________________________________
Total Assets $1,831,900 $1,880,178
_________________________________________________________________
_________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt
and Capital Leases $ 337 $ 9,866
Accounts Payable and Accrued Liabilities 368,956 380,690
_________________________________________________________________
Total Current Liabilities 369,293 390,556
_________________________________________________________________
Deferred Income Taxes 165,814 173,867
_________________________________________________________________
Other Liabilities 114,205 116,569
_________________________________________________________________
Long-Term Debt 690,248 695,546
Capital Lease Obligations 714 801
_________________________________________________________________
Total Long-Term Debt and
Capital Lease Obligations 690,962 696,347
_________________________________________________________________
Commitments and Contingencies
_________________________________________________________________
Stockholders' Equity
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
24,599,000 in 1997 and 24,564,000 in 1996 24,599 24,564
Additional Paid-In Capital 1,654 632
Retained Earnings 465,373 477,643
_________________________________________________________________
Total Stockholders' Equity 491,626 502,839
_________________________________________________________________
Total Liabilities and
Stockholders' Equity $1,831,900 $1,880,178
_________________________________________________________________
_________________________________________________________________
See notes to consolidated financial statements.
APL Limited and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
_________________________________________________________________
14 Weeks Ended
(In thousands) April 4, 1997 April 5, 1996
_________________________________________________________________
Cash Flows from Operating Activities
Net Income (Loss) $(9,807) $ 3,881
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization 28,613 31,621
Deferred Income Taxes (8,053) 1,636
Change in Receivables 30,048 1,528
Change in Fuel and Operating Supplies 489 6,571
Change in Prepaid Expenses and
Other Current Assets 3,377 8,601
Gain on Sale of Property and Equipment (197) (1,864)
Change in Accounts Payable and
Accrued Liabilities (11,734) 844
Other (2,745) (16,895)
_________________________________________________________________
Net Cash Provided by
Operating Activities 29,991 35,923
_________________________________________________________________
Cash Flows from Investing Activities
Capital Expenditures (31,724) (75,004)
Proceeds from Sales of
Property and Equipment 1,839 159,515
Purchase of Short-Term Investments (64,801) (220,442)
Proceeds from Sales of
Short-Term Investments 103,633 128,361
Transfer from Capital Construction Fund 2,953
Deposit to Capital Construction Fund (2,940)
Other (2,859) (3,045)
_________________________________________________________________
Net Cash Provided by (Used in)
Investing Activities 6,101 (10,615)
_________________________________________________________________
Cash Flows from Financing Activities
Issuance of Debt 62,215
Repayments of Capital Lease Obligations (86) (8,790)
Repayments of Debt (14,883) (12,918)
Dividends Paid (2,459) (2,569)
Debt Issue Costs (1,554)
Other 1,053 842
_________________________________________________________________
Net Cash Provided by (Used in)
Financing Activities (16,375) 37,226
_________________________________________________________________
Effect of Exchange Rate Changes on Cash (3,240) (216)
_________________________________________________________________
Net Increase in Cash and Cash Equivalents 16,477 62,318
_________________________________________________________________
Cash and Cash Equivalents at
Beginning of Period 102,370 76,564
_________________________________________________________________
Cash and Cash Equivalents at
End of Period $118,847 $138,882
_________________________________________________________________
Supplemental Data:
_________________________________________________________________
Cash Paid (Received) for:
Interest, Net of Capitalized Interest $ 15,211 $ 16,049
Income Taxes, Net of Refunds $(7,760) $ 4,785
_________________________________________________________________
See notes to consolidated financial statements.
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Significant Accounting Policies
The consolidated financial statements presented herein
include the accounts of APL Limited 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 27, 1996 (Commission File No. 1-
8544).
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 the first quarter of 1997
was 34%. During the quarter, the company also recorded a tax
benefit of $2.0 million relating to a prior year state income tax
settlement. The effective income tax rate for the first quarter
of 1996 was 41%. The full year effective tax rate for 1996 was
33%, which was reduced during 1996 to reflect the availability of
additional tax credits and deductions.
Note 2. United States Maritime 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 labor expense of vessel
operation under United States registry. The ODS amounts for the
quarters ended April 4, 1997 and April 5, 1996 were $7.8 million
and $13.6 million, respectively, and have been included as a
reduction of expenses.
Note 3.Accounts Payable and Accrued Liabilities
Accounts Payable and Accrued Liabilities at April 4, 1997
and December 27, 1996 were as follows:
_________________________________________________________________
(In thousands) April 4 December 27
1997 1996
_________________________________________________________________
Accounts Payable $ 53,375 $ 52,316
Accrued Liabilities 241,318 250,523
Current Portion of Insurance Claims 13,565 15,326
Unearned Revenue 55,876 50,566
Restructuring Charge 4,822 11,959
_________________________________________________________________
Total Accounts Payable and
Accrued Liabilities $ 368,956 $ 380,690
_________________________________________________________________
_________________________________________________________________
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt
Long-Term Debt at April 4, 1997 and December 27, 1996
consisted of the following:
_________________________________________________________________
(In thousands) April 4 December 27
1997 1996
_________________________________________________________________
Vessel Mortgage Notes
Due Through 2008 (1) $ 375,527 $ 380,880
8% Senior Debentures $150 million Face Amount,
Due on January 15, 2024 (2) 147,205 147,198
7 1/8% Senior Notes $150 million Face Amount,
Due on November 15, 2003 (2) 148,448 148,399
Series I 8% Vessel Mortgage Bonds,
Due Through 1997 (3) 9,530
8% Refunding Revenue Bonds
Due on November 1, 2009 12,000 12,000
Other 7,068 7,069
_________________________________________________________________
Total Debt 690,248 705,076
Current Portion (9,530)
_________________________________________________________________
Long-Term Debt $ 690,248 $ 695,546
_________________________________________________________________
_________________________________________________________________
(1) To finance a portion of the purchase price of its six C11-
class vessels, the company borrowed $402.1 million in 1995 and
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 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
$257.6 million at April 4, 1997, to exchange the variable
interest rate obligations on such notes for fixed rate
obligations for periods ranging between 7 and 12 years. The
current variable interest rates for all of the vessel
mortgage notes range between 6.415% and 6.86%. As a result
of the swaps, the effective interest rates range between
6.625% 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 are included in
interest expense.
(2)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 $1.6 million at April 4, 1997. The Senior
Debentures had an effective interest rate of 8.172%, and an
unamortized discount of $2.8 million at April 4, 1997.
(3)The Series I Vessel Mortgage Bonds were fully repaid during
the first quarter of 1997.
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
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 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.
Note 5. Stockholders' Equity
Earnings (Loss) Per Common Share
For the quarter ended April 4, 1997, primary and fully
diluted loss per common share were computed by dividing the net
loss by the weighted average number of common shares outstanding
during the quarter. For the quarter ended April 5, 1996, primary
and fully diluted earnings per common share were computed by
dividing net income by the weighted average number of common
shares and common equivalent shares outstanding during the
quarter. The number of shares used in these computations were as
follows:
_________________________________________________________________
Weighted Average Number of Common and Common Equivalent Shares
_________________________________________________________________
14 Weeks Ended
(In millions) April 4, 1997 April 5, 1996
_________________________________________________________________
Primary 24.6 26.1
Fully Diluted 24.6 26.4
_________________________________________________________________
_________________________________________________________________
Weighted average shares for the first quarter of 1997
reflects the repurchase of 1.3 million shares of the company's
common stock in the third and fourth quarters of 1996.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share", which is effective for interim and annual
periods ending after December 15, 1997 (early application is not
permitted). Under this new standard, primary earnings per share
and fully diluted earnings per share have been replaced by basic
earnings per share and diluted earnings per share. Basic
earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted earnings per share is calculated by dividing net
income by the weighted average number of common shares
outstanding during the period plus the dilutive effect of stock
options outstanding. For the first quarter of 1997 and 1996,
basic and diluted earnings (loss) per share would be the same as
the reported primary and fully diluted earnings (loss) per share.
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Commitments and Contingencies
Commitments
Alliances
The alliance agreements between the company, Orient Overseas
Container Line ("OOCL"), Mitsui OSK Lines, Ltd. ("MOL"), Nedlloyd
Lines B.V. ("NLL") and Malaysian International Shipping
Corporation BHD ("MISC"), collectively referred to as the Global
Alliance, were fully implemented in the first quarter of 1996.
NLL merged with the container line operations of The
Peninsular and Oriental Steam Navigation Company ("P&O") on
December 31, 1996 to form P&O Nedlloyd Container Line Limited
("P&O-NL"). NLL and P&O were each members of different
alliances, and the future alliance participation of P&O-NL has
not yet been determined. The company and Neptune Orient Lines
Ltd ("NOL") are also each members of different alliances, and the
future alliance participation of the company and NOL following
consummation of the Proposed Merger as discussed in Note 7, has
not yet been determined. The company cannot predict when the
alliance participation of P&O-NL or, if the Proposed Merger is
consummated, when the alliance participation of the company and
NOL, will be determined or the resulting impact on the operations
of the Global Alliance. However, while no assurances can be
given, the company believes that acceptable alternatives may be
available.
Facilities, Equipment and Services
The company had outstanding purchase commitments to acquire
cranes, facilities, equipment and services totaling $71.0 million
at April 4, 1997. 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 4, 1997, the company had
outstanding letters of credit and other agreements totaling $61.9
million, which guarantee the company's performance under certain
of its commitments.
Employment Agreements
The company has entered into employment agreements with
certain of its 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 $16.6 million at April 4, 1997. Certain
employment agreements contain provisions requiring additional
payments including excise taxes and supplemental pension benefits,
if applicable.
Contingencies
In October 1995, Lykes Bros. Steamship Co., 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. All four L9s were
redelivered to Lykes by September 25, 1996, and the three
Pacesetters continue to be operated by Lykes. On July 26, 1996,
the Bankruptcy Court gave its final approval to a settlement
agreement, which became effective on August 9, 1996, between the
company and Lykes, establishing terms for the payment of the
company's claims against Lykes for unpaid charter hire. The
settlement also allows Lykes the use of the three Pacesetters
until December 31, 1997 and requires Lykes to obtain the release
of liens it permitted to be established against those vessels.
APL Limited and Subsidiaries
Note 6. Commitments and Contingencies (continued)
Contingencies (continued)
On April 2, 1997, Lykes' Plan of Reorganization was
confirmed. Also on April 2, 1997, Lykes and Canadian Pacific,
Ltd. ("CP") finalized an agreement for CP's acquisition of Lykes'
U.S. container shipping services for approximately $30 million,
subject to certain conditions including the approval of MarAd.
In addition, the company and CP have reached an agreement which
allows the company to realize most of the remaining benefits due
under its settlement with Lykes, which agreement is conditioned
upon the consummation of CP's acquisition of Lykes and,
therefore, on MarAd's approval of such acquisition.
Certain Bankruptcy Court orders underlying the company's
agreement with Lykes have been appealed, but these appeals are
expected to be withdrawn if Lykes' Plan of Reorganization becomes
effective. Lykes' bankruptcy filing is not expected to have a
material adverse impact on the company's 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. Proposed Merger with Neptune Orient Lines Ltd
On April 13, 1997, the company entered into a merger
agreement with NOL, a Singapore corporation, and Neptune U.S.A.,
Inc., a Delaware corporation and an indirect, wholly-owned
subsidiary of NOL ("Sub"), pursuant to which Sub will merge with
and into the company (the "Proposed Merger"). As a result of the
Proposed Merger, the outstanding shares of the company's stock
will be converted into the right to receive $33.50 per share in
cash and the company will become a wholly-owned subsidiary of
NOL. The Proposed Merger, which has been approved by each
company's Board of Directors, is conditioned upon approval by
holders of a majority of the outstanding shares of the company's
Common Stock and is subject to other conditions, including review
under the Exon-Florio Amendment and the approval of MarAd. The
parties expect to consummate the transaction in the fall of 1997,
following the receipt of regulatory approvals.
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 first quarter of 1997 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
27, 1996.
RESULTS OF OPERATIONS
Summary Results First Quarter First Quarter
(In millions) 1997 Change 1996
_________________________________________________________________
Revenues
Container Transportation $ 575.7 (9%) $633.4
Logistics Services and Other 103.2 11% 92.9
_________________________________________________________________
Total $ 678.9 (7%) $726.3
_________________________________________________________________
Operating Income (Loss) $ (8.8) >(100%) $ 17.6
_________________________________________________________________
Pretax Income (Loss) $ (17.8) >(100%) $ 6.6
_________________________________________________________________
_________________________________________________________________
Overview
The operating loss for the first quarter of 1997 was $8.8
million compared with operating income for the first quarter of
1996 of $17.6 million. Included in operating income for the
first quarter of 1997 and 1996 was $3.0 million from the
favorable settlement of claims related to the 1995 collision of a
vessel and a $1.6 million gain from the sale of a vessel,
respectively.
In the first quarter of 1997, the company's earnings
decreased as a result of reduced container transportation
revenues due to decreased average revenue per forty-foot
equivalent unit ("FEU") in all of the company's markets as
compared with the first quarter of 1996. The decrease in
revenues was offset in part by increased logistic services and
other revenues, and a reduction in total expenses as compared
with 1996.
Container Volumes First Quarter First Quarter
by Major Market (1) 1997 Change 1996
_________________________________________________________________
Asia to North America 44.5 12% 39.8
North America to Asia 32.7 (9%) 36.1
Intra-Asia 48.4 24% 39.0
Asia-Europe 10.4 19% 8.7
Latin America 6.1 92% 3.2
Refrigerated 14.3 2% 14.0
Stacktrain 116.6 15% 101.2
Automotive 19.1 (30%) 27.2
_________________________________________________________________
_________________________________________________________________
(1)Volumes are stated in thousands of FEUs, except Stacktrain
and Automotive, which are stated in thousands of shipments.
Volumes data are based upon shipments originating during the
period, which differs from the percentage-of-completion
method used for financial reporting purposes.
Asia to North America
Volumes increased in the first quarter of 1997 due primarily
to strong export activities in North and South China, Hong Kong
and India. Lower manufacturing costs in South China have shifted
customer production facilities to that region, thereby increasing
volumes from that area.
North America to Asia
Volumes declined in this market in the first quarter of 1997
compared with the first quarter of 1996 due primarily to
decreased shipments to North China, Hong Kong and Indonesia
resulting from reduced demand in this market. In addition, the
company sold five vessels and its Guam business to Matson
Navigation Company, Inc. ("Matson") in the first quarter of 1996,
which also contributed to the decline in volumes. The decrease
in volumes was partially offset by increased military cargoes to
Japan and Korea as a result the company's increased share of
military business.
Intra-Asia
The company's intra-Asia volumes increased in the first
quarter of 1997 compared with last year's first quarter primarily
as a result of increased shipments to and from North China,
India, Korea and Taiwan due to focused marketing efforts.
Asia-Europe
Volumes increased in both directions in the first quarter of
1997 over the first quarter of 1996 as the company pursued
additional cargo in order to gain market share. Eastbound
volumes increased due to shipments from the Netherlands and the
United Kingdom and westbound volumes increased due to shipments
from Hong Kong to Belgium, Denmark, the Netherlands and the
United Kingdom.
Latin America
Volumes in this market increased in the first quarter of
1997 compared with the first quarter of 1996 due primarily to an
increase in eastbound shipments from Hong Kong, Indonesia and
Taiwan to Mexico and Panama resulting from more focused sales
efforts. In addition, westbound and intra-Caribbean volumes also
increased due to the introduction of intra-Caribbean services in
mid-1996 and increased marketing efforts.
Refrigerated
Compared with the first quarter of 1996, volumes of
commercial refrigerated cargo increased slightly in 1997. This
was due primarily to increased volumes in the U.S. import market
resulting from increased exports from Japan, Taiwan and Thailand,
and increased volumes in the intra-Asia market. These increases
were partially offset by lower export and military refrigerated
cargo volumes.
Stacktrain
North America stacktrain volumes increased significantly in
the first quarter of 1997 compared with last year's first quarter
due to growth in demand and the company's pricing strategies to
remain competitive. Partially offsetting the increased volumes
was the loss of volumes related to the sale of the company's
rights to service certain domestic intermodal customers in the
second quarter of 1996.
Automotive
Automotive volumes declined in the first quarter of 1997
compared with the same period in 1996, due to reduced volumes of
both stacktrain and non-stacktrain shipments by U.S. automobile
manufacturers between the U.S. and Mexico and within the U.S.
First Quarter First Quarter
Average Revenue per Unit (1) 1997 Change 1996
_________________________________________________________________
Trans-Pacific $3,198 (10%) $3,573
Other Ocean Transportation $1,886 (14%) $2,193
Stacktrain $1,162 (11%) $1,304
_________________________________________________________________
_________________________________________________________________
(1)Average revenue per unit is stated in FEUs, except for
Stacktrain, which is in shipments. Average revenue per unit
data are based upon shipments originating during the period,
which differs from the percentage-of-completion method used
for financial reporting purposes. Stacktrain revenue per
unit includes Automotive.
Trans-Pacific
In the first quarter of 1997, the company's trans-Pacific
average revenue per FEU declined from the same period in 1996 due
primarily to considerable pressure on rates in the Asia to North
America market as a result of over-capacity, slower growth in
trade, and continued rate reductions by the company and other
carriers. Considerable rate instability persists in this market,
and the company cannot predict whether rate reductions will
continue to be taken by the company or its competitors in 1997,
or the extent of such reductions, if any. Continued
destabilization of rates, if extensive, could have a material
adverse impact on the results of operations of carriers,
including the company. Also contributing to lower trans-Pacific
average revenue per FEU are lower rates and a lower percentage of
high value cargo in the North America to Asia market.
Other Ocean Transportation
Average revenue per FEU in the company's other ocean
transportation markets decreased in the first quarter of 1997
compared with the first quarter of 1996, due primarily to an
increase in lower-rated, short-leg cargo in the intra-Asia
market. The decrease in average revenue per FEU was compounded
by continued rate deterioration in the Asia-Europe market
throughout 1996 and the first quarter of 1997 due to excess
vessel capacity and significant rate pressure as carriers compete
for market share.
Stacktrain
Stacktrain average revenue per shipment declined in the
first quarter of 1997 compared with the same period in 1996
primarily due to lower rates resulting from increased competition
and excess equipment capacity in this market.
Proposed Merger with Neptune Orient Lines Ltd
On April 13, 1997, the company entered into a merger
agreement with NOL, and Neptune U.S.A., Inc., a Delaware
corporation and an indirect, wholly-owned subsidiary of NOL
("Sub"), pursuant to which Sub will merge with and into the
company (the "Proposed Merger"). As a result of the Proposed
Merger, the outstanding shares of the company's stock will be
converted into the right to receive $33.50 per share in cash and
the company will become a wholly-owned subsidiary of NOL. The
Proposed Merger, which has been approved by each company's Board
of Directors, is conditioned upon approval by holders of a
majority of the outstanding shares of the company's Common Stock
and is subject to other conditions, including review under the
Exon-Florio Amendment and the approval of MarAd. The parties
expect to consummate the transaction in the fall of 1997,
following the receipt of regulatory approvals.
Outlook
The company expects stronger volumes to be offset by
continued rate pressures in most of its major markets through
1997 as increased capacity continues to exceed market growth.
Anticipated lower rates combined with seasonal factors are
expected to result in reduced earnings, particularly in the first
half of the year.
Logistics Services and Other Revenues
Logistics Services and Other Revenues, which include cargo
handling, freight consolidation, logistics services and charter
hire revenues, totaled $103.2 million and $92.9 million in the
1997 and 1996 first quarters, respectively. The increase
reflects increased cargo handling revenues in Asia and North
America associated with greater use of the company's terminals by
third parties.
Alliances
The alliance agreements between the company, OOCL, MOL, NLL
and MISC, collectively referred to as the Global Alliance, were
fully implemented in the first quarter of 1996.
NLL merged with the container line operations of P&O on
December 31, 1996 to form P&O Nedlloyd Container Line Limited.
NLL and P&O were each members of different alliances, and the
future alliance participation of P&O-NL has not yet been
determined. The company and NOL are also each members of
different alliances, and the future alliance participation of the
company and NOL following consummation of the Proposed Merger,
has not yet been determined. The company cannot predict when the
alliance participation of P&O-NL or, if the Proposed Merger is
consummated, when the alliance participation of the company and
NOL, will be determined or the resulting impact on the operations
of the Global Alliance. However, while no assurances can be
given, the company believes that acceptable alternatives may be
available.
Maritime Regulation and Subsidy
Under the company's ODS agreement with the MarAd, which
expires December 31, 1997, payments to the company were
approximately $7.8 million and $13.6 million in first quarter of
1997 and 1996, respectively. The company expects ODS payments in
1997 to be substantially lower than in 1996 as a result of a
reduction in the number of U.S. flag vessels operated by the
company. During 1996, the company sold five U.S. flag vessels to
Matson and returned five chartered U.S. flag vessels, four of
which had been chartered from Lykes.
In October 1996, the Maritime Security Act of 1996 was
signed into law. This legislation provides for a Maritime
Security Program ("MSP") administered by MarAd with up to $100
million in payments per annum to be appropriated by Congress on
an annual basis. MSP provides $2.1 million per vessel per year,
compared with up to $3.6 million per vessel per year under ODS,
and will expire on October 1, 2005.
In January 1997, the company signed operating agreements
under MSP for nine ships, including five C10-class vessels and
four C11-class vessels. The company has a one-year period in
which to begin the participation of those vessels in the program.
Vessels participating in MSP must be registered under U.S. flag
and manned by U.S. crews and must participate in the Emergency
Preparedness Program established by the Maritime Security Act.
Certain U.S. citizenship requirements are applicable to the
participating carrier. Transfers of operating agreements and
substitution of vessels are permitted under specified
circumstances, subject to the prior approval of MarAd. The
operating agreements are one-year contracts, which will be
automatically renewed through September 30, 2005 subject to
available funding. If annual funding is not appropriated by the
U.S. Congress, the operating agreements may be terminated on 60
days' notice by MarAd. The agreements may also be terminated by
the participating carrier on 60 days' notice at any time,
provided that the carrier continues to participate in the
Emergency Preparedness Program and the vessels continue under
U.S. flag registry through the end of the then-current fiscal
year.
Due to the enactment of MSP, the company's collective
bargaining agreement covering its unlicensed personnel expired
and was renegotiated, and a new agreement was reached in December
1996. The new contract expires in June 1999. Existing
agreements covering licensed personnel expire in December 1997
and June 1998, and the company has been engaged in negotiations
with the
representative unions regarding continuation of those
agreements. The company is unable to predict when or whether new
agreements may be reached, and labor disturbances could result
which could have a material adverse impact on the company.
In 1997, legislation was introduced in the U.S Senate 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. The legislation contains provisions
that require tariffs to be published and available to the public
but not filed with a government agency, allow independent
contracts between shippers and ocean carriers, allow contract
terms to be treated confidentially except for specific terms, and
strengthen remedies to combat predatory activities by foreign
carriers, under limited continuing oversight by a successor
agency to the Federal Maritime Commission, while continuing the
company's existing antitrust immunity. The company is unable to
predict whether this or other proposed legislation will be
introduced or enacted. Enactment of legislation modifying the
Shipping Act, depending upon its terms, could have a material
impact on the competitive environment in which the company
operates and on the company's results of operations. The company
is unable to predict the nature or extent of the impact of this
legislation, if enacted.
EXPENSES
Expenses First Quarter First Quarter
(In millions) 1997 Change 1996
_________________________________________________________________
Transportation
Land $ 223.9 (11%) $252.1
Ocean 119.3 (2%) 121.4
Equipment 70.0 3% 68.3
Cargo Handling 179.7 11% 162.0
Sales General & Administrative 97.8 (8%) 106.5
Other (Income) Expense (3.0) 84% (1.6)
_________________________________________________________________
Total $ 687.7 (3%) $708.7
_________________________________________________________________
Operating Ratio (1) 102% 98%
_________________________________________________________________
_________________________________________________________________
(1)Other (Income)/Expense is excluded from this calculation.
Land Transportation
Land transportation expenses decreased in the first quarter
of 1997 from the first quarter of 1996, primarily due to
decreases in domestic automotive and freight brokerage volumes as
a result of the sale of the company's rights to service certain
domestic intermodal customers in the second quarter of 1996.
Ocean Transportation
Ocean transportation expenses decreased in the first quarter
of 1997 compared with the first quarter of 1996 as a result of
fewer vessels operating in the 1997 period due to the sale of
five U.S. flag vessels to Matson in 1996 and the return of five
chartered U.S. flag vessels, four of which had been chartered
from and returned to Lykes, during 1996. Partially offsetting
these decreases were increased purchases of vessel space from the
alliance partners in the Asia-Latin America service, additional
feeder costs in Asia due to slot purchase arrangements and
additional vessel charters, and lower subsidy payments resulting
from operating fewer vessels in 1997.
Transportation Equipment
Transportation equipment costs increased in the first
quarter of 1997 compared with the first quarter of 1996 due to
increased container lease and maintenance costs.
Cargo Handling
Cargo handling expenses increased in the first quarter of
1997 compared with the same period in 1996, as result of higher
cargo volumes from both the company and its alliances, primarily
in intra-Asia and Latin America, and from higher labor rates.
This increase was partially offset by the strengthening value of
the U.S. dollar against the Japanese yen in the first quarter of
1997 compared with the same period in 1996.
Sales, General and Administrative
Sales, general and administrative expenses decreased in the
first quarter of 1997 compared with the first quarter of 1996, as
the company realized salary and benefit savings from the 1995
restructuring which resulted in the elimination of certain
positions in the U.S. and Asia during 1996. Other factors were
lower agency fees, lower accruals for certain employee benefit
costs due to workforce reductions, and favorable insurance claims
experience.
Other Income and Expense
In the first quarter of 1997, the company recorded $3.0
million in other income from the favorable settlement of claims
related to the 1995 collision of a vessel. In the first quarter
of 1996, the company recognized a gain of $1.6 million from the
sale of a vessel to Matson.
Net Interest Expense
Net interest expense decreased from $11.0 million in the
first quarter of 1996 to $9.0 million in the first quarter of
1997, primarily due to the repayment of the remaining balance of
the C10-class Series I Vessel Mortgage Bonds in the first quarter
of 1997, reductions in the balance of the C11-class Vessel
Mortgage Notes and interest capitalized under terminal
construction contracts compared with last year's first quarter.
LIQUIDITY AND CAPITAL RESOURCES
Summary of Financial Resources
(In millions) April 4 December 27
As of: 1997 1996
_________________________________________________________________
Cash, Cash Equivalents and
Short-Term Investments $ 260.6 $ 283.0
Working Capital 190.9 225.9
Total Assets 1,831.9 1,880.2
Long-Term Debt and Capital
Lease Obligations (1) 691.3 706.2
_________________________________________________________________
April 4 April 5
For the quarter ending: 1997 1996
_________________________________________________________________
Cash Provided by Operations $ 30.0 $ 35.9
_________________________________________________________________
Investing Activities
Proceeds from the Sales of
Property and Equipment $ 1.8 $ 159.5
Capital Expenditures
Ships $ 0.1 $ 65.0
Containers, Chassis and Rail Cars 9.7 2.4
Leasehold Improvements and Other 21.9 7.6
_________________________________________________________________
Total Capital Expenditures $ 31.7 $ 75.0
_________________________________________________________________
Financing Activities
Borrowings $ 62.2
Repayment of Debt and
Capital Leases $ (15.0) (21.7)
Dividend Payments (2.5) (2.6)
_________________________________________________________________
_________________________________________________________________
(1)Includes current and long-term portions.
Cash Flows
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.
Capital Spending
Capital expenditures of $31.7 million in the first quarter
of 1997 were primarily for purchases of chassis, containers, and
terminal and leasehold improvements. Capital expenditures in
1997 are expected to be approximately $108 million primarily for
terminal and leasehold improvements, transportation equipment and
systems. The company has outstanding purchase commitments to
acquire cranes, facilities, equipment and services totaling $71.0
million. In addition to vessel expenditures of $65.0 million,
the company made capital expenditures in the first quarter of
1996 of $10.0 million primarily for purchases of chassis,
containers, and terminal and leasehold improvements.
In January 1996, the company took delivery of the sixth and
final C11-class vessel, five of which were delivered during 1995.
The total cost of the six C11-class vessels was $529 million,
including total payments to the shipyards of $503 million, of
which $62 million was paid in January 1996. To finance a portion
of these vessel purchases, the company borrowed $402 million. Of
this amount, $62.2 million was borrowed in January 1996 and the
remainder in 1995. The company has entered into four interest
rate swap agreements to exchange the variable interest rates on
certain vessel mortgage notes for fixed rates over periods
ranging between 7 and 12 years. This debt is more fully
described in Note 4 of Notes to Consolidated Financial
Statements.
Share Repurchases
In April 1996, the Board of Directors approved a program to
repurchase up to an aggregate of $50 million of the company's
common stock from time to time through open-market or privately
negotiated transactions. In the third and fourth quarters of
1996, the company paid $29 million to repurchase approximately
1.3 million shares of its common stock under this program. No
shares were repurchased during the first quarter of 1997.
Capital Resources
The company has a credit agreement with a group of banks
which provides for an aggregate commitment of $200 million
through March 1999. Under that agreement, the company also has
an option to sell up to $150 million of certain of its accounts
receivable to the banks as an alternative to borrowing. There
have been no borrowings under this agreement.
The company believes its existing resources, cash flows from
operations and borrowing capacity under its existing credit
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 , including statements
concerning anticipated rate and volume trends, alliance
participation, and capital spending, 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, including those discussed above
and below, that could cause actual results to differ materially
from those projected.
The company expects that it and the shipping industry
generally will face challenging conditions in coming years. The
adversity of the operating environment and its impact on the
company's operating results will depend on a variety of factors,
including: 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 implementation
and 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.
As a result of capacity increases exceeding market growth
and increased competition, considerable rate instability exists
in most of the company's major markets. Destabilization of rates
has in the past had and, if extensive, could in the future have a
material adverse impact on the results of operations of carriers
in these trades, including the company.
Demand in the trans-Pacific market is dependent on factors
such as the quantity of available import and export cargo and
economic conditions in the U.S. and other Pacific Basin
countries. The degree to which any growth or contraction in the
trans-Pacific market impacts the company will depend in large
part on the introduction of additional vessels into the market by
the company's competitors. Because a number of competing ocean
carriers have placed orders for the construction of a significant
number of new vessels, capacity in the trans-Pacific market is
expected to grow significantly more than demand, which could
result in further rate reductions.
Other risks and uncertainties include: growth trends in
other markets served by the company, the company's ability to
respond to those trends, 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. If the company were
unable to negotiate acceptable labor agreements, including those
currently under negotiation, the results could include work
stoppages, strikes or other labor difficulties, or higher labor
costs, any of which could have a material adverse affect on the
company's operating results. The company has experienced such
difficulties at times in the past and can provide no assurance
that they will not occur in the future.
Also, the company is subject to inherent risks of conducting
business internationally, including changes in: legislative or
regulatory requirements, 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, payment cycles, the
difficulty of collecting accounts receivable, taxes, and the
burdens of complying with a variety of foreign laws. In
connection with its international operations, the company is also
subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade
relationships affecting the company or its customers.
The company's Proposed Merger with NOL may have significant
effects on the company's future operations, although the nature
and extent of such effects cannot be currently determined.
Responses of third parties, such as the company's alliance
partners and labor unions, to the proposed merger are also
uncertain at this time. The Proposed Merger is also subject to
the approval of the stockholders of the company and to regulatory
approvals, including the approval of MarAd.
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 3,480 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 May 1996, an order was entered in the
United States District Court for the Eastern District of
Pennsylvania, which 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. In July 1996, the Court issued an
order to reinstate 29 cases against vessel owners and to dismiss
the vessel owners' third party claims and cross-claims against
manufacturers of asbestos products. A motion for reconsideration
of such dismissal is pending. 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.
On June 3, 1996, the FMC administrative law judge ordered that
the complaint be dismissed on the merits. The complainants filed
its appeal with the FMC on July 25, 1996, and American President
Lines, Ltd. filed its reply on September 16, 1996. A decision by
the FMC is expected in August 1997.
The company and its directors have been named as defendants
in a purported class action on behalf of all public stockholders
of the company pending in the Superior Court of the State of
California for the County of Alameda, captioned Soshtain et. al.
v. Arledge et. al., Case No. 781838-3. The complaint was filed
on April 18, 1997 and alleges that the company's directors
breached their fiduciary duties in connection with the Proposed
Merger with NOL by failing to take all necessary steps to ensure
that the company's stockholders would receive the maximum value
realizable for their shares, and seeks damages in an unspecified
amount and equitable relief, including an injunction against
consummation of the Proposed Merger. The time for the defendants
to move or answer with respect to the complaint has not yet
elapsed.
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
_________________________________________________________________
3.1 Integrated copy of the amended By-Laws.
10.1 Fourth Amendment to the APL Limited SMART Plan (Second
Amendment and Restatement Effective as of January 1,
1993), dated March 24, 1997.**
10.2 APL Limited Regular Supplemental Executive Retirement
Plan, amended and restated effective November 9, 1996.**
10.3 APL Limited Pure Excess Supplemental Executive Retirement
Plan, effective November 9, 1996.**
10.4 APL Limited Regular Excess-Benefit Plan, amended and
restated effective November 9, 1996.**
10.5 APL Limited Pure Excess-Benefit Plan, effective November 9,
1996.**
10.6 Amendment No. 4 dated March 17, 1997 to the Credit
Agreement among APL Limited, borrower, and Morgan Guaranty
Trust Company of New York (as agent and participant), Bank
of America National Trust and Savings Association, The
First National Bank of Boston, The Industrial Bank of
Japan, Limited, ABN AMRO Bank N.V. and The First National
Bank of Chicago.
27 Financial Data Schedules filed under Article 5 of
Regulation S-X for the first quarter ended April 4, 1997.
** Denotes management contract or compensatory plan.
(b) Reports on Form 8-K
On April 14, 1997, the company filed a Form 8-K dated
April 13, 1997, relating to the Agreement and Plan of
Merger with Neptune Orient Lines Ltd, a Singapore
corporation ("NOL"), and Neptune U.S.A., Inc., a Delaware
corporation and an indirect, wholly-owned subsidiary of
NOL ("Sub"), pursuant to which Sub will merge with and
into the company and the company will become a wholly-
owned subsidiary of NOL.
APL Limited 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.
APL LIMITED
Dated: May 16, 1997 By /s/ William J. Stuebgen
_______________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer