UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 34-0-17570
American Freightways Corporation
(Exact name of registrant as specified in its charter)
Arkansas 74-2391754
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2200 Forward Drive, Harrison, Arkansas 72601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 741-9000
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Number of shares of common stock outstanding at September 30,
1995: 30,836,305.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted, except per share data)
September 30, December 31,
1995 1994
------------ ------------
(Unaudited) (Note)
Assets
Current assets
Cash and cash equivalents $ 4,594 $ 3,999
Trade receivables, less allowance
for doubtful accounts
(1995-$663; 1994-$639) 58,284 39,818
Operating supplies and inventories 2,291 1,519
Prepaid expenses 6,419 4,247
Deferred income taxes 6,217 4,664
Income taxes receivable 4,153 --
-------- ---------
Total current assets 81,958 54,247
Property and equipment 494,305 396,594
Allowances for depreciation and
amortization (deduction) (123,441) (98,701)
--------- ---------
370,864 297,893
Other assets 2,883 3,208
--------- ---------
$455,705 $ 355,348
========= =========
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 12,175 $ 13,358
Accrued expenses 32,634 24,449
Federal and state income taxes -- 233
Current portion of long-term debt 5,825 6,338
--------- ---------
Total current liabilities 50,634 44,378
Long-term debt, less current portion
(Note B) 166,381 104,843
Deferred income taxes 40,409 28,947
Shareholders' equity:
Common stock, par value $.01 per share--
authorized 250,000 shares; issued
and outstanding 30,836 in 1995
and 30,496 in 1994 308 305
Additional paid-in capital 97,575 93,347
Retained earnings 100,398 83,528
--------- ---------
198,281 177,180
--------- ---------
$455,705 $ 355,348
========= =========
Note: The condensed consolidated balance sheet at December 31, 1994, has
been derived from the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(000's omitted, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------------------ -----------------
Operating revenue $149,392 $124,134 $423,894 $ 347,063
Operating expenses and costs:
Salaries, wages and
benefits 89,462 65,983 240,728 183,049
Operating supplies and
expenses 9,303 7,989 27,192 23,064
Operating taxes and
licenses 5,961 5,085 17,515 14,139
Insurance 5,685 4,299 15,011 10,737
Communications and
utilities 2,875 2,333 8,133 6,839
Depreciation and
amortization 9,963 7,037 27,505 20,254
Rents and purchased
transportation 12,321 11,946 34,029 35,022
Other 7,376 5,584 19,555 15,406
-------- -------- -------- --------
142,946 110,256 389,668 308,510
-------- -------- -------- --------
Operating income 6,446 13,878 34,226 38,553
Other income (expense):
Interest expense (2,636) (1,686) (7,326) (4,930)
Interest income 45 41 120 165
Gain on disposal of
assets 14 246 59 227
Other, net 89 58 241 170
-------- -------- -------- --------
(2,488) (1,341) (6,906) (4,368)
Income before income taxes
and extraordinary item 3,958 12,537 27,320 34,185
-------- -------- -------- --------
Federal and state income taxes:
Current (2,327) ( 563) 541 6,237
Deferred 3,841 5,326 9,909 6,755
-------- -------- -------- --------
1,514 4,763 10,450 12,992
-------- -------- -------- --------
Income before extraordinary
item 2,444 7,774 16,870 21,193
Extraordinary item (Note B):
Loss on early extinguishment
of debt (less applicable
income taxes of $205) -- ( 335) -- ( 335)
-------- -------- -------- --------
Net income $ 2,444 $ 7,439 $ 16,870 $ 20,858
======== ======== ======== ========
Per share (Note E)
Income before extraordinary
item $ .08 $ 0.25 $ .54 $ 0.70
Extraordinary item -- ( 0.01) -- ( 0.01)
-------- -------- -------- --------
Net income $ 0.08 $ 0.24 $ 0.54 $ 0.69
======== ======== ======== ========
Average shares outstanding 31,398 31,342 31,400 30,043
======== ======== ======== ========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1995 1994
--------------------
(000's omitted)
Net cash provided by operating
activities $ 37,462 $ 40,822
Investing activities
Proceeds from sales of equipment 548 513
Capital expenditures (100,952) (77,039)
--------- ---------
Net cash used by investing
activities (100,404) (76,526)
Financing activities
Principal payments on long-term
debt (23,911) (50,107)
Proceeds from notes payable and
long-term borrowings 84,936 47,000
Proceeds from issuance of common
stock 2,512 39,117
--------- ---------
Net cash provided by financing
activities 63,537 36,010
--------- ---------
Net increase in cash and cash
equivalents $ 595 $ 306
========= =========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1995
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating
results of the nine month period ended September 30, 1995, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995. For further information, refer to
the Company's consolidated financial statements and footnotes
thereto included in Form 10-K for the year ended December 31, 1994.
NOTE B - LONG-TERM DEBT
As of September 30, 1995, the Company has outstanding borrowings of
$64,000,000 under its existing $125,000,000 unsecured revolving
line of credit. The proceeds of these borrowings were used for the
purchase of revenue equipment and for the purchase and construction
of terminal facilities. At September 30, 1995, the amount
available for borrowing under the line of credit was $61,000,000.
In addition to this credit facility, the Company has obtained
letters of credit totaling $7,000,000 to provide collateral on its
self-insurance plan. The line of credit bears interest at a
variable interest rate based upon the London Interbank rate or the
lender's prime rate in effect at the time of the borrowing. During
the quarter ended September 30, 1994, the Company repaid $2,933,000
of mortgage notes and incurred a $540,000 charge on the early
retirement of the indebtedness. This charge is reflected in the
condensed consolidated statement of income as an extraordinary
charge net of the applicable income tax effect of $205,000.
As of September 30, 1995, the Company has outstanding borrowings of
$65,000,000 under an uncommitted Master Shelf Agreement which
provides for the issuance of up to $90,000,000 of senior promissory
notes with an average life not to exceed eight years.
NOTE C - COMMON STOCK OFFERING
On May 11, 1994, the Company sold 1,750,000 shares of its common
stock in a public offering at $18.25 per share. Proceeds to the
Company, net of underwriting discounts, commissions and other costs
were $30,145,000. On June 10, 1994, the underwriters exercised an
overallotment provision in the underwriting agreement for an
additional 375,000 shares of common stock. Net proceeds from the
exercise of the overallotment provision were $6,506,000.
NOTE D - COMMITMENTS
Commitments for the purchase of revenue equipment and the purchase
or construction of terminals aggregated approximately $55,312,000
at September 30, 1995.
NOTE E - EARNINGS PER SHARE
Quarter Ended September 30,
1995 1994
---------------------------
(Thousands omitted except
per share amounts)
Weighted average shares outstanding 30,821 30,382
Net effect of dilutive stock options
based on treasury stock method 577 960
----------- ---------
Total weighted average shares
outstanding 31,398 31,342
=========== =========
Net income $ 2,444 $ 7,439
=========== =========
Earnings per common share and
common share equivalents $ 0.08 $ 0.24
=========== =========
Earnings per common share and common share equivalents are computed
by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during the
period.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth, for the periods indicated, the
percentages of operating expenses and other items to operating
revenues:
Three Months Ended Nine Months Ended
9/30/95 9/30/94 9/30/95 9/30/94
------- ------- ------- -------
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and benefits 59.9% 53.2% 56.8% 52.8%
Operating supplies and expenses 6.2% 6.4% 6.4% 6.6%
Operating taxes and licenses 4.0% 4.1% 4.1% 4.1%
Insurance 3.8% 3.4% 3.6% 3.1%
Communications and utilities 1.9% 1.9% 1.9% 2.0%
Depreciation and amortization 6.7% 5.7% 6.5% 5.8%
Rents and purchased transportation 8.3% 9.6% 8.0% 10.1%
Other 4.9% 4.5% 4.6% 4.4%
------- ------- ------- -------
Total operating expenses and costs 95.7% 88.8% 91.9% 88.9%
------- ------- ------- -------
Operating income 4.3% 11.2% 8.1% 11.1%
Interest expense (1.8)% (1.4)% (1.7)% (1.4)%
Other income, net 0.1% 0.3% 0.1% 0.1%
------- ------- ------- -------
Income before income taxes and
extraordinary item 2.6% 10.1% 6.5% 9.8%
Income taxes 1.0% 3.8% 2.5% 3.7%
------- ------- ------- -------
Income before extraordinary item 1.6% 6.3% 4.0% 6.1%
Extraordinary loss on early
extinguishment of debt, net of tax -- 0.3% -- 0.1%
------- ------- ------- -------
Net income 1.6% 6.0% 4.0% 6.0%
======= ======= ======= ======
Results of Operations
Results of operations for the nine months ended September 30, 1994
were materially impacted by a 24-day strike during April 1994
called by the International Brotherhood of Teamsters against
several competing companies in the less-than-truckload industry.
As a result, comparisons of operations for the nine months ended
September 30, 1995 to the strike-impacted 1994 period are also
materially affected.
In addition, results of operations for the three and nine month
periods ended September 30, 1995 were materially impacted by excess
capacity within the less-than-truckload industry and the Company.
This excess capacity resulted in reduced margins from discounted
pricing and reduced freight density. The Company utilized its
excess capacity by accelerating the pace of expansion of its
service territory. Management believes this accelerated expansion
of service territory will better position the Company for the long
term; however, it cannot predict the effect of the expansions upon
nearer term results considering the restricted margins the Company
continues to experience because of excess industry capacity.
Operating Revenue
- -----------------
Operating revenue for the nine months ended September 30, 1995 was
$423,894,000, up 22.1%, compared to $347,063,000 for the nine
months ended September 30, 1994. Operating revenue for the three
months ended September 30, 1995 was $149,392,000, up 20.3%,
compared to $124,134,000 in the three months ended September 30,
1994. The growth in operating revenue in the nine months ended
September 30, 1995 compared to the nine months ended September 30,
1994 was primarily attributable to a 21.3% increase in tonnage
handled by the Company from new and existing customers. The major
reasons for this increase in tonnage were:
- - On January 1, 1995, the Company expanded its all-points
coverage to the states of North Carolina and South Carolina with
the opening of thirteen new terminals.
- - On April 17, 1995, the Company expanded its service territory
with the addition of terminal locations in: Colorado Springs,
Denver, Fort Collins and Pueblo, CO; Des Moines, IA;
Minneapolis/St. Paul, MN; Omaha, NE; Madison and Milwaukee, WI.
- - On July 10, 1995, the Company expanded its all-points coverage
to the states of Colorado, Iowa, Nebraska and Wisconsin with the
opening of twelve new terminal locations.
- - On August 14, 1995, the Company opened seven terminal
locations in the state of Florida and provided all-points coverage
to that state. With the addition of Florida, the Company provides
all-points coverage to 21 states.
- - The deregulation of intra-state commerce as of January 1, 1995
by the Federal Aviation Administration Authorization Act of 1994.
- - The Company continued to increase its market penetration into
existing service territories.
In addition to the increase in tonnage, operating revenue for the
nine months ended September 30, 1995 was increased by a 0.6%
increase in revenue per hundred weight as compared to the nine
months ended September 30, 1994. The major factor contributing to
this increase in revenue per hundred weight was a 3.7% increase, to
582 miles, in the Company's average length of haul. The increase
in average length of haul was primarily a result of the Company's
expanded service territory.
Management expects that growth in operating revenue is sustainable
in the near future. Any growth in operating revenue will primarily
be the result of increased tonnage handled by the Company.
Operating Expenses
- ------------------
Operating expenses as a percentage of operating revenue increased
to 91.9% in the nine months ended September 30, 1995 from 88.9% in
the nine months ended September 30, 1994. Operating expenses as a
percentage of operating revenue increased to 95.7% in the three
months ended September 30, 1995 from 88.8% in the three months
ended September 30, 1994. This overall increase was primarily
attributable to:
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 56.8% in the nine months ended September 30,
1995 from 52.8% in the nine months ended September 30, 1994. The
increase in salaries, wages and benefits as a percentage of
operating revenue was primarily a result of three factors. First,
the utilization of Company-operated terminals, rather than
contractor-operated terminals, in expansions of service territory
contributed to this increase. Second, the continuation of the
Company's philosophy of sharing its success with its associates
through increased wages and enhanced benefit packages contributed
to this increase. On March 6, 1995, the Company increased the wages
of its drivers, dockmen and clerical workers by approximately 5.5%.
The third factor was the accelerated expansion of service territory
during 1995. Within the expansion territory, wages and benefits
were disproportionately high in relation to operating revenues as
new associates were added to establish an operating base.
Management does not expect salaries, wages and benefits as a
percentage of operating revenue to continue in an upward trend, but
expects these expenses to gradually stabilize or improve.
- - Insurance as a percentage of operating revenue increased to
3.6% in the nine months ended September 30, 1995 from 3.1% in the
nine months ended September 30, 1994. This increase was primarily
a result of the Company's increased experience of accidents and
cargo claims, particularly in the areas of cargo care and liability
insurance. During the twelve months prior to September 30, 1995,
accidents and cargo claims returned to historical levels after
being somewhat lower in the prior two years. Management does not
expect a continuation of the upward trend in insurance expenses as
they relate to operating revenue but expects a stabilization of
these expenses near historical levels.
- - Depreciation and amortization as a percentage of operating
revenue increased to 6.5% in the nine months ended September 30,
1995 from 5.8% in the nine months ended September 30, 1994. This
increase was primarily a result of decreased usage of rented
equipment in favor of Company-owned equipment. Management expects
this increased utilization of Company-owned equipment, rather than
rented equipment, to continue in the near term.
These increases in operating expenses as a percentage of operating
revenue were partially offset by improvements in the following
area:
- - Rents and purchased transportation as a percentage of
operating revenue decreased to 8.0% in the nine months ended
September 30, 1995 from 10.1% in the nine months ended September
30, 1994. This decrease was due to two primary reasons. The first
was the Company's philosophy of utilizing Company-operated
terminals rather than contractor-operated terminals in expansions
of service territory. The second primary reason for the decrease
in rents and purchased transportation as a percentage of operating
revenue was the decreased usage of rented equipment in favor of
Company-owned equipment.
Other
- -----
Interest expense as a percentage of operating revenue increased to
1.7% in the nine months ended September 30, 1995 from 1.4% in the
nine months ended September 30, 1994. This increase was primarily
attributable to increased borrowings incurred by the Company to
finance the expansion of service territory and support continued
growth in operating revenue.
The effective tax rate of the Company was 38.3% for the first nine
months of 1995, up from 38.0% for the first nine months of 1994.
The change was primarily attributable to increased state income
taxes. Net income for the nine months ended September 30, 1995,
was $16,870,000, down 19.1%, from $20,858,000 for the nine months
ended September 30, 1994.
Liquidity and Capital Resources
The continued growth in operating revenue and the expansion of
service territory initiated during 1995 required significant
capital resources in the nine months ended September 30, 1995.
The Company invested $100,952,000 in capital expenditures during
the nine months ended September 30, 1995 comprised of $61,171,000
in additional revenue equipment, $21,470,000 in new terminal
facilities or the expansion of existing terminal facilities and
$18,311,000 in other equipment. Management expects capital
expenditures for the full year of 1995 will be approximately
$130,000,000. At September 30, 1995, the Company had commitments
for land, terminals, revenue and other equipment of approximately
$55,312,000. These commitments were for the completion of projects
in process at September 30, 1995, and for the purchase of
additional revenue equipment in anticipation of increased revenue
levels.
The Company provided for its capital resource requirements in the
nine months ended September 30, 1995 with cash from operations and
financing activities. Cash from operations totaled $37,462,000 in
the nine months ended September 30, 1995 compared to $40,822,000 in
the nine months ended September 30, 1994. Financing activities
augmented cash flow by $63,537,000 in the nine months ended
September 30, 1995 by utilizing two primary sources of financing:
the revolving line of credit and the Master Shelf facility.
- - The Company experiences periodic cash flow fluctuations common
to the industry. Cash outflows are heaviest during the first part
of any given year while cash inflows are normally weighted towards
the last two quarters of the year. To smooth these fluctuations
and to provide flexibility to fund future growth, the Company
utilizes a variable-rate, unsecured revolving line of credit
provided by NationsBank of Texas, N.A., Texas Commerce Bank, N.A.
and Wachovia Bank of Georgia, N.A. Effective May 31, 1995, the
limit of this line of credit facility was increased to $125,000,000
from $75,000,000. During the nine months ended September 30, 1995,
the Company utilized this facility to provide $27,000,000 of net
financing, bringing outstanding borrowings under the facility to
$64,000,000 and leaving $61,000,000 available for borrowing. The
Company also maintains a short-term, unsecured revolving line of
credit with NationsBank of Texas, N.A. Effective May 9, 1995, the
limit of this short-term facility was increased to $7,500,000 from
$5,000,000. At September 30, 1995, $7,500,000 was available for
borrowing. In addition, the Company maintains a $10,000,000 line
of credit with NationsBank, N.A. to obtain letters of credit for
its self-insurance program. At September 30, 1995, the Company had
obtained letters of credit totaling $7,000,000 for this purpose.
- - To assist in financing longer-lived assets, the Company has an
uncommitted Master Shelf Agreement with the Prudential Insurance
Company of America which provides for the issuance of up to
$90,000,000 in medium to long-term unsecured notes at an interest
rate calculated at issuance. During the nine months ended
September 30, 1995, the Company utilized this agreement to issue a
$15,000,000 note at 8.55% with a ten year maturity and a
$20,000,000 note at 6.92% with a ten year maturity. The proceeds
of these notes were used primarily to repay borrowings from the
revolving line of credit or to fund capital expenditures. At
September 30, 1995, $25,000,000 was available under this facility
for borrowing.
Management expects that the Company's existing working capital and
its available lines of credit are sufficient to meet the Company's
commitments as of September 30, 1995, and to fund current operating
and capital needs. However, if additional financing is required,
management believes it will be available.
The Company uses off-balance sheet financing in the form of
operating leases primarily in two areas; terminal facilities and
computer equipment. At September 30, 1995, future rental
commitments on operating leases were $38,867,000. The Company
prefers to utilize operating leases for these two areas and plans
to use them in the future when such financing is available and
suitable.
Environmental
At September 30, 1995, the Company had no outstanding inquiries
with any state or federal environmental agency.
Recent Events
Effective January 1, 1996, the Company will open twelve terminal
locations in Delaware, Maryland, Virginia and West Virginia and
provide all-points coverage to those states. With the addition of
these four states, the Company will provide all-points coverage to
25 states.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (unaudited)
- -------
Condensed consolidated balance sheets--September 30, 1995 and
December 31, 1994
Condensed consolidated statements of income--Three months
ended September 30, 1995 and 1994; Nine months ended September
30, 1995 and 1994
Condensed consolidated statements of cash flows--Nine months
ended September 30, 1995 and 1994
Notes to condensed consolidated financial statements--
September 30, 1995
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- -------
(a) Exhibits:
---------
(10) The Company did not have any exhibits during the
three month period ended September 30, 1995.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during
the three month period ended September 30, 1995.
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 FREIGHTWAYS CORPORATION
--------------------------------
(Registrant)
Date: October 26, 1995 /s/James R. Dodd
- ----------------------- ---------------------------
James R. Dodd
Executive Vice President-
Accounting & Finance
and Chief Financial Officer