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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 MARCH 31, 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 34-0-17570
AMERICAN FREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
ARKANSAS 74-2391754
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer 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 March 31,
1996: 30,979,253.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
MARCH 31, December 31,
1996 1995
---------- ----------
(UNAUDITED) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 5,554 $ 2,642
Trade receivables, less allowance
for doubtful accounts
(1996-$955; 1995-$845) 65,663 54,119
Operating supplies and inventories 2,065 2,136
Prepaid expenses 9,700 5,504
Deferred income taxes 9,556 8,444
Income taxes receivable 2,118 4,368
--------- ---------
Total current assets 94,656 77,213
Property and equipment 557,775 530,589
Allowances for depreciation
and amortization (deduction) (143,779) (132,887)
--------- ---------
413,996 397,702
Other assets 2,882 2,847
--------- ---------
$ 511,534 $ 477,762
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 13,810 $ 10,532
Accrued expenses 42,084 33,590
Current portion of long-term debt 13,179 8,392
--------- ---------
Total current liabilities 69,073 52,514
Long-term debt,
less current portion (Note B) 204,211 189,239
Deferred income taxes 41,895 40,575
Shareholders' equity
Common stock, par value $.01 per
share--authorized 250,000 shares;
issued and outstanding 30,979 in
1996 and 30,931 in 1995 310 309
Additional paid-in capital 98,832 98,514
Retained earnings 97,213 96,611
--------- ---------
196,355 195,434
--------- ---------
$ 511,534 $ 477,762
========= =========
Note: The condensed consolidated balance sheet at December 31, 1995, has
been derived from the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(000's omitted, except per share data)
Three Months Ended
March 31
1996 1995
-------------------
OPERATING REVENUE $166,160 $132,533
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 101,574 73,407
Operating supplies and expenses 12,189 8,703
Operating taxes and licenses 7,340 5,736
Insurance 6,594 4,800
Communications and utilities 3,086 2,549
Depreciation and amortization 11,023 8,436
Rents and purchased transportation 12,114 10,697
Other 7,878 5,949
-------- --------
161,798 120,277
-------- --------
OPERATING INCOME 4,362 12,256
OTHER INCOME (EXPENSE)
Interest expense (3,491) (2,199)
Interest income 16 44
Gain on disposal of assets 16 5
Other, net 77 61
-------- --------
(3,382) (2,089)
INCOME BEFORE INCOME TAXES 980 10,167
-------- --------
FEDERAL AND STATE INCOME TAXES
Current 11 1,789
Deferred 367 2,100
-------- --------
378 3,889
-------- --------
NET INCOME $ 602 $ 6,278
======== ========
NET INCOME PER SHARE (NOTE D) $ 0.02 $ 0.20
======== ========
AVERAGE SHARES OUTSTANDING 31,165 31,376
======== ========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
1996 1995
-----------------------
(000's omitted)
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 10,266 $ 13,606
INVESTING ACTIVITIES
Proceeds from sales of equipment 19 21
Capital expenditures (27,293) (38,792)
---------- ----------
Net cash used by
investing activities (27,274) (38,771)
FINANCING ACTIVITIES
Principal payments on long-term debt (1,741) (4,638)
Proceeds from notes payable
and long-term borrowings 21,500 29,500
Proceeds from issuance
of common stock 161 785
---------- ----------
Net cash provided by
financing activities 19,920 25,647
---------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 2,912 $ 482
========== ==========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
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 three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1996. 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, 1995.
NOTE B - LONG-TERM DEBT
As of March 31, 1996, the Company has outstanding borrowings of
$109,000,000 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 March 31, 1996, the amount available
for borrowing under the line of credit was $16,000,000. In
addition to this credit facility, the Company has obtained letters
of credit totaling $5,870,000 to provide collateral on its self-
insurance plan.
As of March 31, 1996, 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 - COMMITMENTS
Commitments for the purchase of revenue equipment and the purchase
or construction of terminals aggregated approximately $35,444,000
at March 31, 1996.
NOTE D - EARNINGS PER SHARE
Quarter Ended March 31,
1996 1995
-------------------------
(000's omitted except
per share amounts)
Weighted average shares outstanding 30,948 30,564
Net effect of dilutive stock options
based on treasury stock method 217 812
-------- --------
Total weighted average shares outstanding 31,165 31,376
======== ========
Net income $ 602 $ 6,278
======== ========
Earnings per common share and
common share equivalents $ 0.02 $ 0.20
======== ========
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
revenue:
Three Months Ended
March 31
1996 1995
-------- --------
Operating revenue 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 61.1% 55.4%
Operating supplies and expenses 7.3% 6.6%
Operating taxes and licenses 4.4% 4.3%
Insurance 4.0% 3.6%
Communications and utilities 1.9% 1.9%
Depreciation and amortization 6.6% 6.4%
Rents and purchased transportation 7.3% 8.1%
Other 4.8% 4.5%
----------------
Total operating expenses and costs 97.4% 90.8%
----------------
Operating income 2.6% 9.2%
Interest expense (2.1)% (1.7)%
Other income, net 0.1% 0.1%
----------------
Income before income taxes 0.6% 7.6%
Income taxes 0.2% 2.9%
----------------
Net income 0.4% 4.7%
================
RESULTS OF OPERATIONS
Revenue
Operating revenue for the three months ended March 31, 1996 was
$166,160,000, up 25.4%, compared to $132,533,000 for the three
months ended March 31, 1995. This growth in operating revenue was
primarily attributable to a 25.0% increase in tonnage handled by
the Company from new and existing customers. The primary reasons
for this increase in tonnage were:
- - The Company continued to increase its market penetration into
existing service territories, particularly those geographic areas
added during 1995.
- - The increase in intrastate tonnage following the deregulation of
intrastate commerce effective January 1, 1995.
- - On January 1, 1996, the Company expanded its all-points
coverage to the states of Delaware, Maryland, Virginia and West
Virginia with the opening of twelve new terminals.
Revenue per hundred weight for the first quarter of 1996 was up
only slightly, 0.5%, from levels experienced in the first quarter
of 1995. However, revenue per hundred weight for the first quarter
of 1996 did show modest improvement over the second half of 1995,
which was characterized by aggressive, discounted pricing in the
less-than-truckload industry. These aggressive pricing practices
within the industry continued into the early months of 1996.
Partially offsetting these downward pressures on revenue per
hundred weight were the following factors:
- - A general rate increase of approximately 5.75% effective January 1,
1996. General rate increases initially affect approximately 44%
of the Company's customers. The remaining customers' rates are
determined by contracts and guarantees and are negotiated
throughout the year.
- - The percentage of the Company's total revenue that was derived
from truckload shipments (greater than 10,000 pounds) declined to
7.0% in the three months ended March 31, 1996 as compared to 8.1%
in the three months ended March 31, 1995.
Management expects that growth in operating revenue is sustainable
in the near term. However, the Company's expansions of service
territory during 1996 are less aggressive than those initiated
during 1995. Management expects discounted pricing to continue in
the less-than-truckload industry in the near term. As a result,
any near-term growth will primarily be due to increased tonnage
handled by the Company.
Operating Expenses
Operating expenses as a percentage of operating revenue increased
to 97.4% in the three months ended March 31, 1996 from 90.8% in the
three months ended March 31, 1995. This overall increase was
primarily attributable to:
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 61.1% in the three months ended March 31, 1996
from 55.4% in the three months ended March 31, 1995. Several
factors contributed to this increase. First, the Company continued
its philosophy of sharing its success with its associates through
increased wages and enhanced benefit packages. On March 3, 1996,
the Company increased the wages of its drivers, dockmen and
clerical workers by approximately 3.0%. The second factor was the
continued expansion of service territory. Within the expansion
territories, wages and benefits were disproportionately high in
relation to operating revenues. The third factor was the unusually
inclement weather experienced during the first quarter of 1996.
The timing of freight flows was impacted by the harsh weather,
resulting in additional manpower being needed to maintain normal
operations and service standards.
- - Operating supplies and expenses as a percentage of operating
revenue increased to 7.3% in the three months ended March 31, 1996
from 6.6% in the three months ended March 31, 1995. This increase
was primarily due to increased fuel prices. Management expects
higher fuel prices to continue to adversely affect operating
supplies and expenses 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 7.3% in the three months ended March
31, 1996 from 8.1% in the three months ended March 31, 1995. This
improvement was primarily a result of the utilization of Company-
operated terminals, rather than contractor-operated terminals, in
expansions of service territory. In addition, three contractor-
operated terminals were converted to Company-operated terminals
during the first quarter of 1996.
Other
Interest expense as a percentage of operating revenue increased to
2.1% in the three months ended March 31, 1996 from 1.7% in the
three months ended March 31, 1995. This increase was primarily
attributable to increased borrowings incurred by the Company to
finance the expansion of service territory and support growth in
operating revenue.
The effective tax rate of the Company was 38.6% for the first three
months of 1996, up from 38.3% for the same time period of 1995.
Net income for the three months ended March 31, 1996, was $602,000,
down 90.4% from $6,278,000 for the three months ended March 31,
1995.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth in operating revenue and the expansion of
service territory initiated on January 1, 1996 required significant
capital resources in the three months ended March 31, 1996.
Capital requirements during the three months ended March 31, 1996
consisted primarily of $27,274,000 in investing activities. The
Company invested $27,293,000 in capital expenditures during the
three months ended March 31, 1996 comprised of $14,088,000 in
additional revenue equipment, $8,055,000 in new terminal facilities
or the expansion of existing terminal facilities and $5,150,000 in
other capital expenditures. Management expects capital
expenditures for the full year of 1996 will be approximately
$90,000,000. However, the amount of capital expenditures required
in 1996 will be dependent on the growth rate of the Company and the
timing and size of any future expansions of service territory. At
March 31, 1996, the Company had commitments for land, terminals,
revenue and other equipment of approximately $35,444,000. These
commitments were for the completion of projects in process at March
31, 1996, and for the purchase of additional revenue equipment in
anticipation of increased revenue levels during the remainder of
1996.
The Company provided for its capital resource requirements in the
three months ended March 31, 1996 with cash from operations and
financing activities. Cash from operations totaled $10,266,000 in
the three months ended March 31, 1996 compared to $13,606,000
provided by operations in the three months ended March 31, 1995.
Financing activities augmented cash flow by $19,920,000 in the
three months ended March 31, 1996 by utilizing the revolving line
of credit.
- - The Company experiences periodic cash flow fluctuations common
to the industry. Cash outflows are heaviest during the first part
of any given year while cash inflows are normally weighted towards
the last two quarters of the year. To smooth these fluctuations
and to provide flexibility to fund future growth, the Company
utilizes a variable-rate, unsecured revolving line of credit of
$125,000,000 provided by NationsBank of Texas, N.A., Texas Commerce
Bank, N.A. and Wachovia Bank of Georgia, N.A. During the three
months ended March 31, 1996, the Company utilized this facility to
provide $15,000,000 of net financing, leaving $16,000,000 available
for borrowing. The Company also had $2,500,000 available under its
short-term, unsecured revolving $7,500,000 line of credit with
NationsBank of Texas, N.A. In addition, the Company maintains a
$10,000,000 line of credit with NationsBank, N.A. to obtain letters
of credit to back premiums for excess coverage on its self-
insurance program. At March 31, 1996, the Company had obtained
letters of credit totaling $5,870,000 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. At March 31, 1996, $25,000,000 was
available, but not committed, 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 March 31, 1996, and to fund current operating and
capital needs. However, if additional financing is required,
management believes it will be available.
The Company uses off-balance sheet financing in the form of
operating leases primarily in the following areas; terminal
facilities, revenue equipment and computer equipment. At March 31,
1996, future rental commitments on operating leases were
$49,985,000. 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 March 31, 1996, the Company had no outstanding inquiries with
any state or federal environmental agency.
RECENT EVENTS
On April 8, 1996, the Company announced that effective June 3, 1996
it will increase its all-points coverage to 26 states with the
addition of Minnesota. Five new terminals will be opened to
complement the two terminals presently operating in Minnesota.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--March 31, 1996 and
December 31, 1995
Condensed consolidated statements of income--Three months
ended March 31, 1996 and 1995
Condensed consolidated statements of cash flows--Three months
ended March 31, 1996 and 1995
Notes to condensed consolidated financial statements--March
31, 1996
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
a) The Annual Meeting of Shareholders was held March 14, 1996.
c) Listed below is the proposal voted on and number of votes cast
at the 1996 Annual Shareholders' Meeting:
1. TO ELECT DIRECTORS TO THE CLASS WHOSE TERM WILL EXPIRE IN
1999:
FOR WITHHELD BROKER NON-VOTES
Ben A. Garrison 26,746,970 39,082 3,165,960
Will Garrison 26,723,788 62,264 3,165,960
Tony Balisle 26,697,512 88,540 3,165,960
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) Letter Amendment No. 4 to Note Agreement
with The Prudential Insurance Company of America
dated March 29, 1996.
Letter Amendment No. 3 to Master Shelf
Agreement with The Prudential Insurance Company of
America dated March 29, 1996.
Second Amendment to Amended and Restated
Credit Agreement among NationsBank of Texas, N.A.,
as Agent, the Registrant and its Subsidiary dated
March 26, 1996.
(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 March 31, 1996.
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: May 1, 1996 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting &
Finance and Chief Financial Officer