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 JUNE 30, 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 June 30, 1996:
31,124,173.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
JUNE 30, December 31,
1996 1995
-------- --------
(UNAUDITED) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 3,939 $ 2,642
Trade receivables, less allowance
for doubtful accounts (1996-$1,097;
1995-$845) 68,000 54,119
Operating supplies and inventories 2,700 2,136
Prepaid expenses 8,633 5,504
Deferred income taxes 10,245 8,444
Income taxes receivable 2,120 4,368
-------- --------
Total current assets 95,637 77,213
Property and equipment 587,394 530,589
Allowances for depreciation
and amortization (deduction) (155,029) (132,887)
-------- --------
432,365 397,702
Other assets 2,655 2,847
-------- --------
$530,657 $477,762
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 12,989 $ 10,532
Accrued expenses 40,851 33,590
Current portion of long-term debt 8,210 8,392
-------- --------
Total current liabilities 62,050 52,514
Long-term debt, less current
portion (Note B) 223,849 189,239
Deferred income taxes 43,998 40,575
Shareholders' equity
Common stock, par value $.01 per
share--authorized 250,000 shares;
issued and outstanding 31,124 in
1996 and 30,931 in 1995 311 309
Additional paid-in capital 100,534 98,514
Retained earnings 99,915 96,611
-------- --------
200,760 195,434
-------- --------
$530,657 $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 Six Months Ended
June 30 June 30
1996 1995 1996 1995
------------------ ------------------
OPERATING REVENUE $181,085 $141,969 $347,245 $274,502
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 108,766 77,859 210,339 151,266
Operating supplies and expenses 15,280 9,186 27,469 17,889
Operating taxes and licenses 8,222 5,817 15,563 11,554
Insurance 6,366 4,525 12,960 9,325
Communications and utilities 3,198 2,709 6,284 5,258
Depreciation and amortization 11,334 9,106 22,357 17,542
Rents and purchased
transportation 11,800 11,013 23,914 21,709
Other 8,596 6,230 16,474 12,179
-------- -------- -------- --------
173,562 126,445 335,360 246,722
-------- -------- -------- --------
OPERATING INCOME 7,523 15,524 11,885 27,780
OTHER INCOME (EXPENSE)
Interest expense (3,207) (2,491) (6,698) (4,689)
Interest income 45 32 61 75
Gain (loss) on
disposal of assets (5) 39 11 44
Other, net 44 91 121 152
-------- -------- -------- --------
(3,123) (2,329) (6,505) (4,418)
INCOME BEFORE INCOME TAXES 4,400 13,195 5,380 23,362
FEDERAL AND STATE INCOME TAXES
Current 282 1,080 294 2,868
Deferred 1,416 3,967 1,783 6,068
-------- -------- -------- --------
1,698 5,047 2,077 8,936
-------- -------- -------- --------
NET INCOME $ 2,702 $ 8,148 $ 3,303 $ 14,426
======== ======== ======== ========
NET INCOME PER SHARE $ 0.09 $ 0.26 $ 0.11 $ 0.46
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 31,338 31,426 31,255 31,401
======== ======== ======== ========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
1996 1995
---------------------
(000's omitted)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,252 $ 22,684
INVESTING ACTIVITIES
Proceeds from sales of equipment 42 458
Capital expenditures (57,115) (75,118)
--------- ---------
Net cash used by investing activities (57,073) (74,660)
FINANCING ACTIVITIES
Principal payments on long-term debt (25,071) (20,652)
Proceeds from notes payable
and long-term borrowings 59,500 70,435
Proceeds from issuance of common stock 1,689 2,144
--------- ---------
Net cash provided by financing activities 36,118 51,927
--------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS $ 1,297 $ (49)
========= =========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 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 six month period
ended June 30, 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 June 30, 1996, the Company has outstanding borrowings of
$104,000,000 under its existing $175,000,000 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 June 30, 1996, the
amount available for borrowing under the line of credit was
$71,000,000. 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. In
addition to this credit facility, the Company has obtained
letters of credit totaling $5,740,000 to provide collateral on
its self-insurance plan.
As of June 30, 1996, the Company has outstanding borrowings of
$90,000,000 under a 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
$31,050,000 at June 30, 1996.
NOTE D - EARNINGS PER SHARE
Quarter Ended June 30
1996 1995
-------------------------
(000's omitted except
per share amounts)
Weighted average shares outstanding 31,036 30,721
Net effect of dilutive stock options
based on treasury stock method 302 705
----------- -----------
Total weighted average shares outstanding 31,338 31,426
=========== ===========
Net income $ 2,702 $ 8,148
=========== ===========
Earnings per common share
and common share equivalents $ 0.09 $ 0.26
=========== ===========
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 Six Months Ended
June 30 June 30
1996 1995 1996 1995
--------------- ---------------
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 60.1% 54.8% 60.6% 55.1%
Operating supplies and expenses 8.4% 6.5% 7.9% 6.5%
Operating taxes and licenses 4.5% 4.1% 4.5% 4.2%
Insurance 3.5% 3.2% 3.7% 3.4%
Communications and utilities 1.8% 1.9% 1.8% 1.9%
Depreciation and amortization 6.3% 6.4% 6.4% 6.4%
Rents and purchased transportation 6.5% 7.8% 6.9% 7.9%
Other 4.7% 4.4% 4.8% 4.5%
----------------------------------
Total operating
expenses and costs 95.8% 89.1% 96.6% 89.9%
----------------------------------
Operating income 4.2% 10.9% 3.4% 10.1%
Interest expense (1.8%) (1.7%) (1.9%) (1.7%)
Other income, net 0.0% 0.1% 0.1% 0.1%
----------------------------------
Income before income taxes 2.4% 9.3% 1.6% 8.5%
Income taxes 0.9% 3.6% 0.6% 3.2%
----------------------------------
Net income 1.5% 5.7% 1.0% 5.3%
==================================
RESULTS OF OPERATIONS
Operating Revenue
Operating revenue for the six months ended June 30, 1996 was
$347,245,000, up 26.5%, compared to $274,502,000 for the six
months ended June 30, 1995. Operating revenue for the three
months ended June 30, 1996 was $181,085,000, up 27.6%, compared
to $141,969,000 in the three months ended June 30, 1995. The
additional operating revenue during the six and three month
periods ended June 30, 1996 resulted primarily from increased
tonnage from new and existing customers. Tonnage was up 25.5%
and 25.9%, respectively, from the same six and three month
periods of 1995. This increase in tonnage was primarily a result
of the following:
- - 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.
- - On June 3, 1996, the Company expanded its all-points
coverage to 26 states with the addition of Minnesota. Five new
terminals were opened to complement the two terminals already
operating in that state.
Revenue per hundred weight for the first six months of 1996 was
up only slightly, 0.9%, from levels experienced in the first six
months of 1995. The last twelve months in the less-than-
truckload industry have been characterized by aggressive,
discounted pricing. Management expects these aggressive pricing
practices within the industry to continue throughout the
remainder 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 Company's average length of haul increased 2.1%, to 593
miles, in the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995. The increase in average length
of haul was primarily a result of the Company's expanded service
territory.
- - The percentage of the Company's total revenue that was
derived from truckload shipments (greater than 10,000 pounds)
declined to 6.9% in the six months ended June 30, 1996 as
compared to 8.1% in the six months ended June 30, 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. Any near-term growth in operating revenue
will primarily be due to increased tonnage handled by the
Company.
Operating Expenses
Operating expenses as a percentage of operating revenue increased
to 96.6% in the six months ended June 30, 1996 from 89.9% in the
six months ended June 30, 1995. Operating expenses as a
percentage of operating revenue increased to 95.8% in the three
months ended June 30, 1996 from 89.1% in the three months ended
June 30, 1995. This overall increase was primarily attributable
to:
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 60.6% in the six months ended June 30, 1996
from 55.1% in the six months ended June 30, 1995. This increase
was primarily due to the following factors. First, the Company
increased the wages of its drivers, dockmen and clerical workers
by approximately 3.0% effective March 3, 1996. A second factor
was the continued expansion of service territory. Within the
expansion territories, wages and benefits were disproportionately
high in relation to operating revenues, as additional people were
hired in order to maintain service levels. A third factor was
the unusually harsh weather experienced during the first three
months of 1996. The timing of freight flows was impacted by the
inclement weather, resulting in additional manpower being needed
to maintain normal operations and service standards. In
addition, five terminals were converted from contractor-operated
terminals to Company-operated facilities during the first six
months of 1996.
- - Operating supplies and expenses as a percentage of operating
revenue increased to 7.9% in the six months ended June 30, 1996
from 6.5% in the six months ended June 30, 1995. This increase
was largely due to a spike in fuel prices from February 1996
through May 1996. Management estimates that operating supplies
and expenses during this period were increased by approximately
$2,500,000 due to increased fuel costs. Management anticipates
that fuel prices, having receded from peak levels, will remain
relatively stable during the near term. The Company did not
impose a fuel surcharge on the price of its freight shipments
during this temporary spike in fuel prices.
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 6.9% in the six months ended June
30, 1996 from 7.9% in the six months ended June 30, 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, five contractor-
operated terminals were converted to Company-operated terminals
during the first six months of 1996.
Other
Interest expense as a percentage of operating revenue increased
to 1.9% in the six months ended June 30, 1996 from 1.7% in the
six months ended June 30, 1995. This increase was primarily
attributable to increased borrowings incurred by the Company to
finance the expansion of service territory and the purchase of
revenue and other equipment.
The effective tax rate of the Company was 38.6% for the first six
months of 1996, up from 38.3% for the same time period of 1995.
Net income for the six months ended June 30, 1996, was
$3,303,000, down 77.1%, from $14,426,000 for the six months ended
June 30, 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 six months ended June 30,
1996.
Capital requirements during the six months ended June 30, 1996
consisted primarily of $57,073,000 in investing activities. The
Company invested $57,115,000 in capital expenditures during the
six months ended June 30, 1996 comprised of $30,243,000 in
additional revenue equipment, $17,463,000 in new terminal
facilities or the expansion of existing terminal facilities and
$9,409,000 in other equipment. Management expects capital
expenditures for the full year of 1996 will be approximately
$90,000,000. However, the amount of capital expenditures
required during the remainder of 1996 will be dependent on the
growth rate of the Company and the timing and size of any future
expansions of service territory. At June 30, 1996, the Company
had commitments for land, terminals, revenue and other equipment
of approximately $31,050,000. These commitments were for the
completion of projects in process at June 30, 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
six months ended June 30, 1996 with cash from operations and
financing activities. Cash from operations totaled $22,252,000
in the six months ended June 30, 1996 compared to $22,684,000
provided by operations in the six months ended June 30, 1995.
Financing activities augmented cash flow by $36,118,000 in the
six months ended June 30, 1996 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. Effective May 31, 1996, the limit of this
revolving credit facility was increased to $175,000,000, from
$125,000,000, and the number of lending institutions
participating in the facility was increased to six from three.
This increased line of credit is provided by NationsBank of
Texas, N.A. (agent), Texas Commerce Bank, N.A., Wachovia Bank of
Georgia, N.A., ABN-AMRO Bank N.V., The First National Bank of
Chicago and Credit Lyonnais. During the six months ended June
30, 1996, the Company utilized this facility to provide
$10,000,000 of net financing, leaving $71,000,000 available for
borrowing. The Company also had $10,000,000 available under its
short-term, unsecured revolving line of credit with NationsBank
of Texas, N.A. Effective May 31, 1996, the limit of this
facility was increased to $10,000,000 from $7,500,000. 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 June 30,
1996, the Company had obtained letters of credit totaling
$5,740,000 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. On May 1, 1996, the
Company utilized this facility to issue $25,000,000 in 10-year,
senior notes at an interest rate of 7.51%. With the issuance of
these notes, the Company had fully utilized the existing capacity
of this facility.
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 June 30, 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 June
30, 1996, future rental commitments on operating leases were
$55,838,000. The Company prefers to utilize operating leases for
these areas and plans to use them in the future when such
financing is available and suitable.
ENVIRONMENTAL
At June 30, 1996, the Company had no outstanding inquiries with
any state or federal environmental agency.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--June 30, 1996 and
December 31, 1995
Condensed consolidated statements of income--Three months
ended June 30, 1996 and 1995; Six months ended June 30, 1996
and 1995
Condensed consolidated statements of cash flows--Six months
ended June 30, 1996 and 1995
Notes to condensed consolidated financial statements--June
30, 1996
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) Third Amendment to Amended and Restated
Credit Agreement among NationsBank of Texas, N.A.,
as agent, the Registrant and its subsidiary dated
May 31, 1996
$25,000,000 note dated May 1, 1996,
issued under the $90,000,000 Master Shelf
Agreement with the Prudential Insurance Company of
America dated September 3, 1993
(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 June 30, 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: July 26, 1996 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting
& Finance and Chief Financial Officer