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, 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 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: (870) 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,
1997: 31,266,609.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
MARCH 31, December 31,
1997 1996
--------- ---------
(UNAUDITED) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 10,144 $ 4,394
Trade receivables, less allowance
for doubtful accounts
(1997-$1,519; 1996-$1,378) 72,094 66,673
Operating supplies and inventories 2,454 2,493
Prepaid expenses 5,792 4,648
Deferred income taxes 12,713 10,649
Income taxes receivable 1,595 3,097
--------- ---------
Total current assets 104,792 91,954
Property and equipment 644,889 634,791
Accumulated depreciation
and amortization (191,624) (179,193)
--------- ---------
453,265 455,598
Other assets 2,381 2,323
--------- ---------
$560,438 $549,875
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 12,949 $ 9,425
Accrued expenses 48,990 45,278
Current portion of long-term debt 11,465 11,463
--------- ---------
Total current liabilities 73,404 66,166
Long-term debt, less current
portion (Note B) 226,738 226,776
Deferred income taxes 52,317 50,635
Shareholders' equity
Common stock, par value $.01
per share--authorized 250,000
shares; issued and outstanding
31,267 in 1997 and 31,242 in 1996 313 312
Additional paid-in capital 101,741 101,519
Retained earnings 105,925 104,467
--------- ---------
207,979 206,298
--------- ---------
$560,438 $549,875
========= =========
Note: The condensed consolidated balance sheet at
December 31, 1996, 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
1997 1996
-------------------
OPERATING REVENUE $193,051 $166,160
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 118,305 101,574
Operating supplies and expenses 18,512 12,189
Operating taxes and licenses 8,601 7,340
Insurance 6,682 6,594
Communications and utilities 3,495 3,086
Depreciation and amortization 12,846 11,023
Rents and purchased transportation 9,890 12,114
Other 8,318 7,878
------------------
186,649 161,798
------------------
OPERATING INCOME 6,402 4,362
OTHER INCOME (EXPENSE)
Interest expense (4,086) (3,491)
Interest income 55 16
Gain on disposal of assets 16 16
Other, net 11 77
------------------
(4,004) (3,382)
INCOME BEFORE INCOME TAXES 2,398 980
------------------
FEDERAL AND STATE INCOME TAXES
Current 1,293 11
Deferred (credit) (353) 367
------------------
940 378
------------------
NET INCOME $ 1,458 $ 602
------------------
NET INCOME PER SHARE (NOTE D) $ 0.05 $ 0.02
------------------
AVERAGE SHARES OUTSTANDING 31,490 31,165
------------------
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
1997 1996
---------------------
(000's omitted)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 16,091 $ 10,266
INVESTING ACTIVITIES
Proceeds from sales of equipment 47 19
Capital expenditures (10,514) (27,293)
--------- ---------
Net cash used by investing activities (10,467) (27,274)
FINANCING ACTIVITIES
Principal payments on long-term debt (35) (1,741)
Proceeds from notes payable
and long-term borrowings - 21,500
Proceeds from issuance of common stock 161 161
--------- ---------
Net cash provided by financing activities 126 19,920
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 5,750 $ 2,912
========= =========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1997
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, 1997, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1997. 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, 1996.
NOTE B - LONG-TERM DEBT
As of March 31, 1997, the Company has outstanding borrowings of
$118,000,000 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 March 31, 1997, the amount available
for borrowing under the line of credit was $57,000,000. In
addition to this credit facility, the Company has obtained letters
of credit totaling $5,076,000 to provide collateral on its self-
insurance plan.
As of March 31, 1997, the Company has outstanding borrowings of
$87,250,000 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 $24,110,000
at March 31, 1997.
NOTE D - EARNINGS PER SHARE
Quarter Ended March 31,
1997 1996
-----------------------
(000's omitted except
per share amounts)
Weighted average shares outstanding 31,258 30,948
Net effect of dilutive stock options
based on treasury stock method 232 217
-------- --------
Total weighted average shares outstanding 31,490 31,165
======== ========
Net income $ 1,458 $ 602
======== ========
Earnings per common share
and common share equivalents $ 0.05 $ 0.02
======== ========
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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for computing primary earnings per share, the dilutive
effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary earnings per share and fully
diluted earnings per share for these quarters is not expected to be
material.
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
1997 1996
---------------
Operating revenue 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 61.3% 61.1%
Operating supplies and expenses 9.6% 7.3%
Operating taxes and licenses 4.5% 4.4%
Insurance 3.5% 4.0%
Communications and utilities 1.8% 1.9%
Depreciation and amortization 6.6% 6.6%
Rents and purchased transportation 5.1% 7.3%
Other 4.3% 4.8%
-------------------
Total operating expenses and costs 96.7% 97.4%
-------------------
Operating income 3.3% 2.6%
Interest expense (2.1)% (2.1)%
Other income, net 0.1% 0.1%
-------------------
Income before income taxes 1.3% 0.6%
Income taxes 0.5% 0.2%
-------------------
Net income 0.8% 0.4%
===================
RESULTS OF OPERATIONS
Revenue
Operating revenue for the three months ended March 31, 1997 was
$193,051,000, up 16.2%, compared to $166,160,000 for the three
months ended March 31, 1996. The growth in operating revenue was
primarily the result of increased revenue per hundred weight and
increased tonnage from new and existing customers.
Revenue per hundred weight for the first three months of 1997 was
up 9.0% from levels experienced in the first three months of 1996.
Factors contributing to the increase in revenue per hundred weight
were:
- - A general rate increase of approximately 5.9% effective
January 1, 1997. General rate increases initially affect
approximately 45% of the Company's customers. The remaining
customers' rates are determined by contracts and guarantees and are
negotiated throughout the year.
- - The Company initiated a fuel surcharge beginning September 6,
1996 to help recover the increased costs of fuel. This surcharge
is tied to the Department of Energy's National Diesel Fuel Index
and was 1.0% for LTL shipments as of March 31, 1997.
- - The percentage of the Company's total revenue that was derived
from truckload shipments (greater than 10,000 pounds) declined to
5.9% during the first quarter of 1997 as compared to 7.0% during
the first quarter of 1996.
Tonnage handled by the Company in the first three months of 1997
increased by 6.2% over the same period of 1996. This increase in
tonnage was mainly a result of the following:
- - The Company continued to increase its market penetration into
existing service territories, particularly those geographic areas
added during 1995 and 1996. During 1995, the Company expanded its
all-points coverage to the states of Colorado, Florida, Iowa,
Nebraska, North Carolina, South Carolina and Wisconsin. 1996
expansions included the states of Delaware, Maryland, Minnesota,
Virginia and West Virginia.
- - The continued increase in intrastate tonnage following the
deregulation of intrastate commerce effective January 1, 1995.
Management expects that growth in operating revenue is sustainable
in the near term. However, the Company's planned expansions of
service territory during 1997 are less aggressive than those
initiated in recent years. The primary focus for growth in
operating revenue in the near term will be further penetration of
existing markets. As a result, any near-term percentage growth in
operating revenue will likely be less than that experienced in
recent years. The foregoing statement concerning the
sustainability of revenue growth is subject to a number of factors,
including LTL industry capacity, increased tonnage and general
economic conditions.
Operating Expenses
Operating expenses as a percentage of operating revenue improved to
96.7% in the three months ended March 31, 1997 from 97.4% in the
three months ended March 31, 1996. This overall improvement was
primarily attributable to:
- - Rents and purchased transportation as a percentage of
operating revenue decreased to 5.1% in the three months ended March
31, 1997 from 7.3% in the three months ended March 31, 1996. This
improvement was primarily a result of the utilization of Company-
operated customer centers, rather than contractor-operated customer
centers, in expansions of service territory. In addition, five
contractor-operated customer centers were converted to Company-
operated customer centers during 1996.
- - Insurance as a percentage of operating revenue improved to
3.5% during the first quarter of 1997 from 4.0% during the first
quarter of 1996. This improvement was largely due to improved
experience involving vehicle accidents.
- - Other expenses as a percentage of operating revenue improved
to 4.3% in the first three months of 1997 from 4.8% in the first
three months of 1996. This improvement was mostly due to decreased
hotel costs for line-haul drivers. The Company reconfigured its
line-haul network, with an emphasis on improving service in
regional and intrastate markets, during the last half of 1996. One
of the benefits of this reconfiguration was that line-haul drivers
were able to spend less time in hotels.
These improvements in operating expenses as a percentage of
operating revenue were partially offset by increases in the
following areas:
- - Salaries, wages and benefits as a percentage of operating
revenue increased to 61.3% in the three months ended March 31, 1997
from 61.1% in the three months ended March 31, 1996. Two factors
contributed primarily 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 2,
1997, the Company increased the wages of its drivers, dockmen and
clerical workers by approximately 3.4%. Second, the utilization of
Company-operated customer centers, rather than contractor-operated
customer centers, in expansions of service territory contributed to
this increase. In addition, five customer centers were converted
from contractor-operated facilities to Company-operated facilities
during 1996.
- - Operating supplies and expenses as a percentage of operating
revenue increased to 9.6% in the three months ended March 31, 1997
from 7.3% in the three months ended March 31, 1996. This increase
primarily reflects the impact of higher fuel prices. Management
believes the fuel surcharge implemented September 16, 1996, has
offset most of the impact of higher fuel from that time forward.
Management cannot accurately predict fuel prices. However, given
foreseeable market conditions, management does believe that
increased fuel expenses due to higher fuel prices can be largely
offset by the continuation of a fuel surcharge.
Other
Interest expense as a percentage of operating revenue remained
constant at 2.1% in the three months ended March 31, 1997, the same
as in the three months ended March 31, 1996.
The effective tax rate of the Company was 39.2% for the first three
months of 1997, up from 38.6% for the same time period of 1996.
This increase was mostly due to increased state taxes.
Net income for the three months ended March 31, 1997, was
$1,458,000, up 142.2%, from $602,000 for the three months ended
March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The focus on further penetration of existing markets coupled with
improved asset utilization reduced the capital requirements of the
Company during the first quarter of 1997.
Capital requirements during the three months ended March 31, 1997
consisted primarily of $10,467,000 in investing activities. The
Company invested $10,514,000 in capital expenditures during the
three months ended March 31, 1997 comprised of $47,000 in
additional revenue equipment, $7,048,000 in new customer center
facilities or the expansion of existing facilities and $3,419,000
in other equipment. Management expects capital expenditures for
the full year of 1997 will be approximately $75,000,000. However,
the amount of capital expenditures required in 1997 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, 1997,
the Company had commitments for land, customer centers, revenue and
other equipment of approximately $24,110,000. These commitments
were mostly for the completion of projects in process at March 31,
1997.
The Company provided for its capital resource requirements in the
three months ended March 31, 1997 predominantly with cash from
operations. Cash from operations totaled $16,091,000 in the three
months ended March 31, 1997 compared to $10,266,000 provided by
operations in the three months ended March 31, 1996. Net financing
activities provided an additional $126,000 of cash flow in the
three months ended March 31, 1997. Though not utilized during the
first quarter of 1997, two primary sources of credit financing
were available to the Company: 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 of
$175,000,000 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. Due
to controlled capital expenditures and improved cash from
operations, the Company did not utilize this facility during the
three months ended March 31, 1997. At March 31, 1997, $118,000,000
was outstanding on the revolving line of credit, leaving
$57,000,000 available for borrowing. (see Recent Events) The
Company also had $10,000,000 available under its short-term,
unsecured revolving $10,000,000 line of credit with NationsBank of
Texas, N.A. In addition, the Company maintains a $10,000,000 line
of credit with NationsBank of Texas, N.A. to obtain letters of
credit required for its self-insurance program. At March 31, 1997,
the Company had obtained letters of credit totaling $5,076,000 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, 1997, the Company had
$87,250,000 outstanding under this facility. (See Recent Events)
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, 1997, 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; customer center
facilities, revenue equipment and computer equipment. At March 31,
1997, future rental commitments on operating leases were
$46,287,000. 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 March 31, 1997, the Company had no outstanding inquiries with
any state or federal environmental agency.
RECENT EVENTS
On April 18, 1997, the Master Shelf Agreement with the Prudential
Insurance Company of America was expanded to allow for the issuance
of up to $140,000,000 in medium to long-term unsecured notes. On
this same date, the Company utilized this agreement to issue a
$50,000,000 note at 8.11% with a 15-year maturity. The proceeds of
this note were used to repay borrowings from the revolving line of
credit, reducing the outstanding balance on the facility to
$68,000,000.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--March 31, 1997 and
December 31, 1996
Condensed consolidated statements of income--Three months
ended March 31, 1997 and 1996
Condensed consolidated statements of cash flows--Three months
ended March 31, 1997 and 1996
Notes to condensed consolidated financial statements--March
31, 1997
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 27, 1997.
c) Listed below is the proposal voted on and number of votes cast
at the 1997 Annual Shareholders' Meeting:
1. TO ELECT THREE (3) DIRECTORS TO THE CLASS WHOSE TERM WILL
EXPIRE IN 2000:
FOR ABSTAIN BROKER NON-VOTES
Tom Garrison 24,928,644 95,975 3,550
T. J. Jones 24,925,656 98,963 3,550
Frank Conner 24,923,189 101,430 3,550
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) Letter Amendment No. 4 to Master Shelf
Agreement with The Prudential Insurance Company of
America dated April 18, 1997
Letter Amendment No. 5 to Note Agreement
with The Prudential Insurance Company of America
dated April 18, 1997
$50,000,000 Note dated April 18, 1997,
issued under the $140,000,000 Master Shelf Agreement
with The Prudential Insurance Company of America
dated September 3, 1993
Fourth Amendment to Amended and Restated
Credit Agreement among NationsBank of Texas, N.A.,
as Agent, the Registrant and its Subsidiary dated
March 31,1997
(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, 1997.
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 2, 1997 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting &
Finance and Chief Financial Officer