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, 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 June 30, 1997:
31,365,572.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
JUNE 30, December 31,
1997 1996
---------- ----------
(UNAUDITED) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 4,062 $ 4,394
Trade receivables, less allowance
for doubtful accounts
(1997-$1,542; 1996-$1,378) 79,091 66,673
Operating supplies and inventories 2,370 2,493
Prepaid expenses 9,321 4,648
Deferred income taxes 12,742 10,649
Income taxes receivable 361 3,097
---------- ----------
Total current assets 107,947 91,954
Property and equipment 662,223 634,791
Accumulated depreciation
and amortization (204,542) (179,193)
---------- ----------
457,681 455,598
Other assets 2,974 2,323
---------- ----------
$568,602 $ 549,875
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 12,597 $ 9,425
Accrued expenses 54,252 45,278
Current portion of long-term debt 11,494 11,463
---------- ----------
Total current liabilities 78,343 66,166
Long-term debt, less current
portion (Note B) 219,451 226,776
Deferred income taxes 54,739 50,635
Shareholders' equity
Common stock, par value $.01
per share--authorized 250,000
shares; issued and outstanding
31,365 in 1997 and 31,242 in 1996 314 312
Additional paid-in capital 102,844 101,519
Retained earnings 112,911 104,467
---------- ----------
216,069 206,298
---------- ----------
$568,602 $ 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 Six Months Ended
June 30 June 30
1997 1996 1997 1996
------------------ ------------------
OPERATING REVENUE $219,088 $181,085 $412,140 $347,245
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 130,272 108,766 248,577 210,339
Operating supplies and expenses 18,663 15,280 37,175 27,469
Operating taxes and licenses 8,877 8,222 17,478 15,563
Insurance 6,732 6,366 13,414 12,960
Communications and utilities 3,581 3,198 7,076 6,284
Depreciation and amortization 13,024 11,334 25,870 22,357
Rents and purchased
transportation 13,607 11,800 23,497 23,914
Other 8,760 8,596 17,079 16,474
------------------ ------------------
203,516 173,562 390,166 335,360
------------------ ------------------
OPERATING INCOME 15,572 7,523 21,974 11,885
OTHER INCOME (EXPENSE)
Interest expense (4,174) (3,207) (8,260) (6,698)
Interest income 67 45 122 61
Gain (loss) on
disposal of assets 16 (5) 33 11
Other, net 9 44 19 121
------------------ ------------------
(4,082) (3,123) (8,086) (6,505)
INCOME BEFORE INCOME TAXES 11,490 4,400 13,888 5,380
FEDERAL AND STATE INCOME TAXES
Current 2,088 282 3,381 294
Deferred 2,416 1,416 2,063 1,783
------------------ ------------------
4,504 1,698 5,444 2,077
------------------ ------------------
NET INCOME $ 6,986 $ 2,702 $ 8,444 $ 3,303
================== ==================
NET INCOME PER SHARE (NOTE D) $ 0.22 $ 0.09 $ 0.27 $ 0.11
================== ==================
AVERAGE SHARES OUTSTANDING 31,597 31,338 31,544 31,255
================== ==================
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
1997 1996
-------------------------
(000's omitted)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 33,690 $ 22,252
INVESTING ACTIVITIES
Proceeds from sales of equipment 67 42
Capital expenditures (27,983) (57,115)
---------- ----------
Net cash used by investing activities (27,916) (57,073)
FINANCING ACTIVITIES
Principal payments on long-term debt (55,694) (25,071)
Proceeds from notes payable
and long-term borrowings 48,400 59,500
Proceeds from issuance of common stock 1,188 1,689
---------- ----------
Net cash provided by financing activities (6,106) 36,118
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (332) $ 1,297
========== ==========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 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 six month period ended June 30, 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 June 30, 1997, the Company has outstanding borrowings of
$63,000,000 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 customer center facilities. At June 30, 1997, the amount
available for borrowing under the line of credit was $112,000,000.
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 June 30, 1997, the Company has outstanding borrowings of
$135,250,000 under an uncommitted Master Shelf Agreement which
provides for the issuance of up to $140,000,000 of senior
promissory notes with an average life not to exceed twelve years.
NOTE C - COMMITMENTS
Commitments for the purchase of revenue equipment and the purchase
or construction of customer centers aggregated approximately
$34,467,000 at June 30, 1997.
NOTE D - EARNINGS PER SHARE
Three months ended Six months ended
June 30 June 30,
1997 1996 1997 1996
----------------------------------------
(000's omitted except per share amounts)
Weighted average shares
outstanding 31,301 31,036 31,280 30,992
Net effect of dilutive stock
options based on treasury
stock method 296 302 264 263
------- ------- ------- -------
Total weighted average
shares outstanding 31,597 31,338 31,544 31,255
======= ======= ======= =======
Net income $ 6,986 $ 2,702 $ 8,444 $ 3,303
======= ======= ======= =======
Earnings per common share
and common share equivalents $ 0.22 $ 0.09 $ 0.27 $ 0.11
======= ======= ======= =======
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 Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------------------------------
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 59.5% 60.1% 60.3% 60.6%
Operating supplies and expenses 8.5% 8.4% 9.0% 7.9%
Operating taxes and licenses 4.1% 4.5% 4.2% 4.5%
Insurance 3.1% 3.5% 3.3% 3.7%
Communications and utilities 1.6% 1.8% 1.7% 1.8%
Depreciation and amortization 5.9% 6.3% 6.3% 6.4%
Rents and purchased transportation 6.2% 6.5% 5.7% 6.9%
Other 4.0% 4.7% 4.2% 4.8%
----------------------------------
Total operating expenses
and costs 92.9% 95.8% 94.7% 96.6%
----------------------------------
Operating income 7.1% 4.2% 5.3% 3.4%
Interest expense (1.9%) (1.8%) (2.0%) (1.9%)
Other income, net 0.1% 0.0% 0.1% 0.1%
----------------------------------
Income before income taxes 5.3% 2.4% 3.4% 1.6%
Income taxes 2.1% 0.9% 1.3% 0.6%
----------------------------------
Net income 3.2% 1.5% 2.1% 1.0%
==================================
RESULTS OF OPERATIONS
Operating Revenue
Operating revenue for the six months ended June 30, 1997 was
$412,140,000, up 18.7%, compared to $347,245,000 for the six months
ended June 30, 1996. Operating revenue for the three months ended
June 30, 1997 was $219,088,000, up 21.0%, compared to $181,085,000
for the three months ended June 30, 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 six months of 1997 was up
9.1% from levels experienced in the first six 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 16,
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 0.7% for LTL shipments as of June 30, 1997. The surcharge
is designed to suspend at the time this national index moves below
$1.15 per gallon.
The percentage of the Company's total revenue that was derived from
truckload shipments (greater than 10,000 pounds) declined to 5.8%
during the first six months of 1997 as compared to 6.9% during the
first six months of 1996.
Tonnage handled by the Company during the six and three months
ended June 30, 1997, increased 8.5% and 10.5%, respectively, over
the same time periods 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
94.7% in the six months ended June 30, 1997 from 96.6% in the six
months ended June 30, 1996. Operating expenses as a percentage of
operating revenue improved to 92.9% in the three months ended June
30, 1997 from 95.8% in the three months ended June 30, 1996. This
overall improvement was primarily attributable to:
- - Rents and purchased transportation as a percentage of
operating revenue decreased to 5.7% in the six months ended June
30, 1997 from 6.9% in the six months ended June 30, 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. Management expects rents
and purchased transportation as a percentage of operating revenue
to remain flat or gradually increase due to two principal reasons:
1) most functions that were previously being provided by
contractors have already been absorbed by the Company, and 2) the
Company has started to increase the strategic use of purchased
transportation in selected line-haul lanes.
- - Other expenses as a percentage of operating revenue improved
to 4.2% in the first six months of 1997 from 4.8% in the first six
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
required 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:
- - Operating supplies and expenses as a percentage of operating
revenue increased to 9.0% in the six months ended June 30, 1997
from 7.9% in the six months ended June 30, 1996. This increase
primarily relates to increased maintenance costs of equipment and
facilities. Management expects these maintenance costs will
continue to gradually increase as the Company's fleet ages. Fuel
prices moderated, particularly during the second quarter of 1997,
from levels experienced during the last half of 1996 and early
1997. However, fuel prices remain higher than in comparable
periods in 1996.
Other
Interest expense as a percentage of operating revenue increased to
2.0% in the six months ended June 30, 1997, compared to 1.9% in the
six months ended June 30, 1996.
The effective tax rate of the Company was 39.2% for the first six
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 six months ended June 30, 1997, was $8,444,000,
up 155.6%, from $3,303,000 for the six months ended June 30, 1996.
Net income for the three months ended June 30, 1997, was
$6,986,000, up 158.5%, from $2,702,000 for the three months ended
June 30, 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 six months of 1997.
Capital requirements during the six months ended June 30, 1997
consisted primarily of $27,916,000 in investing activities. The
Company invested $27,983,000 in capital expenditures during the six
months ended June 30, 1997 comprised of $379,000 in additional
revenue equipment, $19,016,000 in new customer center facilities or
the expansion of existing facilities and $8,588,000 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 June 30, 1997, the
Company had commitments for land, customer centers, revenue and
other equipment of approximately $34,467,000. These commitments
were mostly for the completion of projects in process at June 30,
1997.
The Company provided for its capital resource requirements in the
six months ended June 30, 1997 with cash from operations. Cash
from operations totaled $33,690,000 in the six months ended June
30, 1997 compared to $22,252,000 provided by operations in the six
months ended June 30, 1996. Cash from operations exceeded capital
requirements by $6,106,000 during the six months ended June 30,
1997. This excess was used primarily to repay debt. 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, improved cash from operations
and proceeds from the issuance of fixed rate debt, the Company
reduced the amount outstanding under this facility during the six
months ended June 30, 1997. At June 30, 1997, $63,000,000 was
outstanding on the revolving line of credit, leaving $112,000,000
available for borrowing. 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,
N.A. to obtain letters of credit required for its self-insurance
program. At June 30, 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
$140,000,000 in medium to long-term unsecured notes at an interest
rate calculated at issuance. On April 18, 1997, the Company
utilized this facility to issue a $50,000,000 note at 8.11% with a
15-year maturity. At June 30, 1997, the Company had $135,250,000
outstanding under 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, 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 June 30,
1997, future rental commitments on operating leases were
$46,285,000. Of these commitments, $13,137,000, $9,958,000 and
$7,370,000 are due in 1998, 1999 and 2000, respectively. 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, 1997, the Company had no outstanding inquiries with any
state or federal environmental agency.
RECENT EVENTS
On June 3, 1997, the Company announced that it will expand its all-
points coverage to the state of New Mexico effective August 4,
1997. With the addition of New Mexico, the Company will serve 27
states via its network of 206 customer centers.
Effective May 20, 1997, former U.S. Congressman John Paul
Hammerschmidt of Harrison, Arkansas, was appointed to the Company's
board of directors.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--June 30, 1997 and
December 31, 1996
Condensed consolidated statements of income--Three months
ended June 30, 1997 and 1996; Six months ended June 30, 1997
and 1996
Condensed consolidated statements of cash flows--Six months
ended June 30, 1997 and 1996
Notes to condensed consolidated financial statements--June 30,
1997
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) Amended and Restated Elected Non-Employee
Director Stock Option Plan
Appointed Non-Employee Director Stock
Option Plan
(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, 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: August 1, 1997 /s/Frank Conner
Frank Conner
Executive Vice President-
Accounting & Finance
and Chief Financial Officer