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, 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 September 30,
1997: 31,466,232.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
SEPTEMBER 30, December 31,
1997 1996
(UNAUDITED) (Note)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 7,858 $ 4,394
Trade receivables, less allowance for
doubtful accounts (1997-$1,837;
1996-$1,378) 86,599 66,673
Operating supplies and inventories 2,518 2,493
Prepaid expenses 9,706 4,648
Deferred income taxes 13,938 10,649
Income taxes receivable 0 3,097
----------- -----------
Total current assets 120,619 91,954
Property and equipment 679,690 634,791
Accumulated depreciation
and amortization (217,574) (179,193)
----------- -----------
462,116 455,598
Other assets 1,846 2,323
----------- -----------
$ 584,581 $ 549,875
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 16,309 $ 9,425
Accrued expenses 61,415 45,278
Federal and state income taxes 413 0
Current portion of long-term debt 11,495 11,463
----------- -----------
Total current liabilities 89,632 66,166
Long-term debt, less current
portion (Note B) 212,431 226,776
Deferred income taxes 57,755 50,635
Shareholders' equity
Common stock, par value $.01 per
share--authorized 250,000 shares;
issued and outstanding 31,440 in
1997 and 31,242 in 1996 314 312
Additional paid-in capital 103,643 101,519
Retained earnings 120,806 104,467
----------- -----------
224,763 206,298
----------- -----------
$ 584,581 $ 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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
----------------------------------------
OPERATING REVENUE $233,760 $192,497 $645,899 $539,742
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 140,582 117,224 389,159 327,564
Operating supplies and expenses 17,845 15,108 55,021 42,577
Operating taxes and licenses 8,828 8,250 26,306 23,813
Insurance 6,462 6,784 19,876 19,744
Communications and utilities 3,673 3,310 10,748 9,593
Depreciation and amortization 13,237 12,081 39,107 34,438
Rents and purchased
transportation 16,275 11,746 39,772 35,660
Other 9,873 8,834 26,951 25,308
------------------ ------------------
216,775 183,337 606,940 518,697
------------------ ------------------
OPERATING INCOME 16,985 9,160 38,959 21,045
OTHER INCOME (EXPENSE)
Interest expense (4,005) (4,128) (12,265) (10,826)
Interest income 79 25 201 85
Gain (loss) on disposal
of assets (105) 2 (72) 13
Other, net 31 27 50 149
------------------ ------------------
(4,000) (4,074) (12,086) (10,579)
INCOME BEFORE INCOME TAXES 12,985 5,086 26,873 10,466
FEDERAL AND STATE INCOME TAXES
Current 3,170 388 6,550 682
Deferred 1,920 1,575 3,984 3,358
------------------ ------------------
5,090 1,963 10,534 4,040
------------------ ------------------
NET INCOME $ 7,895 $ 3,123 $ 16,339 $ 6,426
================== ==================
NET INCOME PER SHARE (NOTE D) $ 0.25 $ 0.10 $ 0.52 $ 0.21
================== ==================
AVERAGE SHARES OUTSTANDING 31,811 31,285 31,633 31,265
================== ==================
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30
1997 1996
(000's omitted)
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 61,788 $ 44,100
INVESTING ACTIVITIES
Proceeds from sales of equipment 2,452 71
Capital expenditures (48,188) (91,206)
----------- -----------
Net cash used by investing activities (45,736) (91,135)
FINANCING ACTIVITIES
Principal payments on long-term debt (62,712) (25,858)
Proceeds from notes payable
and long-term borrowings 48,400 76,500
Proceeds from issuance of common stock 1,724 1,745
----------- -----------
Net cash provided (used)
by financing activities (12,588) 52,387
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 3,464 $ 5,352
=========== ===========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 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 nine month period ended September 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 September 30, 1997, the Company has outstanding borrowings of
$58,000,000 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 September 30, 1997, the amount
available for borrowing under the line of credit was $117,000,000.
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 September 30, 1997, the Company has outstanding borrowings of
$133,250,000 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.
In addition, the Company has outstanding an unsecured senior note
for $25,000,000 payable in equal annual installments of $5,000,000
through November 2001.
NOTE C - COMMITMENTS
Commitments for the purchase of revenue equipment and the purchase
or construction of Customer Centers aggregated approximately
$36,284,000 at September 30, 1997.
NOTE D - EARNINGS PER SHARE
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
----------------------------------------
(000's omitted except per share amounts)
Weighted average shares
outstanding 31,414 31,128 31,325 31,037
Net effect of dilutive stock
options based on treasury
stock method 397 157 308 228
-------- -------- -------- --------
Total weighted average
shares outstanding 31,811 31,285 31,633 31,265
======== ======== ======== ========
Net income $ 7,895 $ 3,123 $ 16,339 $ 6,426
======== ======== ======== ========
Earnings per common share and
common share equivalents $ 0.25 $ 0.10 $ 0.52 $ 0.21
======== ======== ======== ========
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 Nine Months Ended
September 30 September 30
1997 1996 1997 1996
------ ------ ------ ------
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 60.1% 60.9% 60.3% 60.7%
Operating supplies and expenses 7.6% 7.8% 8.5% 7.9%
Operating taxes and licenses 3.8% 4.3% 4.1% 4.4%
Insurance 2.8% 3.5% 3.1% 3.6%
Communications and utilities 1.6% 1.7% 1.6% 1.8%
Depreciation and amortization 5.6% 6.3% 6.0% 6.4%
Rents and purchased transportation 7.0% 6.1% 6.2% 6.6%
Other 4.2% 4.6% 4.2% 4.7%
----------------------------------
Total operating expenses
and costs 92.7% 95.2% 94.0% 96.1%
----------------------------------
Operating income 7.3% 4.8% 6.0% 3.9%
Interest expense (1.7%) (2.2%) (1.9%) (2.0%)
Other income, net 0.0% 0.0% 0.0% 0.0%
----------------------------------
Income before income taxes 5.6% 2.6% 4.1% 1.9%
Income taxes 2.2% 1.0% 1.6% 0.7%
----------------------------------
Net income 3.4% 1.6% 2.5% 1.2%
==================================
RESULTS OF OPERATIONS
Operating Revenue
Operating revenue for the nine months ended September 30, 1997 was
$645,899,000, up 19.7%, compared to $539,742,000 for the nine
months ended September 30, 1996. Operating revenue for the three
months ended September 30, 1997 was $233,760,000, up 21.4%,
compared to $192,497,000 for the three months ended September 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 nine months of 1997 was up
8.5% from levels experienced in the first nine 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 September 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
5.7% during the first nine months of 1997 as compared to 6.7%
during the first nine months of 1996.
Tonnage handled by the Company during the nine and three months
ended September 30, 1997, increased 10.3% and 13.8%, 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.
- - Effective August 4, 1997, the Company increased its all-points
coverage to 27 states with the addition of the state of New Mexico.
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
94.0% in the nine months ended September 30, 1997 from 96.1% in the
nine months ended September 30, 1996. Operating expenses as a
percentage of operating revenue improved to 92.7% in the three
months ended September 30, 1997 from 95.2% in the three months
ended September 30, 1996. This overall improvement was primarily
attributable to:
- - Insurance as a percentage of operating revenue decreased to
3.1% in the nine months ended September 30, 1997 from 3.6% in the
nine months ended September 30, 1996. This improvement was largely
due to improved experience involving vehicle accidents and cargo
claims.
- - Rents and purchased transportation as a percentage of
operating revenue decreased to 6.2% in the nine months ended
September 30, 1997 from 6.6% in the nine months ended September 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 and one Customer
Center was converted in the third quarter of 1997. Management
expects rents and purchased transportation as a percentage of
operating revenue to remain flat or gradually increase due to three
principal reasons: 1) most functions that were previously being
provided by contractors have already been absorbed by the Company,
2) the Company has started to increase the strategic use of
purchased transportation in selected line-haul lanes, and 3) the
increased utilization of off-balance sheet financing of revenue
equipment (see Liquidity and Capital Resources).
- - Depreciation as a percentage of operating revenue improved to
6.0% in the nine months ended September 30, 1997 from 6.4% in the
nine months ended September 30, 1996. This improvement was largely
due to the increased usage of purchased transportation and off-
balance sheet financing of revenue equipment.
- - Other expenses as a percentage of operating revenue improved to
4.2% in the first nine months of 1997 from 4.7% in the first
nine 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 8.5% in the nine months ended September 30,
1997 from 7.9% in the nine months ended September 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 declined during the second and third quarters
of 1997 from levels experienced during the last half of 1996 and
early 1997.
Other
Interest expense as a percentage of operating revenue decreased to
1.9% in the nine months ended September 30, 1997, compared to 2.0%
in the nine months ended September 30, 1996.
The effective tax rate of the Company was 39.2% for the first nine
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 nine months ended September 30, 1997, was
$16,339,000, up 154.3%, from $6,426,000 for the nine months ended
September 30, 1996. Net income for the three months ended
September 30, 1997, was $7,895,000, up 152.8%, from $3,123,000 for
the three months ended September 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 nine months of 1997.
Capital requirements during the nine months ended September 30,
1997 consisted primarily of $45,736,000 in investing activities.
The Company invested $48,188,000 in capital expenditures during the
nine months ended September 30, 1997 comprised of $1,835,000 in
additional revenue equipment, $32,524,000 in new Customer Center
facilities or the expansion of existing facilities and $13,829,000
in other equipment. Management expects capital expenditures for
the full year of 1997 will be approximately $70,000,000. 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 September 30,
1997, the Company had commitments for land, Customer Centers,
revenue and other equipment of approximately $36,284,000.
The Company provided for its capital resource requirements in the
nine months ended September 30, 1997 predominantly with cash from
operations. Cash from operations totaled $61,788,000 in the nine
months ended September 30, 1997 compared to $44,100,000 provided by
operations in the nine months ended September 30, 1996. Cash from
operations exceeded capital requirements by $16,052,000 during the
nine months ended September 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), Chase Bank of Texas, N.A., Wachovia Bank of Georgia,
N.A., ABN-AMRO Bank N.V., The First National Bank of Chicago and
Credit Lyonnais. Due to reduced 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 nine months ended September 30, 1997. At
September 30, 1997, $58,000,000 was outstanding on the revolving
line of credit, leaving $117,000,000 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 September
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 September 30, 1997, the Company had
$133,250,000 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 September 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; land and
structures, revenue equipment and other equipment. At September
30, 1997, future rental commitments on operating leases were:
Land and Revenue Other
Total Structures Equipment Equipment
-------------------------------------
1997 5,650 1,234 926 3,490
1998 15,087 3,627 3,700 7,760
1999 11,632 2,473 3,700 5,459
2000 9,204 1,705 3,700 3,799
2001 4,233 1,309 2,924 --
Thereafter 3,609 1,652 1,957 --
-------------------------------------
Total 49,415 12,000 16,907 20,508
=====================================
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 September 30, 1997, 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--September 30, 1997 and
December 31, 1996
Condensed consolidated statements of income--Three months
ended September 30, 1997 and 1996; Nine months ended September
30, 1997 and 1996
Condensed consolidated statements of cash flows--Nine months
ended September 30, 1997 and 1996
Notes to condensed consolidated financial statements--
September 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 Stock Purchase Plan for
Certain Employees of Registrant and subsidiaries as
amended January 9, 1997.
Master Lease Agreement with Volvo Truck Finance
North America, Inc. dated August 18, 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 September 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: October 31, 1997 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting &
Finance and Chief Financial Officer