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, 1998
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 No. 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 of 1934 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
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, 1998:
31,567,689.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
MARCH 31, December 31,
1998 1997
-------------------------
(UNAUDITED) (Note)
ASSETS
Current assets
Cash and cash equivalents $ 3,812 $ 1,755
Trade receivables, less allowance for
doubtful accounts
(1998-$1,846; 1997-$1,774) 85,417 78,700
Operating supplies and inventories 3,067 2,882
Prepaid expenses 14,108 8,671
Deferred income taxes 15,104 13,306
Income taxes receivable - 1
----------- -----------
Total current assets 121,508 105,315
Property and equipment 720,295 699,176
Accumulated depreciation
and amortization (244,481) (230,870)
----------- -----------
475,814 468,306
Other assets 2,038 1,952
----------- -----------
$ 599,360 $ 575,573
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable $ 14,420 $ 12,910
Accrued expenses 63,362 54,114
Federal and state income taxes 1,026 -
Current portion of long-term debt 11,498 11,497
----------- -----------
Total current liabilities 90,306 78,521
Long-term debt,
less current portion (Note B) 216,511 210,411
Deferred income taxes 61,955 59,225
Shareholders' equity
Common stock, par value $.01 per share--
authorized 250,000 shares; issued and
outstanding 31,568 in 1998 and 1997 316 316
Additional paid-in capital 104,832 104,832
Retained earnings 125,440 122,268
----------- -----------
230,588 227,416
----------- -----------
$ 599,360 $ 575,573
=========== ===========
Note: The condensed consolidated balance sheet at December 31, 1997,
has been derived from the audited consolidated financial statements
at that date.
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(000's omitted, except per share data)
Three Months Ended
March 31
1998 1997
-----------------
OPERATING REVENUE $230,649 $193,051
OPERATING EXPENSES AND COSTS
Salaries, wages and benefits 143,430 118,305
Operating supplies and expenses 20,017 18,512
Operating taxes and licenses 9,995 8,601
Insurance 7,142 6,682
Communications and utilities 3,955 3,495
Depreciation and amortization 13,808 12,846
Rents and purchased transportation 13,019 9,890
Other 9,978 8,318
--------- ---------
221,344 186,649
--------- ---------
OPERATING INCOME 9,305 6,402
OTHER INCOME (EXPENSE)
Interest expense (4,086) (4,086)
Interest income 63 55
Gain on disposal of assets 21 16
Other, net 28 11
--------- ---------
(3,974) (4,004)
INCOME BEFORE INCOME TAXES 5,331 2,398
--------- ---------
FEDERAL AND STATE INCOME TAXES
Current 1,227 1,293
Deferred (credit) 932 (353)
--------- ---------
2,159 940
--------- ---------
NET INCOME $ 3,172 $ 1,458
========= =========
PER SHARE (NOTE D)
Net income-basic $ 0.10 $ 0.05
Net income-assuming dilution $ 0.10 $ 0.05
========= =========
AVERAGE SHARES OUTSTANDING (NOTE D)
Basic 31,568 31,258
Assuming dilution 31,625 31,490
========= =========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000's omitted)
Three Months Ended
March 31
1998 1997
----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 17,319 $ 16,091
INVESTING ACTIVITIES
Proceeds from sales of equipment 26 47
Capital expenditures (21,389) (10,514)
----------- -----------
Net cash used by investing activities (21,363) (10,467)
FINANCING ACTIVITIES
Principal payments on long-term debt (5,606) (35)
Proceeds from notes payable
and long-term borrowings 11,707 -
Proceeds from issuance of common stock - 161
----------- -----------
Net cash provided by financing activities 6,101 126
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 2,057 $ 5,750
=========== ===========
See notes to condensed consolidated financial statements.
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1998
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, 1998, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997.
NOTE B - LONG-TERM DEBT
As of March 31, 1998, the Company has outstanding borrowings of
$69,200,000 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 March 31, 1998, the amount
available for borrowing under the line of credit was $105,800,000.
In addition to this credit facility, the Company has obtained
letters of credit totaling $3,976,000 to provide collateral on its
self-insurance plan.
As of March 31, 1998, the Company has outstanding borrowings of
$131,250,000 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 $20,000,000 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 terminals aggregated approximately $39,793,000
at March 31, 1998.
NOTE D - EARNINGS PER SHARE
Net income for purposes of basic earnings per share and earnings
per share--assuming dilution was $3,172,000 and $1,458,000 for the
three months ended March 31, 1998 and 1997, respectively. A
reconciliation of average shares outstanding for both periods is
presented below:
Three Months Ended March 31,
1998 1997
-------------------------
(In Thousands)
Average shares outstanding-basic 31,568 31,258
Effect of dilutive stock options 57 232
----------- -----------
Average shares outstanding
-assuming dilution 31,625 31,490
=========== ===========
NOTE E - RECENT ACCOUNTING PRONOUNCEMENTS
The impact of adoption of Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income, which was
required for the first quarter of 1998 was not 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
1998 1997
---------------------
Operating revenue 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 62.2% 61.3%
Operating supplies and expenses 8.7% 9.6%
Operating taxes and licenses 4.3% 4.5%
Insurance 3.1% 3.5%
Communications and utilities 1.7% 1.8%
Depreciation and amortization 6.0% 6.6%
Rents and purchased transportation 5.7% 5.1%
Other 4.3% 4.3%
---------------------
Total operating expenses and costs 96.0% 96.7%
---------------------
Operating income 4.0% 3.3%
Interest expense 1.8% 2.1%
Other income, net 0.1% 0.1%
---------------------
Income before income taxes 2.3% 1.3%
Income taxes 0.9% 0.5%
---------------------
Net income 1.4% 0.8%
=====================
RESULTS OF OPERATIONS
Operating Revenue
Operating revenue for the three months ended March 31, 1998 was
$230,649,000, up 19.5%, compared to $193,051,000 for the three
months ended March 31, 1997. The growth in operating revenue was
primarily the result of increased tonnage from new and existing
customers and increased revenue per hundred weight.
Tonnage handled by the Company during the three months ended March
31, 1998 increased 16.8% over levels handled during the three
months ended March 31, 1997. 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 January 1, 1998, the Company increased its all-
points coverage to 28 states with the addition of the state of
Michigan.
Revenue per hundred weight for the three months ended March 31,
1998 was up 1.7% from levels experienced in the three months ended
March 31, 1997. Factors which most impacted revenue per hundred
weight were:
- - A general rate increase of approximately 5.5% effective
January 1, 1998. 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.
- - A fuel surcharge was in effect during the first quarter of
1997, but not in effect for the majority of the first quarter of
1998. 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 during the three months ended March
31, 1997. The surcharge is designed to suspend at the time this
national index moves below $1.15 per gallon. Effective January 7,
1998, the fuel surcharge was suspended and remains suspended as of
March 31, 1998.
- - 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 three months ended March 31, 1998 as compared to
5.9% during the three months ended March 31, 1997.
Management expects that growth in operating revenue is sustainable
in the near term. Although the Company's planned expansions of
service territory during 1998 are more aggressive than those
initiated in 1997, 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
96.0% in the three months ended March 31, 1998 from 96.7% in the
three months ended March 31, 1997. This overall improvement was
primarily attributable to:
- - Operating supplies and expenses as a percentage of operating
revenue decreased to 8.7% in the three months ended March 31, 1998
from 9.6% in the three months ended March 31, 1997. This
improvement was due to reduced fuel costs resulting from lower fuel
prices and the increased use of purchased transportation. This
improvement in fuel costs was partially offset by increased costs
of maintaining equipment and facilities. Maintenance expenses, the
other primary component of operating supplies and expenses,
continued to gradually increase. In the near term, management
expects this gradual upward trend in maintenance costs to continue
as the Company's fleet ages.
- - Depreciation and amortization as a percentage of operating
revenue improved to 6.0% in the three months ended March 31, 1998
from 6.6% in the three months ended March 31, 1997. This
improvement was largely due to the increased usage of purchased
transportation and operating lease financing of revenue equipment.
- - Insurance as a percentage of operating revenue decreased to
3.1% in the three months ended March 31, 1998 from 3.5% in the
three months ended March 31, 1997. This improvement was largely
due to improved experience involving vehicle accidents and cargo
claims. Management does not expect this downward trend to
continue. Rather, it is expected that insurance costs as a
percentage of operating revenue will stabilize or gradually
increase during 1998.
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 62.2% in the three months ended March 31, 1998
from 61.3% in the three months ended March 31, 1997. This increase
was largely the result of increased costs in the areas of workmen's
compensation and health care. After benefiting from relatively low
claims in these areas during the first quarter of 1997, the level
of claims returned to a level more typically experienced by the
Company. Management expects that during the remainder of 1998,
these expenses will remain at current levels. Comparing the first
quarter of 1998 to the same period of 1997, salaries and wages as a
percentage of operating revenue remained flat despite a general
wage increase of 3.5% in March 1998. During the remainder of 1998,
management anticipates that ongoing educational programs and
changes in operations will result in productivity gains in the form
of improved pickup and delivery density, increased line haul load
factor and more direct line haul schedules. However, these gains
cannot be assured and are subject to a variety of factors which may
or may not be within the control of management.
- - Rents and purchased transportation as a percentage of operating
revenue increased to 5.7% in the three months ended March 31,
1998 from 5.1% in the three months ended March 31, 1997. This
increase was primarily a result of the utilization of purchased
transportation in selected line-haul lanes in order to improve
asset utilization and decrease overall costs of operations.
Management expects rents and purchased transportation as a
percentage of operating revenue to remain flat or gradually
increase due to two principal reasons: 1) the Company plans to
continue the strategic use of purchased transportation in
selected line-haul lanes and 2) the increased usage of operating
lease financing of revenue equipment (See Liquidity and Capital
Resources).
Other
Interest expense as a percentage of operating revenue decreased to
1.8% in the three months ended March 31, 1998, compared to 2.1% in
the three months ended March 31, 1997. This improvement is
primarily the result of lower interest rates and of reducing total
debt to $228,009,000 as of March 31, 1998 from $238,203,000 as of
March 31, 1997.
The effective tax rate of the Company was 40.5% for the three
months ended March 31, 1998, up from 39.2% for the three months
ended March 31, 1997. This increase was due to increased federal
tax rates on higher levels of income, as well as higher state tax
rates. Net income for the three months ended March 31, 1998 was
$3,172,000, up 117.6%, from $1,458,000 for the three months ended
March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements during the three months ended March 31, 1998
consisted of $21,363,000 in investing activities. The Company
invested $21,389,000 in capital expenditures during the three
months ended March 31, 1998 comprised of $4,084,000 in additional
revenue equipment, $10,430,000 in new Customer Center facilities or
the expansion of existing facilities and $6,875,000 in other
equipment. Management expects capital expenditures for the full
year of 1998 will be approximately $100,000,000, consisting
primarily of anticipated investments in new and existing Customer
Center facilities. However, the actual amount of capital
expenditures required in 1998 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, 1998, the Company had commitments
for land, Customer Centers, revenue and other equipment of
approximately $39,793,000.
The Company provided for its capital resource requirements in the
three months ended March 31, 1998 predominantly with cash from
operations. Cash from operations totaled $17,319,000 during the
three months ended March 31, 1998 compared to $16,091,000 provided
by operations during the three months ended March 31, 1997. Net
financing activities provided an additional $6,101,000 of cash flow
in the three months ended March 31, 1998. 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. At
March 31, 1998, $69,200,000 was outstanding on the revolving line
of credit, leaving $105,800,000 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 of Texas, N.A. to obtain letters of
credit required for its self-insurance program. At March 31, 1998,
the Company had obtained letters of credit totaling $3,976,000 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. At March 31, 1998, the Company had
$131,250,000 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 March 31, 1998, 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 March 31,
1998, future rental commitments on operating leases were
$72,811,000. 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.
Future rental commitments on operating leases are as follows:
Land and Revenue Other
Total Structures Equipment Equipment
--------------------------------------------
1998 $17,421 $ 3,903 $ 5,203 $ 8,315
1999 18,846 3,261 6,938 8,647
2000 16,547 2,087 6,938 7,522
2001 9,526 1,483 6,162 1,881
Thereafter 10,471 1,731 8,740 ---
------------------------------------------
Total $72,811 $ 12,465 $33,981 $26,365
------------------------------------------
YEAR 2000 ISSUES
The Company has assessed the impact of the Year 2000 issues on its
computer software systems and applications, and determined that
although many of its applications are already compliant the Company
will have to modify or replace other applications. The Company
expects to have all applications fully compliant by the end of
1998. The Company also has initiated discussions with its
significant customers and suppliers to determine the extent to
which the Company's interface systems would be vulnerable to those
third parties' failure to remediate their own Year 2000 issues.
There is no assurance that the systems of other companies on which
the Company's systems rely will be timely converted and would not
have an adverse effect on the Company's systems. Expenditures
related to the Company's Year 2000 initiatives have not been and
are not expected to be material to the Company's results of
operations or financial position.
ENVIRONMENTAL
At March 31, 1998, the Company had no outstanding inquiries with
any state or federal environmental agency.
INDEX
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets--March 31, 1998 and
December 31, 1997
Condensed consolidated statements of income--Three months
ended March 31, 1998 and 1997
Condensed consolidated statements of cash flows--Three months
ended March 31, 1998 and 1997
Notes to condensed consolidated financial statements--March
31, 1998
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 April 23, 1998.
c) Listed below is the proposal voted on and number of votes cast
at the 1998 Annual Shareholders' Meeting:
1. TO ELECT THREE (3) DIRECTORS TO THE CLASS WHOSE TERM WILL
EXPIRE IN 2001:
FOR ABSTAIN BROKER NON-VOTES
F.S. (Sheridan) Garrison 25,591,756 324,151 500
Ken Reeves 25,588,160 327,747 500
Doyle Z. Williams 25,589,291 326,616 500
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10) Master Lease Agreement with BancBoston
Leasing dated March 23, 1998
(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, 1998.
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: April 29, 1998 /s/Frank Conner
Frank Conner
Executive Vice President-Accounting &
Finance and Chief Financial Officer