______________________________________________________________________________
______________________________________________________________________________
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 20, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number 1-8544
APL LIMITED
(Exact name of registrant as specified in its charter)
Delaware 94-2911022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Broadway
Oakland, California 94607
(Address of principal executive offices)
Registrant's telephone number: (510) 272-8000
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes (X) No ( ).
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 18, 1996
____________________________ _______________________________
Common Stock, $.01 par value 25,022,140
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
APL LIMITED
INDEX
PART I. FINANCIAL INFORMATION Page
_____________________
Item 1. Consolidated Financial Statements
Statement of Income 3
Balance Sheet 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12-21
Part II. OTHER INFORMATION
_________________
Item 1. Legal Proceedings 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
<PAGE>
APL Limited and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
______________________________________________________________________________
(In thousands, except Quarter Ended Three Quarters Ended
per share amounts) September 20 September 22 September 20 September22
1996 1995 1996 1995
______________________________________________________________________________
REVENUES $646,123 $711,148 $2,013,515 $2,126,099
______________________________________________________________________________
EXPENSES 597,305 657,601 1,904,573 2,044,298
______________________________________________________________________________
OPERATING INCOME 48,818 53,547 108,942 81,801
OTHER INCOME (EXPENSE)
Interest Income 6,468 4,735 19,466 16,232
Interest Expense (14,483) (8,457) (47,043) (23,498)
______________________________________________________________________________
Income Before Taxes 40,803 49,825 81,365 74,535
Federal, State and
Foreign Tax Expense 12,659 18,933 28,478 28,323
______________________________________________________________________________
NET INCOME $28,144 $ 30,892 $ 52,887 $ 46,212
______________________________________________________________________________
Less Dividends on Preferred Stock 3,375
NET INCOME APPLICABLE TO
COMMON STOCK $28,144 $ 30,892 $ 52,887 $ 42,837
______________________________________________________________________________
______________________________________________________________________________
EARNINGS PER COMMON SHARE
______________________________________________________________________________
Primary $1.07 $1.02 $2.01 $1.49
Fully Diluted $1.07 $0.97 $2.01 $1.42
______________________________________________________________________________
DIVIDENDS PER COMMON SHARE $0.10 $0.10 $0.30 $0.30
______________________________________________________________________________
______________________________________________________________________________
See notes to consolidated financial statements.
<PAGE>
APL Limited and Subsidiaries
CONSOLIDATED BALANCE SHEET (Unaudited)
______________________________________________________________________________
(In thousands, except share amounts) September 20December 29
1996 1995
______________________________________________________________________________
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 130,635 $ 76,564
Short-Term Investments 177,868 59,086
Trade and Other Receivables, Net 242,484 245,490
Fuel and Operating Supplies 30,474 40,358
Prepaid Expenses and Other Current Assets 66,696 80,840
______________________________________________________________________________
Total Current Assets 648,157 502,338
______________________________________________________________________________
PROPERTY AND EQUIPMENT
Ships 905,899 1,091,991
Containers, Chassis and Rail Cars 789,076 801,274
Leasehold Improvements and Other 287,477 284,850
Construction in Progress 13,061 25,333
______________________________________________________________________________
1,995,513 2,203,448
Accumulated Depreciation and Amortization (864,519) (961,971)
______________________________________________________________________________
Property and Equipment, Net 1,130,994 1,241,477
______________________________________________________________________________
INVESTMENTS AND OTHER ASSETS 147,806 134,968
______________________________________________________________________________
Total Assets $1,926,957 $1,878,783
______________________________________________________________________________
______________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt
and Capital Leases $ 9,983 $ 11,810
Accounts Payable and Accrued Liabilities 427,612 425,378
______________________________________________________________________________
Total Current Liabilities 437,595 437,188
______________________________________________________________________________
DEFERRED INCOME TAXES 161,072 157,480
______________________________________________________________________________
OTHER LIABILITIES 118,111 127,858
______________________________________________________________________________
LONG-TERM DEBT 707,439 685,954
CAPITAL LEASE OBLIGATIONS 886 1,133
______________________________________________________________________________
Total Long-Term Debt and
Capital Lease Obligations 708,325 687,087
______________________________________________________________________________
COMMITMENTS AND CONTINGENCIES
______________________________________________________________________________
STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value, Stated at $1.00
Authorized-60,000,000 Shares
Shares Issued and Outstanding-
25,170,000 in 1996 and 25,669,000 in 1995 25,170 25,669
Additional Paid-In Capital 1,943
Retained Earnings 476,684 441,558
______________________________________________________________________________
Total Stockholders' Equity 501,854 469,170
______________________________________________________________________________
Total Liabilities and
Stockholders' Equity $1,926,957 $1,878,783
______________________________________________________________________________
______________________________________________________________________________
See notes to consolidated financial statements.
<PAGE>
APL Limited and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
______________________________________________________________________________
(In thousands) Three Quarters Ended
September 20September 22
1996 1995
______________________________________________________________________________
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 52,887 $46,212
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 83,466 79,022
Deferred Income Taxes 12,094 6,847
Change in Receivables 5,006 (28,883)
Change in Fuel and Operating Supplies 6,311 (4,846)
Change in Prepaid Expenses and
Other Current Assets 1,126 (3,543)
Gain on Sale of Property and Equipment (2,364) (3,281)
Gain on Sale of Distribution Services (6,900)
Change in Accounts Payable
and Accrued Liabilities 17,163 30,972
Change in Restructuring Charge Liability (17,629)
Gain on Curtailment of Pension and
Postretirement Benefits (12,934)
Other (22,772) 16,580
______________________________________________________________________________
Net Cash Provided by
Operating Activities 115,454 139,080
______________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (102,776) (238,393)
Proceeds from Sales of
Property and Equipment 161,728 39,203
Proceeds from Sale of Distribution Services 2,000
Purchase of Short-Term Investments (407,725) (40,889)
Proceeds from Sales of
Short-Term Investments 288,943 250,366
Other (1,546) (1,959)
______________________________________________________________________________
Net Cash Provided by (Used in)
Investing Activities (59,376) 8,328
______________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Common Stock (14,755) (139,622)
Issuance of Debt 62,215 143,670
Repayments of Debt (31,342) (19,955)
Repayments of Capital Lease Obligations (11,604) (2,956)
Dividends Paid (7,713) (11,793)
Debt Issue Costs (1,624)
Other 2,265 4,369
______________________________________________________________________________
Net Cash Used in Financing Activities (2,558) (26,287)
______________________________________________________________________________
Effect of Exchange Rate Changes on Cash 551 (550)
______________________________________________________________________________
NET INCREASE IN CASH AND CASH EQUIVALENTS 54,071 120,571
______________________________________________________________________________
Cash and Cash Equivalents at
Beginning of Period 76,564 39,754
______________________________________________________________________________
Cash and Cash Equivalents at End of Period $130,635 $160,325
______________________________________________________________________________
______________________________________________________________________________
SUPPLEMENTAL DATA:
______________________________________________________________________________
CASH PAID FOR:
Interest, Net of Capitalized Interest $ 45,073 $22,892
Income Taxes, Net of Refunds $ 17,671 $17,823
______________________________________________________________________________
NONCASH INVESTING ACTIVITIES:
Notes Receivable from the Sale of
Distribution Services $ 6,000
Change in Trade Receivables Invested
in the Capital Construction Fund $25,652
______________________________________________________________________________
NONCASH FINANCING ACTIVITIES:
Conversion of Redeemable Preferred Stock $75,000
______________________________________________________________________________
See notes to consolidated financial statements.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Significant Accounting Policies
The consolidated financial statements presented herein
include the accounts of APL Limited and its wholly-owned
subsidiaries (the "company") and have been prepared by the
company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. The company
believes that the disclosures are adequate to make the
information presented not misleading, although certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of
management, the consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the company's results of
operations, financial position and cash flows. The
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes
thereto included in the company's Annual Report on Form 10-K
for the year ended December 29, 1995 (Commission File No. 1-
8544).
Income Taxes
The provision for income taxes has been calculated using
the effective tax rate estimated for the respective years. The
company's estimated income tax rate for 1996 is 35%, which was
reduced in the third quarter to reflect additional tax credits
expected to become available this year. The full year
effective tax rate for 1995 was 43%, which was adjusted in the
fourth quarter from 38% to reflect the increased effect of
nondeductible items on annual income after the fourth quarter
restructuring charge.
Reclassifications
Certain 1995 amounts have been reclassified to conform
with the 1996 presentation.
Note 2. United States Maritime Agreements
Operating-Differential Subsidy Agreement
Amounts recorded under the company's Operating-
Differential Subsidy ("ODS") agreement with the United States
Maritime Administration ("MarAd") were $10.7 million and $13.6
million for the quarters ended September 20, 1996 and September
22, 1995, respectively, and $36.1 million and $44.1 million for
the three quarters ended September 20, 1996 and September 22,
1995, respectively, and have been included as a reduction of
expenses. The reduction in subsidy in 1996 reflects the sale
by the company of six U.S.-flag vessels to Matson Navigation
Company, Inc. ("Matson") in December 1995 and January 1996 as
discussed in Note 7.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3.Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 20,
1996 and December 29, 1995, were as follows:
______________________________________________________________________________
(In thousands) September 20 December 29
1996 1995
______________________________________________________________________________
Accounts Payable $ 54,297 $58,144
Accrued Liabilities 271,491 243,228
Current Portion of Insurance Claims 15,892 19,564
Income Taxes Payable 4,242 5,855
Unearned Revenue 60,454 59,722
Restructuring Charge 21,236 38,865
______________________________________________________________________________
Total Accounts Payable and
Accrued Liabilities $427,612 $425,378
______________________________________________________________________________
______________________________________________________________________________
In the fourth quarter of 1995, the company recorded a one-
time charge of $48.4 million related to the accelerated
completion of its reengineering program and other
organizational changes. As of September 20, 1996, a total of
$20.3 million in severance payments have been made, $15.5
million of which were made in the first three quarters of 1996.
In addition, $6.7 million in equipment and leasehold
improvements have been written off for closed offices and
projects eliminated, $2.1 million of which was written off in
the first three quarters of 1996.
Note 4. Long-Term Debt
Long-Term Debt at September 20, 1996 and December 29, 1995
consisted of the following:
______________________________________________________________________________
(In thousands) September 20 December 29
1996 1995
______________________________________________________________________________
Vessel Mortgage Note Due Through 2008 (1) $388,064 $338,044
8% Senior Debentures $150 million Face Amount
Due on January 15, 2024 (2) 147,189 147,169
7 1/8% Senior Notes $150 million Face Amount
Due on November 15, 2003 (2) 148,352 148,227
Series I 8% Vessel Mortgage Bonds
Due Through 1997(3) 14,294 33,353
8% Refunding Revenue Bonds
Due on November 1, 2009 12,000 12,000
Other 7,070 7,161
______________________________________________________________________________
Total Debt 716,969 685,954
Current Portion 9,530
______________________________________________________________________________
Total Long-Term Debt $707,439 $685,954
______________________________________________________________________________
______________________________________________________________________________
(1) The company has taken delivery of six new C11-class vessels.
To finance a portion of the purchase price of these vessels, the
company borrowed approximately $339.9 million in 1995 and $62.2
million in 1996 under a loan agreement with European banks
pursuant to vessel mortgage notes due through 2008. Principal
payments are due in semiannual installments over a 12-year period
commencing six months after the delivery of the respective
vessels. The interest rates on the notes are based upon various
margins over LIBOR or the banks' cost of funds, as elected by the
company. Until the sixth anniversary of the delivery date, the
company may defer up to four principal payments. Aggregate
deferred payments are due at the end of the term of the notes.
Principal payments on this debt are classified as long-term on
the basis that the company has the ability to defer at least two
payments. The notes issued under this loan agreement are
collateralized by the C11-class vessels.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 4. Long-Term Debt (continued)
The company entered into interest rate swap agreements on
four of the vessel mortgage notes, with a notional amount of
$266.8 million at September 20, 1996, to exchange the
variable interest rate obligations on such notes for fixed
rate obligations for periods ranging between 7 and 12 years.
The current variable interest rates for all of the vessel
mortgage notes range between 6.465% and 6.81%. As a result
of the swaps, the effective interest rates range between
6.625% and 7.461% for the first five years after inception,
and 6.625% and 7.586% for the remaining terms of the swaps.
Net payments or receipts under the agreements are included
in interest expense.
(2)The Senior Notes had an effective interest rate of 7.325%,
and an unamortized discount of $1.6 million and $1.8 million
at September 20, 1996 and December 29, 1995, respectively.
The Senior Debentures had an effective interest rate of
8.172%, and an unamortized discount of $2.8 million at
September 20, 1996 and December 29, 1995. Interest payments
are due semiannually.
(3)Principal payments on each of the company's Series I Vessel
Mortgage Bonds are due in equal semiannual installments of
$2.4 million. The company has the option to issue Series II
Bonds due sequentially in semiannual payments at the end of
the term of the Series I Bonds in lieu of up to two of the
remaining cash payments, which it has not yet exercised.
Principal amounts are classified as long-term debt when the
company's ability to issue Series II Bonds in lieu of the
remaining semiannual cash payments extends beyond one year.
The bonds issued under this loan agreement are
collateralized by the five C10-class vessels.
The company has a credit agreement with a group of banks
which provides for an aggregate commitment of $200 million
through March 1999. The credit agreement contains, among other
things, various financial covenants that require the company to
meet certain levels of interest and fixed charge coverage,
leverage and net worth. The borrowings bear interest at rates
based upon various indices as elected by the company. There
have been no borrowings under this agreement.
As an alternative to borrowing under its credit agreement,
the company has an option under that agreement to sell up to
$150 million of certain of its accounts receivable to the
banks. This alternative is subject to less restrictive
financial covenants than the borrowing option.
Note 5. Employee Benefit Plans
During the third quarter of 1996, the company recognized
curtailment gains of $11.2 million and $1.7 million related to
its defined benefit pension plans and postretirement health
care plan, respectively. These gains resulted from the net
decreases in pension and postretirement liabilities for
employees who left the company in 1995 and 1996 as a result of
its reengineering program.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Stockholders' Equity
Common Stock
In April 1996, the Board of Directors approved a program
to repurchase up to an aggregate of $50 million of the
company's common stock from time to time through open market or
privately negotiated transactions. As of September 20, 1996,
the company had repurchased 627,100 shares of its common stock
under this program through open market transactions at an
average price of $23.48 per share, plus expenses. All
repurchased shares were retired. The excess of the purchase
price of the common stock over its stated value has been
reflected as a decrease in Additional Paid-In Capital and
Retained Earnings on the accompanying Consolidated Balance
Sheet.
Earnings Per Common Share
For the third quarter and first three quarters of 1996,
earnings per common share on a primary and fully diluted basis
were computed by dividing net income by the weighted average
number of common shares and common equivalent shares
outstanding. Primary earnings per share for the third quarter
and first three quarters of 1995 was computed by dividing net
income, reduced by the amount of the preferred stock dividends,
by the weighted average number of common shares and common
equivalent shares outstanding. Fully diluted earnings per
share for the third quarter and first three quarters of 1995
was computed based upon the assumption that the Series C
Cumulative Convertible Preferred Stock ("Series C Stock") was
converted at the beginning of the period. The number of shares
used in these computations were as follows:
_____________________________________________________________________________
Weighted Average Number of Common and Common Equivalent Shares
_____________________________________________________________________________
(In millions) Quarter Ended Three Quarters Ended
September 20 September 22 September 20 September 22
1996 1995 1996 1995
_____________________________________________________________________________
Primary 26.3 30.3 26.3 28.7
Fully Diluted 26.3 31.8 26.3 32.5
_____________________________________________________________________________
_____________________________________________________________________________
Weighted average shares for the third quarter and first
three quarters of 1996 reflect the repurchase of six million
shares of the company's common stock in August through October
1995, and the repurchase of 627,100 shares in 1996 as described
above.
Supplementary Earnings Per Share Data
In July 1995, the Series C Stock was converted into
3,961,498 shares of common stock. Had the Series C Stock been
converted at the beginning of 1995, primary earnings per share
for the third quarter and first three quarters of 1995 would
have been $0.98 and $1.45, respectively, compared with $1.02
and $1.49 as reported. Fully diluted earnings per share for
the third quarter and first three quarters of 1995 would not
have changed from the reported amounts of $0.97 and $1.42,
respectively.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Stockholders' Equity (continued)
Stock Bonus Plan
During the first three quarters of 1996, the company
issued 6,253 shares of common stock and 13,697 phantom shares
under the 1995 Stock Bonus Plan (the "Plan"). The Plan permits
certain executives and key employees to receive all or part of
their bonuses in the form of shares of common stock or phantom
shares. In addition, non-employee directors may elect to
receive all or part of their annual retainers and/or meeting
fees in the form of shares of common stock or phantom shares.
Participants receive a premium in the form of additional shares
equal to 17.6% of the number of shares of common stock or
phantom shares received, which vest over a two year period.
Note 7. Commitments and Contingencies
Commitments
Alliances
In connection with the sale of the company's K10-class
vessel construction contract to a third party in September
1995, the company, Mitsui OSK Lines, Ltd. ("MOL"), Orient
Overseas Container Line ("OOCL") and Nedlloyd Lines B.V.
("NLL"), formed a joint venture company that agreed to charter
back the K10 vessels for seven years, in which their respective
shares are each 25%. OOCL has agreed to subcharter the K10s
from the joint venture for seven years for use in the Asia-
Europe trade, replacing three of its 2,800 twenty-foot
equivalent unit F-class vessels. The three replaced F-class
vessels are being chartered to the joint venture for ten years
and subchartered by the company from the joint venture for four
years. The subcharters for two of such vessels have been
assumed by Transportacion Maritima Mexicana ("TMM") for a
period of three years. TMMOs obligations under the assumed
subcharters have been guaranteed by the company. The company
has been deploying the third F-class vessel since May 1996 in
its West Asia/Middle East service.
The company and Matson commenced service under a 10-year
alliance in February 1996. In connection with the alliance,
the company sold Matson six of its U.S.-flag ships (three C9-
class vessels and three C8-class vessels) and certain of its
assets in Guam for approximately $163.4 million in cash. One
of the ships was sold in December 1995, and the remaining five
vessels were sold in January 1996. Four of these vessels,
together with a fifth Matson vessel, are currently being used
in the alliance. The net gain on the sale of the four vessels
used in the alliance and the assets in Guam, after deducting
related costs, is estimated to be $1.9 million, depending upon
final vessel modification and drydock costs. The net gain on
the sale will be deferred and amortized over the 10-year term
of the alliance. The net gain on the sale of the fifth vessel
was $1.6 million and was recognized in the first quarter of
1996. Matson is operating the vessels in the alliance, which
serves the U.S. West Coast, Hawaii, Guam, Korea and Japan, and
has the use of substantially all the westbound capacity. The
company has the use of substantially all the alliance vessels'
eastbound capacity.
<PAGE>
APL Limited and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 7. Commitments and Contingencies (continued)
Commitments (continued)
Facilities, Equipment and Services
The company had outstanding purchase commitments to
acquire cranes, facilities, equipment and services totaling
$99.3 million at September 20, 1996. In addition, the company
has commitments to purchase terminal services for its major
Asian operations. These commitments range from one to ten
years, and the amounts of the commitments under these contracts
are based upon the actual services performed. At September 20,
1996, the company had outstanding letters of credit totaling
$29.1 million which guarantee the company's performance under
certain of its commitments.
Contingencies
In October 1995, Lykes Bros. Steamship Co., Inc. ("Lykes")
filed a petition seeking protection from its creditors under
Chapter 11 of the U.S. Bankruptcy laws. The company chartered
four L9-class vessels from Lykes, and Lykes operates three
Pacesetter vessels chartered from the company. All four L9s
were redelivered to Lykes by September 25, 1996, and the three
Pacesetters continue to be operated by Lykes. On July 26,
1996, the Bankruptcy Court gave its final approval to a
settlement agreement, which became effective on August 9, 1996,
between the company and Lykes, establishing terms for the
payment of the company's claims against Lykes for unpaid
charter hire. The settlement also allows Lykes the use of the
three Pacesetters until December 31, 1997 and requires Lykes to
obtain the release of liens it permitted to be established
against those vessels. Certain Bankruptcy Court orders
underlying the settlement agreement have been appealed. LykesO
bankruptcy filing is not expected to have a material adverse
impact on the company's consolidated financial position or
operations.
The company is a party to various legal proceedings,
claims and assessments arising in the course of its business
activities. Based upon information presently available, and in
light of legal and other defenses and insurance coverage and
other potential sources of payment available to the company,
management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a
material adverse impact on the company's consolidated financial
position or operations.
Note 8. Sale of Domestic Distribution Services
On May 2, 1996, the company sold its rights to service
certain domestic intermodal customers of APL Land Transport
Services, Inc. ("APLLTS"), a wholly owned subsidiary of the
company, for $2.0 million in cash and $6.0 million in notes,
and realized a pre-tax gain of $6.9 million. In addition,
APLLTS and the purchaser entered into a 10-year agreement
whereby APLLTS will provide stacktrain services to the
purchaser. Revenues related to the servicing rights sold
represented approximately 6% of the company's consolidated 1995
revenues.
<PAGE>
APL Limited and Subsidiaries
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the third quarter and
first three quarters of 1996 should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the company's Annual Report
on Form 10-K for the year ended December 29, 1995.
RESULTS OF OPERATIONS
Third Quarter Year to Date
(In millions) 1996 1995 Change 1996 1995 Change
______________________________________________________________________________
Transportation Revenues
______________________________________________________________________________
International $510.0 $539.8 (6%) $1,528.1 $1,562.2 (2%)
North America 136.2 171.3 (20%) 485.5 563.9 (14%)
______________________________________________________________________________
Operating Income $ 48.9 $ 53.5 (9%) $ 109.0 $ 81.8 33%
______________________________________________________________________________
Pretax Income $ 40.9 $ 49.8 (18%) $ 81.4 $ 74.5 9%
______________________________________________________________________________
______________________________________________________________________________
Pretax income for the third quarter and first three
quarters of 1996 was $40.9 million and $81.4 million,
respectively, compared with pretax income of $49.8 million and
$74.5 million in the third quarter and first three quarters of
1995, respectively. During the third quarter of 1996, the
company recorded a gain of $12.9 million resulting from the
curtailment of obligations for pension and postretirement
benefits due to workforce reductions. Also included in pretax
income for the first three quarters of 1996 was a $6.9 million
gain from the sale of the companyOs rights to service certain
domestic intermodal customers, and a $1.6 million gain from the
sale of a vessel. In the third quarter of 1995, the company
recognized gains of $3.6 million from the sale of a vessel and
vessel construction contracts, and $3.5 million in liquidated
damages from the delayed delivery of two C11-class vessels.
Excluding these gains and liquidated damages, pretax income for
the third quarter and first three quarters of 1996 was $28.0
million and $60.0 million, respectively, compared with $42.7
million and $67.4 million for the same periods of 1995.
After excluding the gains and the liquidated damages
discussed above, pretax income for the third quarter of 1996
declined compared with the third quarter of 1995 primarily as a
result of lower revenue per forty-foot-equivalent unit ("FEU")
in the company's U.S. import market, lower volumes and average
revenue per FEU in the company's U.S. export market, lower
average revenue per FEU in the Asia-Europe market and higher
cargo handling costs. Partially offsetting these factors were
higher volumes in the company's U.S. import, intra-Asia and
Asia-Europe markets and lower operating and administrative
expenses compared with last year's third quarter.
Additionally, in the third quarter of 1996, the company
benefited from lower accruals for certain employee benefit
costs, favorable insurance and other claims experience and
subsidy adjustments.
After excluding the gains and the liquidated damages
discussed above, pretax income for the first three quarters of
1996 was lower than the same period in 1995, as a result of
lower revenue per FEU in the company's U.S. import market,
lower volumes and average revenue per FEU in the company's U.S.
export market, lower average revenue per FEU in the Asia-Europe
market, higher cargo handling costs and higher net interest
expense. Partially offsetting these factors were higher
volumes in the company's U.S. import, intra-Asia and Asia-
Europe markets, higher revenue per FEU in the company's intra-
Asia market and lower operating and administrative expenses
compared with last year's first three quarters.
<PAGE>
INTERNATIONAL TRANSPORTATION (1)
(Volumes in thousands of FEUs)
Third Quarter Year to Date
1996 1995 Change 1996 1995 Change
______________________________________________________________________________
Import
Volumes 61.0 49.9 22% 156.2 148.9 5%
Average Revenue per FEU $3,413 $4,367 (22%) $3,627 $4,242 (14%)
______________________________________________________________________________
Export
Volumes 31.7 40.0 (21%) 108.2 125.0 (13%)
Average Revenue per FEU $3,271 $3,553 (8%) $3,227 $3,314 (3%)
______________________________________________________________________________
Intra-Asia
Volumes 42.8 39.9 7% 133.8 129.7 3%
Average Revenue per FEU $2,089 $2,060 1% $2,153 $2,013 7%
______________________________________________________________________________
Asia-Europe
Volumes 10.1 6.9 47% 29.0 11.4 >100%
Average Revenue per FEU $2,076 $2,500 (17%) $2,145 $2,478 (13%)
______________________________________________________________________________
______________________________________________________________________________
(1)Volumes and average revenue per FEU data are based upon
shipments originating during the period, which differs from
the percentage-of-completion method used for financial
reporting purposes.
The company's U.S. import volumes increased significantly
in the third quarter of 1996 compared with the same period last
year primarily as a result of increases in commercial dry cargo
from South China, Hong Kong and Taiwan. U.S. import volumes
also increased in the first three quarters of 1996 compared
with the first three quarters of 1995 due to increases in
shipments of commercial dry cargo, primarily from South China,
Hong Kong and Japan. Increases in military dry cargo volumes
also contributed to higher volumes in the 1996 periods compared
with the 1995 periods.
Volumes of the company's U.S. export cargo decreased in
the third quarter and first three quarters of 1996 compared
with the third quarter and first three quarters of 1995 due
primarily to reductions in shipments of commercial dry cargo to
the People's Republic of China, Hong Kong, Korea, Japan and
Taiwan resulting from strong competition and reduced demand.
Refrigerated cargo volumes also declined in the third quarter
and first three quarters of 1996, compared with last year's
periods, due to increased competition. In addition, the sale
by the company of six ships and its Guam business to Matson
contributed to lower volumes in the third quarter and first
three quarters of 1996 compared with the same periods of 1995.
Earlier in 1996, the company generally carried heavier cargo,
which constrained utilization of available vessel capacity and
also contributed to lower U.S. export volumes in the first
three quarters of 1996 compared with the first three quarters
of 1995.
Utilization of the company's share of alliance trans-
Pacific containership capacity in the first three quarters of
1996 was 77% and 80% for U.S. import and U.S. export shipments,
respectively, compared with 82% and 97%, respectively, in the
first three quarters of 1995.
The company's intra-Asia volumes increased in the third
quarter and first three quarters of 1996 compared with the same
periods last year as shipments of both commercial dry cargo and
refrigerated cargo increased. The increases were primarily
exports from the People's Republic of China, Hong Kong, India
and Korea, partially offset by decreases in exports from Japan
and Taiwan. In addition, reduced shipments to and from Kobe,
Japan resulting from the January 1995 earthquake adversely
affected the first three quarters of 1995.
Volumes in the company's Asia-Europe market increased
significantly in the third quarter and first three quarters of
1996 from the same periods last year. The company began
shipping cargo from Asia to Europe in the first quarter of
1995, and from Europe to Asia in the second quarter of 1995.
The increase in the company's volumes in the Asia-Europe market
in the third quarter and first three quarters of 1996 compared
with the same
<PAGE>
periods of 1995 is attributable to increased shipments
from Hong Kong and the People's Republic of China to Denmark,
the United Kingdom and the Netherlands. The increase in the
first three quarters of 1996 compared with the first three
quarters of 1995 is also attributable to the startup of
operations.
Average revenue per FEU for the company's U.S. import
shipments decreased in the third quarter and first three
quarters of 1996 compared with the third quarter and first
three quarters of 1995 due to decreases in negotiated service
contract rates. In late 1995, the company initiated pricing
actions for specific commodities in specific trade lanes in
response to competitive conditions and loss of market share in
its U.S. import market. Subsequently, competitors and the
company have further lowered rates, and considerable rate
instability in the U.S. import market continues to exist.
Destabilization of rates, if extensive, could have a material
adverse impact on carriers in this trade, including the
company. The total U.S. import market continues to be affected
by lower overall volumes, excess capacity and strong
competition.
The decline in average revenue per FEU in the company's
U.S. export market for the third quarter and first three
quarters of 1996 compared with the same periods of 1995 was due
to lower rates for commercial dry cargo compared with the 1995
periods resulting from increased competition and reduced demand
in this market.
Average revenue per FEU in the company's intra-Asia market
increased slightly in the third quarter and first three
quarters of 1996 compared with the third quarter and first
three quarters of 1995 due to a higher proportion of higher-
rated refrigerated and longer-distance shipments. The increase
in average revenue per FEU in the intra-Asia market in the
first three quarters of 1996 compared with the same period last
year was also impacted by modest general rate increases since
mid-1995.
Average revenue per FEU in the company's Asia-Europe
market decreased in the third quarter and first three quarters
of 1996 as compared to the third quarter and first three
quarters of 1995. Eastbound service in the Asia-Europe market,
which includes lower-rated cargo than the westbound service,
began in the third quarter of 1995 and resulted in a reduction
in average revenue per FEU. Additionally, rate deterioration
in this market resulting from excess vessel capacity
contributed to lower average revenue per FEU in the 1996
periods compared with the 1995 periods.
Other international transportation revenues, which include
cargo handling, freight consolidation, logistics services and
charter hire revenues, totaled $90.2 million and $263.7 million
in third quarter and first three quarters of 1996,
respectively, compared with $81.3 million and $234.7 million in
the third quarter and first three quarters of 1995,
respectively. These increases primarily reflect increased
cargo handling revenues in Asia and North America resulting
from the company's alliances.
The company experienced lower ocean freight revenues and
incremental operating expenses during first half of 1995 as a
result of the January 1995 earthquake in Kobe, Japan, in which
the ocean terminal leased by the company was extensively
damaged. The company expects substantially all of these
expenses and lost revenues to be recovered through its business
interruption insurance and has submitted its claim to its
insurers. Management recorded its best estimate of the
recovery in other international transportation revenues in
1995.
The alliance agreements between the company, OOCL, MOL,
NLL and Malaysian International Shipping Corporation BHD (the
"Global Alliance") were fully implemented in the first quarter
of 1996. On September 9, 1996, NLL announced its intention to
merge with the container line operations of The Peninsular and
Oriental Steam Navigation Company ("P&O") by December 31, 1996.
NLL and P&O are members of different alliances, and the future
alliance participation of the combined company has not yet been
determined.
<PAGE>
If NLL or the combined company do not continue in the Global
Alliance, there could be a significant impact on its
operations. However, the company believes that acceptable
alternatives may be available. The company cannot predict
whether or when the NLL-P&O combination will be completed or
the impact its alliance participation could have on the
operations of the Global Alliance.
The alliance between the company and Matson was also
implemented in the first quarter of 1996. In September 1996,
the company and TMM amended their existing agreement for the
reciprocal charter of vessel space. The amended agreement is
effective until late April 1999 and automatically renews for
one year unless terminated with one year's notice.
Under the company's ODS agreement with MarAd, which
expires December 31, 1997, payments to the company were
approximately $36.1 million and $44.1 million in the first
three quarters of 1996 and 1995, respectively. As a result of
the sale of six U.S.-flag vessels to Matson, the company
expects ODS payments in 1996 to be approximately $44 million,
compared with $61.5 million in 1995.
On October 8, 1996, H.R. 1350, the Maritime Security Act
of 1996, was signed into law. This legislation provides for a
10-year Maritime Security Program ("MSP") with up to $100
million in payments per annum which must be appropriated on a
annual basis. MSP will provide $2.1 million per vessel per
year, compared with up to $3.6 million per vessel per year
under ODS, and will expire on October 1, 2005. Due to the
enactment of MSP, the company's collective bargaining agreement
covering its unlicensed personnel will expire on November 22,
1996. Existing agreements covering licensed personnel expire
in December 1997 and June 1998. The company has begun
negotiations with both its licensed and unlicensed unions to
attempt to achieve sufficient labor efficiencies to permit it
to enroll vessels in the MSP. MarAd has requested that MSP
enrollment applications be filed by November 7, 1996. If new
labor agreements are not reached, labor disruptions that could
have a material adverse impact on the company's operations
could result after expiration of the existing agreements. The
company is not able to predict whether it will be able to
achieve sufficient labor efficiencies through the collective
bargaining process to permit it to participate in MSP, whether
labor disruptions could occur, or whether its application for
authority to flag its vessels under foreign registry will be
granted if it is unable to reach agreement with its unions.
While no assurances can be given, management of the company
believes that it will be able to structure its operations to
enable it to continue to operate on a competitive basis.
In April 1996, legislation was introduced in the U.S.
House of Representatives and the U.S. Senate that would
substantially modify the Shipping Act of 1984 ("Shipping Act").
The Shipping Act, among other things, provides the company with
certain immunity from antitrust laws, and requires the company
and other carriers in U.S. foreign commerce to file tariffs
publicly. Although Congress failed to adopt this legislation,
it will most likely be reintroduced in 1997. The legislation
proposed in 1996 contained provisions that would have been
phased in, and would have eliminated government tariff filing,
allowed confidential and independent contracts between shippers
and ocean carriers, strengthened provisions that prohibit
predatory activities by foreign carriers, and prescribed
certain oversight responsibilities within the government while
continuing the company's existing antitrust immunity. The
company is unable to predict whether this or other proposed
legislation will be introduced or enacted, and whether it will
contain terms similar to those proposed in 1996. Enactment of
legislation modifying the Shipping Act, depending upon its
terms, could have a material adverse impact on the competitive
environment in which the company operates and on the company's
results of operations.
<PAGE>
For the remainder of 1996, the company currently expects
excess vessel capacity and rate volatility in the U.S. import
and Asia-Europe markets. Additionally, the company currently
expects lower U.S. export volumes and rates than in 1995,
reflecting weak demand, strong competition and the sale of the
Guam business. The company currently expects continued
strength in its intra-Asia market. The extent to which these
conditions materialize depends upon developments such as, but
not limited to, changes in market growth rates, general
economic and political conditions in the markets served, the
amount and timing of continuing significant increases in
industry capacity, the extent of rate reductions in the
companyOs markets, successful continuation of the company's
alliances, whether sufficient labor efficiencies can be
achieved, and the timing and extent of industry deregulation.
NORTH AMERICA TRANSPORTATION (1)
(Volumes in thousands of FEUs)
Third Quarter Year to Date
1996 1995 Change 1996 1995 Change
______________________________________________________________________________
Revenues (2) (In millions)
Stacktrain $ 120.9 $ 117.0 3% $ 389.0 $ 383.9 1%
Non-Stacktrain 15.3 54.3 (72%) 96.5 180.0 (46%)
______________________________________________________________________________
Stacktrain Volumes
North America 100.3 93.3 7% 318.0 300.1 6%
International 43.3 45.5 (5%) 124.5 140.3 (11%)
______________________________________________________________________________
Stacktrain Average
Revenue per FEU (2) $1,205 $1,253 (4%) $1,223 $1,279 (4%)
______________________________________________________________________________
______________________________________________________________________________
(1)Volumes and revenue per FEU data are based upon shipments
originating during the period, which differs from the
percentage-of-completion method used for financial reporting
purposes.
(2)In addition to third party business, which is referred to
above as North America Volumes, the transportation of
containers for the company's international customers is a
significant component of its stacktrain operations. These
shipments are referred to above as International Stacktrain
Volumes and, since they are eliminated in consolidation, are
excluded from Revenues and Stacktrain Average Revenue per
FEU.
Revenues from the company's North America transportation
operations decreased 20% and 14% in the third quarter and first
three quarters of 1996, respectively, compared with the same
periods in 1995, primarily as a result of the sale of the
company's rights to service certain domestic intermodal
customers in the second quarter of 1996. The sale reduced non-
stacktrain revenues and related operating costs in the
company's North America operations in the third quarter and
first three quarters of 1996, and is expected to reduce
revenues and related operating costs in future quarters. Also
contributing to the revenue decline in the third quarter and
first three quarters of 1996 from the 1995 periods were lower
rates due to increased competition, industry-wide softness in
demand and excess capacity. Revenues in the third quarter and
first three quarters of 1996 were positively impacted by an
increase in the company's stacktrain volumes in the U.S. and
Mexico markets compared with last year.
During the remainder of 1996, the company currently
expects modest growth in demand in the North America stacktrain
and automotive markets, and flat or lower rates. Demand in
these markets is dependent upon conditions in the U.S. and
Mexican economies and the extent to which U.S. automakers
continue to operate in Mexico, among other factors. In
addition, growth in these markets could be impacted by labor
disputes involving the companyOs customers or service
providers. No assurances can be given that growth in demand in
these markets will materialize.
<PAGE>
TRANSPORTATION OPERATING EXPENSES
(In millions, except Third Quarter Year to Date
Operating Cost per FEU) 1996 1995 Change 1996 1995 Change
______________________________________________________________________________
Land Transportation $209.2 $235.0 (11%) $ 672.5 $ 748.2 (10%)
Cargo Handling 164.2 147.5 11% 470.8 439.6 7%
Vessel, Net 87.2 100.0 (13%) 279.7 281.1 (1%)
Transportation Equipment 50.0 50.6 (1%) 156.5 155.3 1%
Information Systems 10.5 11.1 (5%) 32.3 37.0 (13%)
Depreciation
and Amortization 26.1 25.7 1% 83.5 79.0 6%
Sales, General, Administrative
and Other 50.1 87.7 (43%) 209.3 304.1 (31%)
______________________________________________________________________________
Total $597.3 $ 657.6 (9%) $1,904.6 $2,044.3 (7%)
______________________________________________________________________________
Operating Cost
per FEU (1) $2,483 $2,889 (14%) $2,585 $2,869 (10%)
Operating Ratio (1) 94% 93% 96% 96%
______________________________________________________________________________
______________________________________________________________________________
(1)Operating Costs used in these calculations include
Operating, General and Administrative, and Depreciation and
Amortization expenses, some of which are associated with
certain International and North America revenues that are
not volume related. Excluded from these calculations are
the 1996 gains resulting from the net decreases in benefit
obligations for pension and postretirement benefits, the
sale of the company's domestic distribution services segment
and the sale of a vessel. In addition, the 1995 gains from
the sale of a vessel and vessel construction contracts and
liquidated damages from the delayed delivery of two C11-
class vessels were excluded from these calculations.
The strengthening of the U.S. dollar relative to the
Japanese yen had a positive impact on operating expenses in the
1996 third quarter and first three quarters of approximately $4
million and $14 million, respectively, compared with the same
periods in 1995. The yen/dollar exchange rate averaged 109 and
107 yen to the dollar in the third quarter and first three
quarters of 1996, respectively, compared with 92 and 90 yen to
the dollar in the third quarter and first three quarters of
1995, respectively.
Land transportation expenses decreased in third quarter
and first three quarters of 1996 from the comparable periods in
1995 due to the sale in the second quarter of 1996 of the
rights to service certain domestic intermodal customers, and
reduced rail rates. Additionally, company-controlled trucking
expenses declined in first three quarters of 1996, as a result
of the company's sale of its U.S. trucking operations in June
1995.
Cargo handling expenses increased in the third quarter and
first three quarters of 1996 compared with 1995, primarily as
result of higher stevedoring volumes in Hong Kong and South
China, higher stevedoring activity related to the company's
alliances, and higher rates in certain locations. The revenues
for cargo handling services provided by the company to its
alliance partners are included in other transportation
revenues. This increase was partially offset by lower costs
resulting from a weaker Japanese yen compared with the U.S.
dollar in the third quarter and first three quarters of 1996
compared with the 1995 periods.
Vessel expenses decreased in the third quarter of 1996
compared with third quarter of 1995 primarily as a result of
cost savings from the sale of six U.S.-flag vessels to Matson,
the return of three of the four L9-class vessels chartered from
Lykes and favorable prior year subsidy adjustments. These
savings were partially offset by increased costs related to the
six new C11-class vessels, only two of which were in service in
the third quarter of 1995. Subsidy payments were lower as a
result of the vessel sales to Matson, partially offset by a
prior year subsidy adjustments. Fuel prices were relatively
unchanged in the third quarter of 1996 compared with the third
quarter of 1995, and increased 4% in the first three quarters
of 1996 compared with the comparable 1995 period. Vessel
expenses decreased slightly in the first three quarters of 1996
compared with first three quarters of 1995 due to cost savings
as a result of the sale of vessels to
<PAGE>
Matson and the vessels returned to Lykes, and favorable prior
year subsidy adjustments. Offsetting these decreases were
increased costs related to the new C11-class vessels, increased
purchases of vessel space from the alliance partners in the
Asia-Europe and Asia-Latin America services, and lower subsidy
payments due to fewer vessels.
Transportation equipment costs decreased in the third
quarter of 1996 compared with the third quarter of 1995 and
increased in the first three quarters of 1996 compared with the
first three quarters of 1995, reflecting the relative amounts
of increased container lease costs and reduced rail car per
diem costs.
The decrease in information systems costs in the third
quarter and first three quarters of 1996 compared with the
third quarter and first three quarters of 1995 was due
primarily to the elimination of positions in late 1995.
Depreciation and amortization expense increased in the
third quarter and first three quarters of 1996 compared with
the same periods in 1995 primarily as a result of the
deployment of the six new C11-class vessels, only two of which
were in service in the third quarter of 1995, and other capital
spending after the third quarter of 1995.
Sales, general, administrative and other expenses
decreased in the third quarter and first three quarters of 1996
compared with the third quarter and first three quarters of
1995 due primarily to decreases in expenses related to position
eliminations resulting from the companyOs reengineering
program. Also contributing to the 1996 decrease of these
expenses in the third quarter and first three quarters of 1996
was the inclusion of expenditures in the third quarter and
first three quarters of 1995 for corporate initiatives to
improve the company's financial and order cycle processes of
$5.7 million and $18.3 million, respectively. There were no
such expenditures in the comparable 1996 periods. Included as
reductions of these expenses in the third quarter of 1996 were
a gain of $12.9 million resulting from the curtailment of
obligations for pension and postretirement benefits due to
workforce reductions, lower accruals for certain employee
benefits based on current estimates and favorable insurance and
other claims experience. Included as reductions of these
expenses in the third quarter of 1995 were gains of $3.6
million from the sale of a vessel and vessel construction
contracts, and $3.5 million in liquidated damages from the
delayed delivery of two C11-class vessels. Also included as
reductions of these expenses in the first three quarters of
1996 were a gain of $6.9 million on the sale of the company's
rights to service certain domestic intermodal customers and a
$1.6 million gain from the sale of a vessel.
Net interest expense increased from $3.7 million and $7.3
million in the third quarter and first three quarters of 1995,
respectively, to $8.0 million and $27.6 million in the third
quarter and first three quarters of 1996, respectively,
primarily due to debt incurred in connection with the C11-class
vessels purchased during 1995 and January 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
(In millions)
September December 29
As of: 1996 1995
______________________________________________________________________________
Cash, Cash Equivalents and
Short-term Investments $ 308.5 $ 135.7
Working Capital 210.6 65.1
Total Assets 1,927.0 1,878.8
Long-Term Debt and Capital
Lease Obligations (1) 718.3 698.9
______________________________________________________________________________
September 20 September 22
For the 26 weeks ending: 1996 1995
______________________________________________________________________________
Cash Provided by Operations $ 115.5 $ 139.1
______________________________________________________________________________
INVESTING ACTIVITIES
Proceeds from Sales of
Property and Equipment $ 161.7 $ 39.2
Proceeds from Sale of
Distribution Services 2.0
Net Capital Expenditures
Ships $ 69.5 $ 188.1
Containers, Chassis and Rail Cars 10.6 20.4
Leasehold Improvements and Other 22.7 29.9
______________________________________________________________________________
Total Net Capital Expenditures $ 102.8 $ 238.4
______________________________________________________________________________
FINANCING ACTIVITIES
Repurchase of Common Stock $ (14.8) $ (139.6)
Borrowings 62.2 143.7
Repayment of Debt and Capital Leases(43.0) (22.9)
Dividend Payments (7.7) (11.8)
______________________________________________________________________________
______________________________________________________________________________
(1)Includes current and long-term portions.
In the first quarter of 1996, the company sold Matson five
U.S.-flag ships (three C9-class vessels and two C8-class
vessels) and certain of its assets in Guam for approximately
$158.4 million in cash. This transaction is more fully
described in Note 7 of Notes to Consolidated Financial
Statements.
The company took delivery of its final C11-class vessel in
January 1996. To finance a portion of the cost of this vessel,
the company borrowed approximately $62.2 million in 1996 in the
form of vessel mortgage notes under a loan agreement with
European banks. This debt is more fully described in Note 4 of
Notes to Consolidated Financial Statements.
In addition to vessel expenditures of $69.5 million, the
company made capital expenditures in the first three quarters
of 1996 of $33.3 million primarily for purchases of chassis,
containers, and terminal and leasehold improvements. Capital
expenditures in 1996 are currently budgeted to total
approximately $157 million, including $71 million of vessel
costs. The balance is expected to be spent primarily on
terminal equipment in North America and Asia, terminal
improvements in North America, refrigerated containers and
computer systems. The company has outstanding purchase
commitments to acquire cranes, facilities, equipment and
services totaling $99.3 million. In the first three quarters
of 1995, in addition to vessel expenditures of $188.1 million,
the company's other capital expenditures totaled $50.3 million
primarily for purchases of chassis and terminal and leasehold
improvements.
In April 1996, the Board of Directors approved a program
to repurchase up to an aggregate of $50 million of the
company's common stock from time to time through open market or
privately negotiated transactions. As of September 20, 1996,
the company paid $14.8 million to repurchase 627,100 shares of
its common stock under this program, as more fully described in
Note 6 of Notes to Consolidated Financial Statements.
<PAGE>
On October 9, 1996, the Board of Directors declared a
quarterly cash dividend of $0.10 per share of common stock,
payable on December 2, 1996 to common stockholders of record on
November 15, 1996.
The company believes its existing resources, cash flows
from operations and borrowing capacity under its existing
credit facilities (see Note 4 of Notes to Consolidated
Financial Statements for a description of these facilities)
will be adequate to meet its liquidity needs for the
foreseeable future.
Certain Factors That May Affect Operating Results
Statements prefaced with "expects", "anticipates",
"estimates", "believes" and similar words are forward looking
statements based on the company's current expectations as to
prospective events, circumstances and conditions over which it
may have little or no control and as to which it can give no
assurances. All forward looking statements, by their nature,
involve risks and uncertainties that could cause actual
results to differ materially from those projected.
The severity of the challenging conditions expected for
the company and the shipping industry generally, and the
impact of those conditions on the company's operating results,
will depend on factors such as the timing and extent of an
anticipated slowing of market growth in certain markets served
by the company, the amount and timing of an anticipated
significant increase in industry capacity due to new vessel
deliveries to competing carriers, rate reductions in some
market segments due to this additional capacity and other
factors, successful continuation of the company's alliances,
which comprise a significant factor in the company's long-term
strategy to remain competitive, re-negotiation of recently
ratified labor contracts due to the enactment of new maritime
support legislation and the pace and degree of industry
deregulation, including whether amendments to the Shipping Act
of 1984 are proposed and enacted.
Demand in the trans-Pacific market is dependent on
factors such as the quantity of available import and export
cargo in this market and economic and political conditions in
the U.S. and other Pacific Basin countries. The magnitude of
the impact on the company of any growth or contraction in the
trans-Pacific market will depend on whether and when new
vessels ordered by competing carriers are delivered and where
they are ultimately deployed and further vessel orders, if
any, by competing carriers. Because a number of competing
ocean carriers have placed orders for the construction of a
significant number of new vessels, growth in capacity in the
trans-Pacific market in 1996 and 1997 is expected to be
significantly greater than growth in demand.
Growth in demand in the North America stacktrain market
and demand for automotive shipments will depend on economic
and political conditions in the U.S. and Mexico, including the
relative values of the U.S. dollar and the Mexican Peso, and
the extent to which U.S. automakers continue to operate in
Mexico, among other factors. Growth in these markets could
also be impacted by labor disputes involving the company's
customers or service providers.
The continuation of savings in operating expenses, and
further incremental savings, if any, in connection with the
company's reengineering program and organizational changes
will depend on the ultimate future effectiveness and results
of those efforts. There can be no assurance that the company
will continue to realize these savings, and changes in the
timing of any anticipated savings by the company, or the
failure to realize some or all of these savings, could
materially and adversely affect the company's operating
results.
<PAGE>
Other risks and uncertainties include the degree and rate
of market growth or contraction in other markets served by the
company and the company's ability to respond in mitigation of
any contraction or to take advantage of such growth, changes
in the cost of fuel, the status of labor relations, the
amplitude of recurring seasonal business fluctuations and the
continuation and effectiveness of the Trans-Pacific
Stabilization Agreement and the various shipping conferences
to which the company belongs. The companyOs inability to re-
negotiate agreements with the unions through the collective
bargaining process on terms and conditions providing
sufficient labor efficiencies to compensate for reduced
subsidy payments from the enactment of maritime support
legislation could result in work stoppages, strikes or other
labor difficulties or in higher labor costs, which could have
a material adverse effect on the company's operating results.
The company has in the past experienced such difficulties and
there can be no assurance that any such difficulties will not
occur in the future.
Also, the company is subject to inherent risks of
conducting business internationally, including unexpected
changes in, or imposition of, legislative or regulatory
requirements, fluctuations in the relative values of the U.S.
dollar and the various foreign currencies with which the
company is paid and funds its local operations, tariffs and
other trade barriers and restrictions affecting its customers,
potentially longer payment cycles, potentially greater
difficulty in accounts receivable collection, potentially
adverse taxes and the burden of complying with a variety of
foreign laws. In addition, in connection with its
international operations, the company is subject to general
geopolitical risks, such as political and economic instability
and changes in diplomatic and trade relationships affecting it
or its customers.
The company expressly disclaims any obligation or
undertaking to update any forward looking statements contained
herein in the event of any change in the company's
expectations with regard thereto or with regard to current or
prospective conditions or circumstances on which any such
statement is based.
<PAGE>
PART II - OTHER INFORMATION
Item 1.LEGAL PROCEEDINGS
The company is a party to various pending legal
proceedings, claims and assessments arising in the course of
its business activities, including actions relating to trade
practices, personal injury or property damage, alleged breaches
of contracts, torts, labor matters, employment practices, tax
matters and miscellaneous other matters. Some of these
proceedings involve claims for punitive damages, in addition to
other specific relief.
Among these actions are approximately 2,990 cases pending
against the company, together with numerous other ship owners
and equipment manufacturers, involving injuries or illnesses
allegedly caused by exposure to asbestos or other toxic
substances on ships. In May 1996, an order was entered in the
United States District Court for the Eastern District of
Pennsylvania, which administratively dismissed most of such
cases without prejudice and with all statutes of limitation
tolled, and with reinstatement permitted upon fulfillment by
plaintiffs of certain specified conditions. In July 1996, the
Court issued an order to reinstate 29 cases against vessel
owners and to dismiss the vessel owners' third party claims and
cross-claims against manufacturers of asbestos products. A
motion for reconsideration of such dismissal is pending. The
company is presently unable to ascertain or predict the
potential impact of this order on the disposition or eventual
outcome of such cases.
The company insures its potential liability for bodily
injury to seamen through mutual insurance associations.
Industry-wide resolution of asbestos-related claims and
resolutions of claims against bankrupt shipping companies at
higher than expected amounts could result in additional
contributions to those associations by the company and other
association members.
In December 1989, the government of Guam filed a complaint
with the Federal Maritime Commission ("FMC") alleging that
American President Lines, Ltd. and an unrelated company charged
excessive rates for carrying cargo between the U.S. and Guam,
in violation of the Shipping Act and the Intercoastal Shipping
Act of 1933, and seeking an undetermined amount of reparations.
Three private shippers are also complainants in this
proceeding. On June 3, 1996, the FMC administrative law judge
ordered that the complaint be dismissed on the merits. The
complainants filed its appeal with the FMC on July 25, 1996,
and American President Lines, Ltd. filed its reply on September
16, 1996. A decision by the FMC is expected in August 1997.
Based upon information presently available, and in light
of legal and other defenses and insurance coverage and other
potential sources of payment available to the company,
management does not expect the legal proceedings described,
individually or in the aggregate, to have a material adverse
impact on the company's consolidated financial position or
operations.
<PAGE>
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following documents are exhibits to this Form 10-Q:
Exhibit
No. Description of Document
_______ _______________________
27 Financial Data Schedules filed under Article 5 of
Regulation S-X for the third quarter ended September 20,
1996.
(b) Reports on Form 8-K
On May 17, 1996 and July 16, 1996, the company filed a
Form 8-K and a Form 8-K/A, respectively, dated May 2,
1996, reporting the sale of the rights to service certain
domestic intermodal customers to Hub Group, Inc., and the
pro-forma effects of the sale.
<PAGE>
APL Limited and Subsidiaries
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.
APL LIMITED
Dated: October 31, 1996 By /s/ William J. Stuebgen
__________________________ __________________________
William J. Stuebgen
Vice President,
Controller and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q of APL
Limited for the quarter ended September 20, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> SEP-20-1996
<CASH> 130,635
<SECURITIES> 177,868
<RECEIVABLES> 242,484<F1>
<ALLOWANCES> 0
<INVENTORY> 30,474
<CURRENT-ASSETS> 648,157
<PP&E> 1,995,513
<DEPRECIATION> 864,519
<TOTAL-ASSETS> 1,926,957
<CURRENT-LIABILITIES> 437,595
<BONDS> 708,325
0
0
<COMMON> 25,170
<OTHER-SE> 476,684
<TOTAL-LIABILITY-AND-EQUITY> 1,926,957
<SALES> 0
<TOTAL-REVENUES> 2,013,515
<CGS> 0
<TOTAL-COSTS> 1,904,573<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,043
<INCOME-PRETAX> 81,365
<INCOME-TAX> 28,478
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,887
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.01
<FN>
<F1>The Allowance for Doubtful Accounts, included in Receivables, amounted to
$21.7 million at September 20, 1996.
<F2>The Provision for Doubtful Accounts, included in Total-Costs, amounted to
$4.7 million for the three quarters ended September 20, 1996.
</FN>
</TABLE>
