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SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. Employer
incorporation or organization) Identification Number)
2200 Forward Drive
Harrison, Arkansas 72601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: (501) 741-9000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 Act of 1934 during
the preceding 12 months (or 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by nonaffiliates of the
registrant at February 13, 1997: $398,571,324.
Number of shares of common stock outstanding at February 13, 1997:
31,260,496.
The Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1996 is incorporated by reference into Parts II and IV.
The Proxy Statement for Registrant's March 27, 1997 Annual Meeting is
incorporated by reference into Parts III and IV.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. and 2. Business and Properties 1
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 3
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters 4
6. Selected Financial Data 5
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
8. Financial Statements and Supplementary Data 7
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 7
PART III
10. Directors and Executive Officers of the Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial
Owners and Management 8
13. Certain Relationships and Related Transactions 8
PART IV
14. Exhibits, Financial Statement Schedules and
Current Reports on Form 8-K 9
Signatures 13
Financial Statements and Financial Statement Schedules 14
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
American Freightways is a scheduled common and contract carrier transporting
primarily less-than-truckload (LTL) shipments of general commodities. As of
January 1, 1997, the Company serves all points in Alabama, Arkansas, Colorado,
Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Louisiana, Maryland, Minnesota, Mississippi, Missouri, Nebraska, North Carolina,
Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia and
Wisconsin. American Freightways also provides service to the ten provinces of
Canada through an exclusive alliance with Day & Ross, a Canadian less-than-
truckload carrier headquartered in Hartland, New Brunswick, Canada and provides
service to 90% of the Mexican market through an alliance with Autolineas
Mexicanas, S.A. DE C.V. of Monterrey, Mexico.
RECENT EVENTS
The LTL industry is impacted significantly by the availability and cost of
diesel fuel. The price of diesel fuel increased dramatically, reaching a six
year high in April 1996. The Company, as did the majority of the industry,
implemented a fuel surcharge to offset higher fuel cost. The Company's fuel
surcharge is adjusted weekly based on the Department of Energy's Diesel Fuel
index.
Congress passed legislation in 1994 deregulating intrastate traffic, freight
moving within the borders of a given state, effective January 1, 1995. Prior to
the deregulation, the Company had intrastate operating authority in Arkansas,
Louisiana and Kansas. The Company provides intrastate service to all the states
in which it operates.
The Interstate Commerce Commission (ICC), the agency exercising regulatory
authority over the transportation industry, was closed effective December 31,
1995, and its remaining responsibilities transferred to the Department of
Transportation (DOT).
EXPANSION
The history of American Freightways has been growth. Fourteen years ago, the
Company began serving all points in one state, Arkansas. Today the Company's
all-points service coverage extends to 26 states. Perhaps the most
distinguishing feature of the Company's operations is this all-points coverage.
Management knows of no other LTL carrier that duplicates this coverage.
The Company began operations by opening 20 customer centers on October 25,
1982. From 1983 through 1985, 11 customer centers were added to the system,
including Chicago, Illinois; Oklahoma City and Tulsa, Oklahoma; and Houston,
Texas. Thirteen customer centers were added in 1986, 20 customer centers in
1987, 12 customer centers in 1988, nine customer centers in 1989, 15 customer
centers in 1990, 11 customer centers in 1991 and ten customer centers in 1992.
During 1993, the opening of seven new customer centers in the state of Georgia
and nine new customer centers in the state of Kentucky brought all-points
coverage to these two states as well as the southern portions of the states of
Indiana and Ohio. During 1994, the Company opened 14 new customer centers in
Indiana and Ohio.
1
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The Company's most aggressive expansions to date were in 1995. On January 1,
1995, the Company opened 13 customer centers and extended its all-points
coverage to North Carolina and South Carolina. On April 17, 1995, customer
centers were opened at Colorado Springs, Denver, Fort Collins and Pueblo,
Colorado; Des Moines, Iowa; Madison and Milwaukee, Wisconsin; Minneapolis/St.
Paul, Minnesota; and Omaha, Nebraska. On July 10, twelve additional customer
centers were opened extending the Company's all-points coverage to Colorado,
Iowa, Nebraska and Wisconsin. On August 14, 1995, the Company opened seven
customer centers in Florida to provide all-points coverage to the state.
On January 1, 1996, the Company opened 12 customer centers to provide all-
points coverage to Delaware, Maryland, Virginia and West Virginia. Also, on
January 1, 1996, the Company extended its coverage to all 10 Canadian provinces
through an exclusive partnership with Day & Ross, one of Canada's leading less-
than-truckload carriers. Day & Ross, Inc. is part of the Day & Ross
transportation group, Canada's largest truck transportation conglomerate and is
a wholly-owned subsidiary of Canadian-based McCain Food Company. On June 1,
1996, the Company extended coverage to 90% of the Mexican market through an
alliance with Autolineas Mexicanas, S.A. DE C.V. of Monterrey, Mexico. On June
3, 1996, the Company added five additional customer centers in Minnesota
increasing the Company's all-points coverage to 26 states.
FLEET
The Company's policy is to purchase equipment having uniform specifications
that are, to the greatest possible extent, compatible with design improvements
and resale values. This standardization enables the Company to simplify
mechanic and driver training, to control the cost of spare parts and tire
inventory, and in general to provide for a more efficient vehicle maintenance
program. American Freightways utilizes twin trailers for movement of almost
100% of the freight among its customer centers to gain greater flexibility. The
use of twin trailers (which can be operated singly or in tandem) provides more
options for the achievement of the Company's service standards. At December 31,
1996, the Company utilized 13,536 van trailers, 11,804 of which were twin
trailers, and 4,985 tractors. The average ages of the tractors and trailers
were 3.4 and 3.8 years, respectively, at December 31, 1996.
ASSOCIATES
At December 31, 1996, the Company employed 9,947 associates. All drivers
utilized by American Freightways are selected in accordance with specific
Company guidelines relating primarily to safety records and driving experience.
All associates are required to pass drug tests upon employment, randomly and for
cause. State and federal regulations require drug testing of drivers and
require drivers to comply with commercial driver's licensing requirements.
Management believes that the Company is substantially in compliance with these
regulations.
The Company has not experienced a shortage of qualified drivers in the past,
and management does not expect a significant shortage in the near future.
None of the Company's personnel are currently represented by a collective
bargaining unit. From time to time, associates of a particular customer center
or facility may vote on representation by a collective bargaining unit.
Management of the Company cannot predict the outcome of future elections.
However, it believes any outcome will not have a material adverse affect on the
Company's competitive position, operations or financial condition. In the
opinion of management, the Company's relationship with its drivers, other
associates and independent contractors is excellent. The Company's policy is to
share its success with its associates through increased wages and benefits.
2
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TECHNOLOGY
American Freightways is a leader in the use of advanced technology to increase
the value of service to its customers and to lower the cost of providing this
service. The Company uses computer and electronic technology to compress time
in the performance of operating and other processes and to compress the number
of levels within the organization necessary to complete tasks. From the
customer's call for a pickup through the capture of a signature verifying
delivery of the freight, the Company's information technology captures
information on the status of each shipment. In most cases the accumulation of
the data is achieved automatically as the freight is moved.
FACILITIES
At the end of 1996, American Freightways changed the name of its terminal
facilities to Customer Centers. This name change reflects AF's commitment to
its customers. Associates at the local level are empowered to make decisions
that are in the best interest of customers' service issues.
The Company owns its general office located in Harrison, Arkansas and 81
customer center facilities in 19 states. At December 31, 1996, 122 of the
Company's customer centers were leased. The terms of the leases on the
facilities range from month-to-month to ten years. The availability of suitable
facilities determines whether the Company leases or constructs a Company-owned
facility.
One of the principal features distinguishing American Freightways from its
competitors is its extensive customer center network, placing customer centers
nearer to the customer. During 1996, the Company completed construction of a
230 door facility in Atlanta, Georgia. In addition, the Company added capacity
through the purchase of existing facilities, the construction of new customer
centers or additions to existing customer centers in several strategic locations
such as Akron, Ohio; Dayton, Ohio; Des Moines, Iowa; Ft. Myers, Florida; Hot
Springs, Arkansas; Houston, Texas; Indianapolis, Indiana; Lincoln, Illinois;
Memphis, Tennessee; Milwaukee, Wisconsin; Nashville, Tennessee; Orlando,
Florida; and Phenix City, Alabama. The Company has plans to either expand or
construct several additional customer centers in 1997.
At December 31, 1996, the Company's customer center network consisted of 203
customer centers. Of these customer centers, 198 were managed by Company
associates and 5 were operated and managed by independent contractors. Company-
operated customer centers involve costs (such as operating taxes, salaries and
wages and depreciation), whereas costs of independent contractor-operated
customer centers generally are variable as a flat percentage of revenue. It is
American Freightways' intent to primarily utilize Company-operated customer
centers in future expansions.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage incurred in
the transportation of freight. The Company believes adverse results in one or
more of these cases would not have a material adverse effect on its competitive
position, financial position or its results of operations. The Company
maintains insurance in an amount which management believes is currently
sufficient to cover its risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
3
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
American Freightways Corporation's Common Stock is traded under the symbol
"AFWY" on the National Market System of the National Association of Securities
Dealers Automated Quotation System (NASDAQ). The following table sets forth,
for the periods indicated, the range of high and low prices for the Company's
Common Stock as reported by NASDAQ through February 13, 1997. The latest price
for the Company's Common Stock on February 13, 1997, as reported by the NASDAQ
was $12.75 per share. At February 13, 1997, there were approximately 3,251
holders of record of the Company's Common Stock.
PERIOD HIGH LOW
-----------------------------------------------------------------
FISCAL YEAR 1995:
First Quarter $ 24-1/8 $ 18-5/8
Second Quarter 24-1/4 18-3/8
Third Quarter 24 13-3/4
Fourth Quarter 15-1/8 9-7/8
FISCAL YEAR 1996:
First Quarter $ 14-1/2 $ 9-1/2
Second Quarter 16-7/8 11
Third Quarter 12-1/2 8-1/2
Fourth Quarter 11-3/4 8-1/2
FISCAL YEAR 1997:
First Quarter (through February 13, 1997) $ 14-1/4 $ 10-7/8
The Company has not paid cash dividends in the past and does not intend to pay
cash dividends in the foreseeable future. Under certain of the Company's loan
agreements, the Company is subject to certain restrictions on its ability to pay
dividends. See Note 3 to the Consolidated Financial Statements incorporated by
reference herein.
4
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from consolidated financial
statements of the Company. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements, related notes and other
financial information included elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(Dollars in thousands, except per share data) 1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue................................... $262,011 $328,464 $465,588 $572,100 $729,042
Operating expenses and costs:
Salaries, wages and benefits....................... 125,152 168,770 247,049 335,167 444,041
Operating supplies and expenses.................... 17,169 22,099 30,710 38,667 59,640
Operating taxes and licenses....................... 9,647 12,340 19,251 24,434 31,827
Insurance.......................................... 8,705 7,891 15,360 21,595 27,113
Communications and utilities....................... 4,357 6,907 9,117 11,040 12,840
Depreciation and amortization...................... 17,059 21,519 27,888 37,560 46,918
Rents and purchased transportation................. 39,683 42,250 45,633 46,405 45,826
Other.............................................. 13,895 15,782 20,880 26,469 33,728
-------- -------- -------- -------- --------
Total operating expenses.......................... 235,667 297,558 415,888 541,337 701,933
-------- -------- -------- -------- --------
Operating income.................................... 26,344 30,906 49,700 30,763 27,109
Interest expense.................................... (4,844) (4,246) (6,832) (10,198) (14,708)
Other income, net................................... 453 329 442 415 303
Gain on disposal of assets.......................... 9 1 292 329 90
-------- -------- -------- -------- --------
Income before income taxes, extraordinary
charge and cumulative effect of
accounting change.................................. 21,962 26,990 43,602 21,309 12,794
Income taxes........................................ 8,016 10,238 16,571 8,226 4,938
-------- -------- -------- -------- --------
Income before extraordinary charge and
cumulative effect of accounting change............. 13,946 16,752 27,031 13,083 7,856
Extraordinary charge for early retirement
of debt, net of tax benefit of $205................ - - (335) - -
Cumulative effect of accounting change.............. (383) - - - -
-------- -------- -------- -------- --------
Net income.......................................... $ 13,563 $ 16,752 $ 26,696 $ 13,083 $ 7,856
======== ======== ======== ======== ========
Per share:
Income before extraordinary charge and
cumulative effect of accounting change............ $ 0.50 $ 0.59 $ 0.89 $ 0.42 $ 0.25
Extraordinary charge............................... - - (0.01) - -
Cumulative effect of accounting change............. (0.02) - - - -
-------- -------- -------- -------- --------
Net income......................................... $ 0.48 $ 0.59 $ 0.88 $ 0.42 $ 0.25
======== ======== ======== ======== ========
Average shares outstanding (000's).................. 28,132 28,581 30,357 31,334 31,266
</TABLE>
5
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(Dollars in thousands)
Current assets..................... $ 34,729 $ 37,660 $ 54,247 $ 77,213 $ 91,954
Current liabilities................ 19,348 35,083 44,378 52,514 66,166
Total assets....................... 175,531 251,130 355,348 477,762 549,875
Long-term debt (including
current portion).................. 55,304 97,537 111,181 197,631 238,239
Shareholders' equity............... 89,709 109,460 177,180 195,434 206,298
Working capital.................... $ 15,381 $ 2,577 $ 9,869 $ 24,699 $ 25,788
Debt to equity ratio............... 0.62 0.89 0.63 1.01 1.15
Return on shareholders' equity..... 16.5% 16.8% 18.6% 7.0% 3.9%
KEY OPERATING STATISTICS:
Operating ratio.................... 89.9% 90.6% 89.3% 94.6% 96.3%
Total tractors..................... 1,955 2,453 3,344 4,521 4,985
Customer centers................... 116 132 144 186 203
Number of employees................ 3,655 4,964 6,506 8,867 9,947
Gross tonnage hauled (000's)....... 1,615 2,051 2,759 3,380 4,149
Shipments (000's).................. 2,654 3,237 4,267 5,486 7,016
Average length of haul............. 525 550 567 588 595
Line haul load factor (tons)....... 10.79 10.90 10.96 10.91 10.40
Revenue per hundred weight......... $ 8.11 $ 8.01 $ 8.46 $ 8.48 $ 8.80
</TABLE>
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Item is incorporated by this reference to Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, pages 16 through 19.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 20 through 30 of the Annual Report to Shareholders for the
year ended December 31, 1996, are incorporated herein by reference.
Quarterly Results of Operations on page 29 of the Annual Report to
Shareholders for the year ended December 31, 1996, is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The executive officers and directors of American Freightways as of February
13, 1997, are as follows:
NAME AGE POSITION
---- --- --------
F. S. (Sheridan) Garrison 62 Chairman of the Board of Directors, President
and Chief Executive Officer
Frank Conner 47 Executive Vice President-Accounting & Finance;
Chief Financial Officer; Director
Tom Garrison 36 Vice President; Secretary/Treasurer; Director
Will Garrison 33 Vice President; Director
Ben A. Garrison 65 Director
T. J. Jones 60 Director
Ken Reeves 49 Director
Gary Bouch 43 Vice President-Transportation
Wil DeOrsey 38 Vice President-Operations
Joe Dobbs 50 Vice President-Properties
Daniel Garrison 42 Account Executive
James Hearn 62 Vice President-Maintenance
Terry Higginbotham 49 Vice President-Sales
George Reid 49 Executive Vice President-Operations
The remainder of this Item 10, Directors and Executive Officers of the
Registrant, is incorporated by this reference to Registrant's Notice and Proxy
Statement for its Annual Meeting of Shareholders to be held on Thursday, March
27, 1997.
ITEM 11. EXECUTIVE COMPENSATION
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held on Thursday, March 27, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held on Thursday, March 27, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held on Thursday, March 27, 1997.
8
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (l) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The exhibits as listed in the Exhibit Index, are submitted as a
separate section of this report.
(b) Current Reports on Form 8-K:
None.
(c) See Item 14(a)(3) above.
(d) The response to this portion of Item 14 is submitted as a separate section
of this report.
9
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INDEX TO EXHIBITS
3(a) Amended and Restated Articles of Incorporation incorporated by reference
to Registrant's Form 10-Q for the quarterly period ending March 31, 1995.
3(b) Amended and Restated Bylaws of American Freightways Corporation
incorporated by reference to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992.
10(a) Amended and Restated 1993 Chairman Stock Option Plan, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended December 31,
1995.
10(b) Amended and Restated 1993 Non-Employee Director Stock Option Plan as
amended January 23, 1996, incorporated by reference to Registrant's Form
10-K for the fiscal year ended December 31, 1995.
10(c) Amended and Restated 1993 Stock Option Plan for Key Employees as amended
January 23, 1996, incorporated by reference to Registrant's Form 10-K for
the fiscal year ended December 31, 1995.
10(d) Amended and Restated Stock Purchase Plan for Certain Employees of
Registrant and subsidiaries as amended January 23, 1996, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended December 31,
1995.
10(e) Amended and Restated American Freightways Corporation Excess Benefit Plan
as amended January 23, 1996, incorporated by reference to Registrant's
Form 10-K for the fiscal year ended December 31, 1995.
10(f) $50,000,000 Master Shelf Agreement ($10,000,000 Note attached) with The
Prudential Insurance Company of America dated September 3, 1993,
incorporated by reference to Registrant's Form 10-Q for the quarterly
period ended September 30, 1993.
10(g) $10,000,000 Note dated February 2, 1994, issued under the $50,000,000
Master Shelf Agreement with The Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to Registrant's Form
10-K for the fiscal year ended December 31, 1993.
10(h) $10,000,000 Note dated April 13, 1994, issued under the $50,000,000
Master Shelf Agreement with The Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to Registrant's Form
10-Q for the quarterly period ended June 30, 1994.
10(i) $15,000,000 Note dated January 30, 1995, issued under the $90,000,000
Master Shelf Agreement with the Prudential Insurance Company of America
dated September 3, 1993, incorporated by reference to Registrant's Form
10-Q for the quarterly period ended March 31, 1995.
10(j) $20,000,000 Note dated June 15, 1995, issued under the $90,000,000 Master
Shelf Agreement with the Prudential Insurance Company of America dated
September 3, 1993, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended June 30, 1995.
10
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10(k) $25,000,000 Note dated May 1, 1996, issued under the $90,000,000 Master
Shelf Agreement with the Prudential Insurance Company of America dated
September 3, 1993, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended June 30, 1996.
10(l) Letter Amendment No. 1 to Master Shelf Agreement with The Prudential
Insurance Company of America dated October 19, 1994, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended December 31,
1994.
10(m) Letter Amendment No. 2 to Master Shelf Agreement with The Prudential
Insurance Company of America dated December 14, 1994, incorporated by
reference to Registrant's Form 10-K for the fiscal year ended December 31,
1994.
10(n) Letter Amendment No. 3 to Master Shelf Agreement with The Prudential
Insurance Company of America dated March 29, 1996, incorporated by
reference to Registrant's Form 10-Q for the quarterly period ended March
31, 1996.
10(o) Note Agreement among Prudential Capital Corporation, the Registrant and
certain subsidiaries dated December 5, 1991, incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1991.
10(p) Letter Amendment No. 1 to Note Agreement with The Prudential Insurance
Company of America dated January 15, 1992, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended June 30, 1992.
10(q) Letter Amendment No. 3 to Note Agreement with The Prudential Insurance
Company of America dated October 19, 1994, incorporated by reference to
Registrant's Form 10-K for the fiscal year ended December 31, 1994.
10(r) Letter Amendment No. 4 to Note Agreement with The Prudential Insurance
Company of America dated March 29, 1996, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended March 31, 1996.
10(s) Amended and Restated Credit Agreement among NationsBank of Texas, N.A.,
as Agent, the Registrant and certain subsidiaries dated October 20, 1994,
incorporated by reference to Registrant's Form 10-K for the fiscal year
ended December 31, 1994.
10(t) First Amendment to Amended and Restated Credit Agreement among
NationsBank of Texas, N.A., as agent, the Registrant and its Subsidiary
dated May 31, 1995, incorporated by reference to Registrant's Form 10-Q
for the quarterly period ended June 30, 1995.
10(u) Second Amendment to Amended and Restated Credit Agreement among
NationsBank of Texas, N.A., as Agent, the Registrant and its Subsidiary
dated March 26, 1996, incorporated by reference to Registrant's Form 10-Q
for the quarterly period ended March 31, 1996.
11
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10(v) Third Amendment to Amended and Restated Credit Agreement among NationsBank
of Texas, N.A., as agent, the Registrant and its subsidiary dated May 31,
1996, incorporated by reference to Registrant's Form 10-Q for the
quarterly period ended June 30, 1996.
10(w) Lease Agreement among VT Finance, Inc., the Registrant and its Subsidiary
dated January 5, 1996, incorporated by reference to Registrant's Form 10-K
for the fiscal year ended December 31, 1995.
13 Annual Report to Stockholders for the fiscal year ended December 31, 1996
21 Subsidiary of Registrant
23 Consent of Ernst & Young LLP
24 Power of Attorney
27 Financial Data Schedule
12
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 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. Dated this 13th day of
February, 1997.
American Freightways Corporation
By: /s/Frank Conner
-----------------------------------
Frank Conner
Chief Financial Officer; Director
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/F. S. Garrison February 13, 1997
- ----------------------------------------------- -----------------
F. S. Garrison Date
Chairman of the Board of Directors,
Chief Executive Officer
(Principal Executive Officer)
/s/Frank Conner February 13, 1997
- ----------------------------------------------- -----------------
Frank Conner Date
Chief Financial Officer; Director
(Principal Accounting Officer)
/s/Tom Garrison February 13, 1997
- ----------------------------------------------- -----------------
Tom Garrison Date
Director
/s/Will Garrison February 13, 1997
- ----------------------------------------------- -----------------
Will Garrison Date
Director
/s/Ben A. Garrison February 13, 1997
- ----------------------------------------------- -----------------
Ben A. Garrison Date
Director
/s/T. J. Jones February 13, 1997
- ----------------------------------------------- -----------------
T. J. Jones Date
Director
/s/Ken Reeves February 13, 1997
- ----------------------------------------------- -----------------
Ken Reeves Date
Director
13
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ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of American Freightways
Corporation and subsidiary included in the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1996 are incorporated by
reference in Item 8:
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Income for the years ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements--December 31, 1996.
The following consolidated financial statement schedule of American
Freightways Corporation and subsidiary is included in Item 14(d):
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY
Consolidated Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
14
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
AMERICAN FREIGHTWAYS CORPORATION
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------------------------------------------------------------
Additions
------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other Account Deductions at End
Description of Period Expenses -Describe -Describe of Period
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1994:
Allowance for
Doubtful Accounts $493,039 $1,125,840 $423,029 (1) $1,403,102 (2) $ 638,806
=============================================================
Year ended
December 31, 1995:
Allowance for
Doubtful Accounts $638,806 $ 928,974 $264,867 (1) $ 988,116 (2) $ 844,531
=============================================================
Year ended
December 31, 1996:
Allowance for
Doubtful Accounts $844,531 $1,720,873 $225,618 (1) $1,413,063 (2) $1,377,959
==============================================================
</TABLE>
Note 1 - Recoveries of amounts previously written off.
Note 2 - Uncollectible accounts written off.
15
<PAGE>
Exhibit 13
Annual Report to Shareholders
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- ------------------------------------------------
The following table sets forth, for the years indicated, the percentages of
operating expenses and other items to operating revenue:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and benefits 60.9 58.6 53.1
Operating supplies and expenses 8.2 6.8 6.6
Operating taxes and licenses 4.4 4.3 4.1
Insurance 3.7 3.8 3.3
Communications and utilities 1.8 1.9 1.9
Depreciation and amortization 6.4 6.5 6.0
Rents and purchased transportation 6.3 8.1 9.8
Other 4.6 4.6 4.5
- ----------------------------------------------------------------
Total operating expenses 96.3 94.6 89.3
- ----------------------------------------------------------------
Operating income 3.7 5.4 10.7
Interest expense 2.0 1.8 1.5
Other income, net 0.1 0.1 0.2
- ----------------------------------------------------------------
Income before taxes 1.8 3.7 9.4
Income taxes 0.7 1.4 3.6
- ----------------------------------------------------------------
Income before extraordinary item 1.1 2.3 5.8
- ----------------------------------------------------------------
</TABLE>
Results of Operations
1996 Compared to 1995
Revenue
Operating revenue for 1996 was $729,042,000, up 27.4%, compared to $572,100,000
for 1995. This increase in operating revenue was due primarily to a 22.8%
increase in tonnage handled by the Company from new and existing customers.
The increase in tonnage handled by the Company was primarily a result of the
following:
. The Company continued to increase its market penetration into existing
service territories, particularly those geographic areas added during
1995.
. The increase in intrastate tonnage following the deregulation of
intrastate commerce effective January 1, 1995.
. On January 1, 1996, the Company expanded its all-points coverage to the
states of Delaware, Maryland, Virginia and West Virginia with the opening
of twelve new Customer Centers.
<PAGE>
. On June 3, 1996, the Company expanded its all-points coverage to 26
states with the addition of Minnesota. Five new Customer Centers were
opened to complement the two Customer Centers already operating in that
state.
A 3.8% increase in revenue per hundred weight also contributed to the increase
in operating revenue. The majority of the increase in revenue per hundred
weight was experienced during the last half of 1996. During the last half of
1996, pricing stabilized due to increased overall demand for LTL services. This
increased demand helped to absorb much of the excess capacity that existed in
the industry during 1995 and the first half of 1996. In addition, the Company
initiated a fuel surcharge beginning September 16, 1996 to help cover the
increased costs of fuel. This surcharge is tied to the Department of Energy's
National Diesel Fuel Index and was 1.6% for LTL shipments as of December 31,
1996. Other factors influencing revenue per hundred weight were:
. A general rate increase of approximately 5.75% effective January 1, 1996.
General rate increases initially affect approximately 45% of the
Company's customers. The remaining customers' rates are determined by
contracts and guarantees and are negotiated throughout the year.
. The Company's average length of haul increased 1.2%, to 595 miles, in the
12 months ended December 31, 1996 as compared to the 12 months ended
December 31, 1995. The increase in average length of haul was primarily a
result of the Company's expanded service territory.
. The percentage of the Company's total revenue that was derived from
truckload shipments (greater than 10,000 pounds) declined to 6.7% in 1996
as compared to 7.8% in 1995.
Management expects that growth in operating revenue is sustainable in the near
term. The Company's planned expansions of service territory during 1997 are less
aggressive than those initiated in recent years. The primary focus for growth
in operating revenue in the near-term will be further penetration of existing
markets. As a result, any near-term percentage growth in operating revenue will
likely be less than that experienced in recent years. The foregoing statement
concerning the sustainability of revenue growth is subject to a number of
factors, including LTL industry capacity, increased tonnage and general economic
conditions.
Operating Expenses
Operating expenses as a percentage of operating revenue increased to 96.3% in
1996 from 94.6% in 1995. This overall increase was primarily attributable to:
. Salaries, wages and benefits as a percentage of operating revenue
increased to 60.9% in 1996 from 58.6% in 1995. The increase in salaries,
wages and benefits as a percentage of operating revenue was primarily a
result of the following factors. First, the Company invested in
additional people in order to improve on-time service. The timing of
freight flows was interrupted in the second half of 1995 due to a large
geographic expansion and a softening of general economic conditions. As a
result, on-time service fell below the traditionally high levels
established by the Company. The first half of 1996 was largely devoted to
restoring on-time service. With on-time service reestablished at or near
historical levels, the second half of 1996 was focused on improved asset
utilization and cost reduction. Specifically, the Company reconfigured
its line- haul operations and increased the flexibility of its workforce.
While these changes were being implemented, there were some costs which
overlapped during the second half of 1996 while associates learned new
responsibilities. The second factor contributing to this increase was the
continuation of the Company's philosophy of sharing its success with its
associates through increased wages and enhanced benefits packages. On
March 3, 1996, the Company increased the wages of its drivers, dockmen
and clerical associates by approximately 3.0%. A third factor was the
conversion of five Customer Centers from contractor-operated to Company-
operated facilities during the first half of 1996. Given the operational
improvements initiated during the last half of 1996, management does not
expect salaries, wages and benefits as a percentage of operating revenue
to continue in an upward trend. These expenses, as they relate to
operating revenue, are expected to stabilize or gradually improve.
However, a portion of salaries, wages and benefits are subject to factors
beyond the control of management, such as inflation and general economic
conditions.
<PAGE>
. Operating supplies and expenses as a percentage of operating revenue
increased to 8.2% in 1996 from 6.8% in 1995. This increase primarily
reflects the impact of higher fuel prices. Management believes the fuel
surcharge implemented September 16, 1996, offset most of the impact of
higher fuel prices from that time forward. However, during the period
from February 1997 through August 1997, management estimates higher fuel
costs resulted in lower earnings of $0.08 per share. Management cannot
accurately predict fuel prices. However, given foreseeable market
conditions, management does believe that increased fuel expenses due to
higher fuel prices can be largely offset by the continuation of a fuel
surcharge.
These increases in operating expenses as a percentage of operating revenue were
partially offset by improvements in the following area:
. Rents and purchased transportation as a percentage of operating revenue
improved to 6.3% in 1996 from 8.1% in 1995. This improvement was
primarily due to the Company's philosophy of utilizing Company-operated
Customer Centers rather than contractor-operated Customer Centers in
expansions of service territory. In addition, five Customer Centers were
converted from contractor-operated to Company-operated centers during
1996.
Other
Interest expense as a percentage of operating revenue increased to 2.0% in 1996
from 1.8% in 1995. This increase was primarily attributable to increased
borrowings incurred by the Company to finance the expansion of service territory
and support growth in operating revenue.
The effective tax rate of the Company was 38.6% for 1996, the same as in 1995.
Net income for 1996 was $7,856,000, down 40.0%, from $13,083,000 for 1995.
1995 Compared to 1994
Revenue
Operating revenue for 1995 was $572,100,000, up 22.9%, compared to $465,588,000
for 1994. This increase in operating revenue was due almost entirely to a 22.5%
increase in tonnage handled by the Company. Revenue per hundred weight was
basically unchanged in 1995 from 1994 despite the Company effecting a rate
increase of approximately 3.5% on January 1, 1995. This was primarily due to
aggressive, discounted pricing as a result of excess capacity within the less-
than-truckload industry. This excess capacity existed largely as a result of
overall economic conditions during 1995. In order to utilize its excess
capacity and better position the Company for the long-term, the Company elected
to accelerate the pace of expansion of its service territory. The following
expansions of service territory were initiated by the Company during 1995:
. On January 1, 1995, the Company expanded its all-points coverage to the
states of North Carolina and South Carolina with the opening of thirteen
new Customer Centers.
. On April 17, 1995, the Company expanded its service territory with the
addition of facilities in: Colorado Springs, Denver, Fort Collins and
Pueblo, CO; Des Moines, IA; Minneapolis/St. Paul, MN; Omaha, NE; Madison
and Milwaukee, WI.
. On July 10, 1995, the Company expanded its all-points coverage to the
states of Colorado, Iowa, Nebraska and Wisconsin with the opening of
twelve new Customer Centers.
. On August 14, 1995, the Company provided all-points coverage to the state
of Florida with the opening of seven new Customer Centers and added one
additional Customer Center in the state of Georgia.
These expansions of service territory from 14 to 21 states during 1995 were the
primary reasons for the increase in tonnage handled by the Company. In
addition, tonnage was increased by the deregulation of intrastate commerce,
effective January 1, 1995, by the Federal Aviation Administration Authorization
Act of 1994, and by continued market penetration into existing service
territories.
<PAGE>
Operating Expenses
Operating expenses as a percentage of operating revenue increased to 94.6% in
1995 from 89.3% in 1994. This overall increase was primarily attributable to:
. Salaries, wages and benefits as a percentage of operating revenue
increased to 58.6% in 1995 from 53.1% in 1994. The increase in salaries,
wages and benefits as a percentage of operating revenue was primarily a
result of three factors. First, the utilization of Company-operated
Customer Centers, rather than contractor-operated Customer Centers, in
expansions of service territory contributed to this increase. Second, the
continuation of the Company's philosophy of sharing its success with its
associates through increased wages and enhanced benefits packages
contributed to this increase. On March 6, 1995, the Company increased the
wages of its drivers, dockmen and clerical associates by approximately
5.5%. The third factor was the accelerated expansion of service territory
during 1995. Within the expansion territories, wages and benefits were
disproportionately high in relation to operating revenue as new
associates were added to establish an operating base.
. Insurance as a percentage of operating revenue increased to 3.8% in 1995
from 3.3% in 1994. This increase was primarily a result of the Company's
increased experience of accidents and cargo claims, particularly in the
areas of cargo care and liability insurance.
. Depreciation and amortization as a percentage of operating revenue
increased to 6.5% in 1995 from 6.0% in 1994. This increase was primarily
due to two factors. The first factor was the decreased usage of rented
equipment in favor of Company-owned equipment. The second factor was the
rapid expansion of service territory. During the initial stages of
expansion of service territory, depreciation expense is
disproportionately high in comparison to operating revenue.
These increases in operating expenses as a percentage of operating revenue were
partially offset by improvements in the following area:
. Rents and purchased transportation as a percentage of operating revenue
improved to 8.1% in 1995 from 9.8% in 1994. This improvement was
primarily due to the Company's philosophy of utilizing Company-operated
Customer Centers rather than contractor-operated Customer Centers in
expansions of service territory. In addition, this improvement was
partially due to the decreased usage of rented equipment in favor of
Company-owned equipment.
Other
Interest expense as a percentage of operating revenue increased to 1.8% in 1995
from 1.5% in 1994. This increase was primarily attributable to increased
borrowings incurred by the Company to finance the expansion of service territory
and support growth in operating revenue.
The effective tax rate of the Company was 38.6% for 1995, up from 38.0% in 1994.
This increase was primarily due to increased state income taxes. Net income for
1995 was $13,083,000, down 51.0%, from $26,696,000 for 1994.
Liquidity and Capital Resources
The continued growth in operating revenue and the expansion of service territory
during 1996 required significant capital resources.
Capital requirements during 1996 consisted primarily of $104,752,000 of
investing activities. The Company invested $107,383,000 in capital expenditures
during 1996 comprised of $43,396,000 in additional revenue equipment,
$46,639,000 in new Customer Center facilities or the expansion of existing
Customer Center facilities and $17,348,000 in other equipment. Management
expects improvements in asset utilization as a result of the operational changes
implemented during the last half of 1996. Therefore, management does not expect
a similar amount of capital expenditures for revenue equipment will be required
in 1997. However, similar
<PAGE>
amounts of capital expenditures are expected for Customer Centers in order to
provide adequate facilities to handle growth in existing markets. The actual
amount of capital expenditures required in 1997 will be dependent on the growth
rate of the Company and the timing and size of any future expansions of service
territories. At December 31, 1996, the Company had commitments for land,
Customer Centers, revenue and other equipment of approximately $12,190,000.
The Company provided for its capital resource requirements in 1996 with cash
from operations and financing activities. Cash from operations totaled
$63,252,000 in 1996 compared to $45,676,000 in 1995. Financing activities
augmented cash flow by $43,252,000 in 1996, utilizing two primary sources of
financing; 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. This facility is provided by
NationsBank of Texas, N.A. (agent), Texas Commerce Bank, N.A., Wachovia
Bank of Georgia, N.A., ABN-AMRO Bank N.V., The First National Bank of
Chicago and Credit Lyonnais. Effective May 31, 1996, the limit of this
line of credit facility was increased to $175,000,000 from $125,000,000.
During 1996, the Company utilized this facility to provide $24,000,000 of
net financing, bringing outstanding borrowings under the facility to
$118,000,000 and leaving $57,000,000 available for borrowing. The Company
also maintains a short-term, unsecured revolving line of credit with
NationsBank of Texas, N.A. Effective May 31, 1996, the limit of this
short-term facility was increased to $10,000,000 from $7,500,000. At
December 31, 1996, $10,000,000 was available for borrowing. In addition,
the Company maintains a $10,000,000 line of credit with NationsBank, N.A.
to obtain letters of credit required for its self-insurance program. At
December 31, 1996, the Company had obtained letters of credit totaling
$5,076,000 for this purpose.
. To assist in financing longer-lived assets, the Company has an
uncommitted Master Shelf Agreement with the Prudential Insurance Company
of America which provides for the issuance of up to $90,000,000 in medium
to long-term unsecured notes at an interest rate calculated at issuance.
On May 1, 1996, the Company utilized this agreement to issue a
$25,000,000 note at 7.51% with a ten year maturity. The proceeds of these
notes were used primarily to repay borrowings from the revolving line of
credit or to fund capital expenditures. With the issuance of these notes,
the Company had fully utilized the existing capacity of 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 December
31, 1996, and to fund current operating and capital needs. However, if
additional financing is required, management believes it will be available.
The Company utilizes off-balance sheet financing in the form of operating
leases, when appropriate and suitable, to finance computer equipment, Customer
Center facilities and revenue equipment. At December 31, 1996, future rental
commitments on operating leases were $48,449,000.
Environmental
At December 31, 1996, the Company had no outstanding inquiries with any state or
federal environmental agency.
Inflation
With the exception of fuel prices, the effect of inflation on the operating
results of the Company was minimal during 1996. Management estimates that
higher fuel prices resulted in lower earnings of $0.08 per share prior to the
implementation of a fuel surcharge on September 16, 1996. Most of the Company's
expenses are sensitive to inflation as increases in inflation generally result
in increased costs.
<PAGE>
Seasonality
In the trucking industry, results of operations generally show a seasonal
pattern because customers reduce shipments during winter months. In addition,
the Company's operating expenses as a percentage of operating revenues have
historically been higher during the winter.
Recent Events
On January 1, 1997, the Company effected a general rate increase of
approximately 5.9%. This rate increase initially affected approximately 45% of
its customers. Rates for other customers are covered by contracts and
guarantees and are negotiated throughout the year.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
American Freightways Corporation
We have audited the accompanying consolidated balance sheets of American
Freightways Corporation and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Freightways Corporation and subsidiary at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Little Rock, Arkansas
January 23, 1997
<PAGE>
American Freightways Corporation and Subsidiary
Consolidated Balance Sheets
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 9) $ 4,394 $ 2,642
Trade receivables, less allowance for
doubtful accounts (1996--$1,378;
1995--$845) 66,673 54,119
Operating supplies and inventories 2,493 2,136
Prepaid expenses 4,648 5,504
Deferred income taxes (Note 4) 10,649 8,444
Income taxes receivable 3,097 4,368
-----------------------
Total current assets 91,954 77,213
Property and equipment (Notes 3 and 6):
Land and structures 148,360 97,303
Revenue equipment 371,712 322,748
Service, office and other equipment 96,357 66,012
Land improvements 2,342 1,650
Construction in progress 16,020 42,876
Accumulated depreciation and
amortization (179,193) (132,887)
-----------------------
455,598 397,702
Other assets:
Bond funds (Notes 3 and 9) 922 901
Other 1,401 1,946
-----------------------
2,323 2,847
-----------------------
$ 549,875 $ 477,762
=======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
----------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 9,425 $ 10,532
Accrued expenses (Note 2) 45,278 33,590
Current portion of long-term debt 11,463 8,392
----------------------
Total current liabilities 66,166 52,514
Long-term debt, less current portion 226,776 189,239
(Notes 3 and 9)
Deferred income taxes (Note 4) 50,635 40,575
Shareholders' equity (Notes 3, 5 and 7):
Common stock, par value $.01 per
share; authorized 250,000 shares;
issued and outstanding 31,242 shares
in 1996 and 30,931 in 1995 312 309
Additional paid-in capital 101,519 98,514
Retained earnings 104,467 96,611
----------------------
206,298 195,434
Commitments (Note 6)
----------------------
$549,875 $477,762
======================
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiary
Consolidated Statements of Income
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Operating revenue $729,042 $572,100 $465,588
Operating expenses and costs:
Salaries, wages and benefits 444,041 335,167 247,049
Operating supplies and expenses 59,640 38,667 30,710
Operating taxes and licenses 31,827 24,434 19,251
Insurance 27,113 21,595 15,360
Communications and utilities 12,840 11,040 9,117
Depreciation and amortization 46,918 37,560 27,888
Rents and purchased transportation 45,826 46,405 45,633
Other 33,728 26,469 20,880
-----------------------------------
701,933 541,337 415,888
-----------------------------------
Operating income 27,109 30,763 49,700
Other income (expense):
Interest expense (14,708) (10,198) (6,832)
Interest income 137 146 195
Gain on disposal of assets 90 329 292
Other, net 166 269 247
-----------------------------------
(14,315) (9,454) (6,098)
-----------------------------------
Income before income taxes and
extraordinary charge 12,794 21,309 43,602
Federal and state income taxes (Note 4):
Current (credit) (3,093) (422) 7,071
Deferred 8,031 8,648 9,500
-----------------------------------
4,938 8,226 16,571
-----------------------------------
Income before extraordinary charge 7,856 13,083 27,031
Extraordinary charge for early
retirement of debt, net of tax benefit
of $205 (Note 3) - - (335)
-----------------------------------
Net income $ 7,856 $ 13,083 $ 26,696
===================================
Per share (Note 1):
Income before extraordinary charge $0.25 $0.42 $0.89
Extraordinary charge - - (0.01)
-----------------------------------
Net income $0.25 $0.42 $0.88
===================================
Average shares outstanding (Note 1) 31,266 31,334 30,357
===================================
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiary
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Balances at January 1, 1994 28,023 $ 280 $ 52,348 $ 56,832 $ 109,460
Sale of stock (Note 7) 2,125 21 36,630 - 36,651
Stock option and purchase plans 348 4 4,369 - 4,373
Net income - - - 26,696 26,696
--------------------------------------------------------------
Balances at December 31, 1994 30,496 305 93,347 83,528 177,180
Stock option and purchase plans 435 4 5,167 - 5,171
Net income - - - 13,083 13,083
--------------------------------------------------------------
Balances at December 31, 1995 30,931 309 98,514 96,611 195,434
Stock option and purchase plans 311 3 3,005 - 3,008
Net income - - - 7,856 7,856
--------------------------------------------------------------
Balances at December 31, 1996 31,242 $ 312 $101,519 $104,467 $ 206,298
==============================================================
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Cash received from customers $ 714,932 $ 557,139 $ 454,308
Cash paid to suppliers and employees (641,956) (498,454) (377,424)
Interest received 137 146 195
Interest paid (14,413) (9,907) (7,152)
Income taxes received (paid) 4,552 (3,248) (4,426)
-----------------------------------
Net cash provided by operating 63,252 45,676 65,501
activities
INVESTING ACTIVITIES
Proceeds from sales of equipment 2,631 1,029 945
Capital expenditures (107,383) (137,952) (116,272)
-----------------------------------
Net cash used by investing activities (104,752) (136,923) (115,327)
FINANCING ACTIVITIES
Proceeds from notes payable and
long-term borrowings 78,000 117,640 74,500
Principal payments on long-term debt (37,392) (31,190) (60,856)
Proceeds from issuance of common stock 2,644 3,440 39,938
-----------------------------------
Net cash provided by financing
activities 43,252 89,890 53,582
-----------------------------------
Net increase (decrease) in cash and
cash equivalents 1,752 (1,357) 3,756
Cash and cash equivalents at beginning
of year 2,642 3,999 243
-----------------------------------
Cash and cash equivalents at end of year $ 4,394 $ 2,642 $ 3,999
===================================
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------
(In Thousands)
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 7,856 $ 13,083 $ 26,696
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 46,811 37,443 27,805
Amortization 107 117 83
Provision for losses on accounts
receivable 1,721 929 1,126
Current tax effect of exercise of
stock options 188 931 1,086
Gain on sale of equipment (90) (329) (292)
Casualty loss on destroyed equipment 135
Deferred income taxes 8,031 8,648 9,500
Changes in operating assets and
liabilities:
Trade accounts receivable (14,275) (15,230) (11,521)
Operating supplies and inventories (357) (617) (664)
Prepaid expenses 856 (1,257) (986)
Federal and state income taxes 1,271 (4,601) 1,353
Other assets 417 244 100
Trade accounts payable (1,107) (2,826) 3,534
Accrued expenses 11,688 9,141 7,681
--------------------------------
Total adjustments 55,396 32,593 38,805
--------------------------------
Net cash provided by operating
activities $ 63,252 $ 45,676 $ 65,501
================================
</TABLE>
See accompanying notes.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of American
Freightways Corporation and its subsidiary (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
BUSINESS
The Company primarily operates as a regional and an interregional, scheduled,
for hire, less-than-truckload motor carrier, serving all points in 26 contiguous
states from a network of 203 Customer Centers. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Historically, credit losses have not been significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue and direct shipment costs upon the delivery of
the related freight.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. For financial reporting purposes,
the cost of such property is depreciated principally by the straight-line method
over the estimated useful lives of 3 to 12 years for revenue and service
equipment, 15 to 40 years for structures and improvements and 3 to 10 years for
furniture and office equipment. For tax reporting purposes, accelerated
depreciation or applicable cost recovery methods are used. Gains and losses are
recognized in the year of disposal.
Effective for periods beginning July 1, 1994, the Company changed the service
lives and salvage values for certain revenue equipment. These changes in
estimates were made to more accurately reflect the Company's experience as to
service lives of the equipment. These changes increased 1994 net income by
approximately $565,000, or $.02 per common share.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective for periods beginning October 1, 1995, the Company changed the service
lives for certain structures and improvements, ancillary and computer equipment
and furniture and fixtures. These changes in estimates were made to more
accurately reflect future service lives of the assets. These changes increased
1995 net income by approximately $453,000, or $.01 per common share.
INSURANCE
As of December 31, 1996, the Company was self-insured up to specified limits for
the following types of claims:
Workers' compensation:
All states of operation (with the
exception of Colorado, Delaware,
Indiana, Iowa, Maryland, Minnesota,
Nebraska, North Dakota, Texas, West
Virginia and Wisconsin) $500,000
State of Wisconsin FULLY INSURED
In the states of Colorado, Delaware, Indiana, Iowa, Maryland, Minnesota,
Nebraska and Texas, workers' compensation claims are insured under a $500,000
deductible plan. In the states of North Dakota and West Virginia, workers'
compensation claims are insured under the mandatory State Plan as private plans
are not permitted. Wisconsin law does not allow deductible plans and those
claims are fully insured.
All other types of claims are self-insured with a retention limit of $500,000
per occurrence.
INCOME TAXES
Deferred income taxes are accounted for under the liability method. Deferred
income tax assets and liabilities reflect the effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and the amounts used for income tax purposes.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of shares
outstanding during each year, adjusted to include common stock equivalents
attributable to dilutive stock options.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and accordingly, recognizes no compensation expense for the stock
option grants.
IMPAIRMENT OF ASSETS
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", on January 1, 1996. Under SFAS No. 121, impairment
losses are recognized when information indicates the carrying amount of long-
lived assets, identifiable intangibles and goodwill related to those assets will
not be recovered through future operations or sale. Impairment losses for assets
to be held or used in operations will be based on the excess of the carrying
amount of the asset over the asset's fair value. Assets held for disposal,
except for discontinued operations, will be carried at the lower of carrying
amount or fair value less cost to sell. SFAS No. 121 was applied prospectively
from the date of adoption and the effect of adoption was not material.
RECLASSIFICATIONS
Certain amounts previously reported in 1995 and 1994 have been reclassified to
conform with the 1996 presentation.
<TABLE>
<CAPTION>
2. ACCRUED EXPENSES
1996 1995
--------------------
(In Thousands)
<S> <C> <C>
Accrued salaries, wages and benefits $21,581 $13,796
Taxes other than income 1,689 2,363
Loss, injury, damage, health and
workers' compensation claims reserves 20,514 16,320
Other 1,494 1,111
--------------------
$45,278 $33,590
====================
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
3. LONG-TERM DEBT
1996 1995
--------------------
(In Thousands)
<S> <C> <C>
Bonds payable /(1)/ $ 7,020 $ 7,310
Revolving credit agreements /(2)/ 118,000 94,000
Mortgage notes /(3)/ 969 1,107
Capitalized lease obligations /(4)/ - 214
Unsecured senior notes /(5)/ 112,250 95,000
--------------------
238,239 197,631
Less current portion (11,463) (8,392)
-----------------------
$226,776 $189,239
=======================
</TABLE>
(1) Represents the Company's liability under a loan agreement with Arkansas
Development Finance Authority, issuer of economic development revenue bonds
to construct Customer Centers and a general office facility. The loan
agreement provides that the Company will make payments sufficient to pay
the principal and interest on the bonds. The bonds include a $1,030,000
term bond due in 1999 and a $5,990,000 term bond due in 2009. The bonds
bear interest at fixed rates of 8.25% and 8.50%, respectively, and are
collateralized by land and structures with a net book value of $8,086,000
at December 31, 1996. The loan agreement requires that certain bond service
funds be maintained. As of December 31, 1996, there was $922,000 in a debt
service reserve fund. Mandatory annual sinking fund redemption payments
began in 1995.
(2) The revolving credit agreements at December 31, 1996, include an unsecured
revolving credit agreement which provides for available borrowings of
$175,000,000. Borrowings under this revolving credit agreement at December
31, 1996 totaled $118,000,000. The term of this agreement extends to April
1, 2001 (unless terminated or renewed). Interest is applied to outstanding
borrowings at variable interest rates based on the London Interbank rate or
the prime rate. The weighted average rate on outstanding borrowings at
December 31, 1996 was 6.6%. The agreement contains covenants which limit,
among other things, indebtedness, loans, investments and dividend payments,
as well as require the Company to meet certain financial tests. The Company
pays an annual commitment fee based on the unused commitment. At December
31, 1996, the commitment fee was 0.30%. As of December 31, 1996, the amount
available for additional borrowing under this line of credit was
$57,000,000.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
The Company also has $10,000,000 of available borrowings at December 31,
1996, under a separate unsecured revolving credit agreement. The terms of
this agreement provide for borrowings up to $10,000,000 at the prime rate
of interest or at a rate of interest agreed upon at the time of any
borrowings. No borrowings were outstanding at December 31, 1996 under this
agreement. This agreement matures May 31, 1997, unless terminated or
renewed.
In addition, the Company maintains a $10,000,000 line of credit to fund
letters of credit. At December 31, 1996, the Company had utilized this line
of credit to obtain letters of credit totaling $5,076,000.
(3) Mortgage notes are due monthly or quarterly to November 2003 at an average
interest rate of 8.44%. The notes are collateralized by land and structures
with a net book value of $1,543,000 at December 31, 1996.
(4) Capitalized lease obligations consisted primarily of installment
obligations for revenue equipment purchases.
(5) Includes an unsecured senior note for $25,000,000 payable in equal annual
installments of $5,000,000 through November 2001. The note bears interest
at a fixed rate of 8.91% payable semi-annually.
Also includes six notes totaling $87,250,000; all issued under an unsecured
and uncommitted $90,000,000 Master Shelf Agreement with the following
characteristics:
<TABLE>
<CAPTION>
OUTSTANDING INTEREST
PRINCIPAL MATURITY DATE RATE
---------------------------------------------------
<S> <C> <C> <C>
$ 9,250,000 August 2000 6.25%
8,000,000 October 2000 6.00
10,000,000 April 2001 7.55
15,000,000 January 2005 8.85
20,000,000 June 2005 6.92
25,000,000 May 2006 7.51
</TABLE>
All notes have fixed interest rates, payable quarterly. These note agreements
contain covenants which limit, among other things, loans, indebtedness,
investments and dividend payments, and require the Company to meet certain
financial tests.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
Annual maturities on long-term debt are $11,463,000 in 1997, $11,495,000 in
1998, $11,539,000 in 1999, $12,835,000 in 2000, $132,546,000 in 2001, and
$58,361,000 thereafter.
Interest costs of $1,655,000, $1,478,000 and $1,002,000 in 1996, 1995, and 1994,
respectively, were capitalized as part of the acquisition cost of certain
property and equipment.
In 1994, the Company paid a note prior to its maturity date and incurred a
prepayment charge of $540,000 which has been classified as an extraordinary
charge in the 1994 statement of income, net of the related income tax benefit of
$205,000.
4. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------
(In Thousands)
<S> <C> <C>
Noncurrent deferred tax liabilities:
Tax over book depreciation $65,760 $49,490
Alternative minimum tax credit (8,988) (8,915)
carryover
Federal and state loss carryovers (6,137) -
---------------------
Net noncurrent deferred tax liabilities $50,635 $40,575
=====================
Current deferred tax assets:
Accrued expenses not deductible until $10,514 $ 8,802
paid
Allowance for doubtful accounts 338 224
Revenue recognition differences 270 88
---------------------
Total current deferred tax assets 11,122 9,114
Current deferred tax liabilities:
Prepaid expenses 473 (670)
---------------------
Net current deferred tax assets $10,649 $ 8,444
=====================
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. FEDERAL AND STATE INCOME TAXES (CONTINUED)
The reconciliation between the effective income tax rate and the statutory
federal income tax rate is presented in the following table:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at the statutory federal
rate of 35% $4,478 $7,458 $15,261
Federal income tax effects of:
State income taxes (280) (336) (613)
Nondeductible expenses 340 295 214
Effects of lower rates on taxable
income below $15,000,000 (400) (150) (100)
Other - - 58
------------------------------
Federal income taxes 4,138 7,267 14,820
State income taxes 800 959 1,751
------------------------------
$4,938 $8,226 $16,571
==============================
Effective income tax rate 38.6% 38.6% 38.0%
==============================
</TABLE>
The Company has a federal tax loss carryover of $15,424,000 and alternative
minimum tax credit carryovers of approximately $8,988,000 which have reduced the
deferred tax liability. The federal tax loss will expire at December 31, 2011 if
not used to offset future taxable income. The alternative minimum tax credits
carry over indefinitely.
Tax benefits of stock option and purchase plans recorded as paid-in capital and
which did not reduce income tax expense amounted to $364,000, $1,731,000 and
$1,086,000 in 1996, 1995 and 1994, respectively.
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS
STOCK PURCHASE PLAN
The Company maintains a stock purchase plan covering substantially all employees
of the Company. A total of 275,987 shares of common stock remain reserved for
issuance under this plan at December 31, 1996. An eligible employee can purchase
shares having a fair market value on the date of grant of up to the greater of
$1,200 or the fair market value of 200 shares. The price per share is 85% of the
lower of the fair market value at the date of grant or the date of exercise,
which is one year from the date of grant.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
Shares have been issued during 1994, 1995 and 1996 as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
ISSUE DATE SHARES ISSUED EXERCISE PRICE
- ---------------------------------------------------------------------
<S> <C> <C>
April 30, 1994 91,199 $ 12.75
October 31, 1994 55,795 16.58
April 30, 1995 59,093 16.15
October 31, 1995 74,014 10.84
April 30, 1996 90,284 12.86
October 31, 1996 100,622 8.39
</TABLE>
During 1996 employees enrolled for options to purchase 198,498 shares under the
plan. In accordance with plan provisions, the shares must be purchased during
1997.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The 1993 Stock Option Plan provides for the issuance of qualified or
nonqualified options to purchase common stock of the Company, and the awarding
of stock appreciation rights payable in shares or cash. The stock appreciation
rights issued in 1993 are payable only in cash. No option or right may be issued
for less than the fair market value of the stock on the date of grant. The
options and rights vest over a five year period from the date of grant and will
expire if not exercised after ten years from the date of grant. The Company also
reserves shares for issuance under the Chairman Stock Option Plan and the
Nonemployee Director Stock Option Plan.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
Collective activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
STOCK SHARES WEIGHTED
APPRECIATION UNDER AVERAGE
RIGHTS OPTION PRICE RANGE PRICE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1994 195,300 1,709,860 $ 3.00 - $19.88 $ 9.40
Granted - 154,500 17.88 - 22.13 17.93
Exercised (10,690) (201,600) 3.00 - 13.06 6.59
Canceled (9,490) (29,020) 3.00 - 17.88 10.58
-------------------------------------------------------------------------------------
Outstanding at December 31, 1994 175,120 1,633,740 3.00 - 22.13 10.60
Granted - 231,950 14.81 - 21.38 21.34
Exercised (21,800) (290,990) 3.00 - 17.88 6.68
Canceled (15,030) (76,920) 3.00 - 21.38 11.95
-------------------------------------------------------------------------------------
Outstanding at December 31, 1995 138,290 1,497,780 3.00 - 22.13 12.86
Granted - 309,000 10.32 - 15.69 10.47
Exercised (3,660) (140,210) 4.25 - 13.07 6.46
Canceled (11,580) (100,800) 6.32 - 21.38 13.66
-------------------------------------------------------------------------------------
Outstanding at December 31, 1996 123,050 1,565,770 $ 3.00 - 22.13 $12.93
=====================================================================================
The following table summarizes information concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- --------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
LIFE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE
- ------------------------------------------------------------------------------------------------------------------------------
$3-$5 27,000 2.3 $ 3.00 21,000 $ 3.00
$5-$10 266,560 0.8 7.22 206,840 7.06
$10-$15 915,590 7.0 12.22 369,790 13.04
$15-$20 153,330 7.2 17.81 56,580 17.87
Greater than $20 203,290 8.1 21.38 41,010 21.39
------------------------------------ -----------
Total 1,565,770 6.0 695,220
==================================== ===========
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
The number of shares of common stock reserved for granting future options under
these plans was 1,686,770, 2,017,790 and 2,172,820, at December 31, 1996, 1995,
and 1994, respectively. At December 31, 1996, options were exercisable to
purchase 695,220 shares.
The Company recorded a benefit related to the change in value of stock
appreciation rights of $243,000 in 1995 and expense of $256,000 in 1994. No
benefit or expense was recorded in 1996.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost. If the Company had
elected to recognize compensation cost based on the fair value of options
granted at grant date as prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation", net income and earnings per share would have been reduced to the
pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1996 1995
-------------------
<S> <C> <C>
Net income - as reported $7,856 $13,083
Net income - pro forma 6,799 12,079
Earnings per share - as reported 0.25 0.42
Earnings per share - pro forma 0.22 0.39
</TABLE>
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
The fair value of each 1996 option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
OPTION PLANS PURCHASE PLAN
------------------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 26.9% 30.6%
Risk-free interest rate 5.42% 5.54%
Expected life of options 4.4 YEARS 1 YEAR
Weighted average value per option $3.29 $2.84
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continu
5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED)
RETIREMENT PLAN
The Company maintains a profit sharing plan for the benefit of all eligible
employees. The plan qualifies under Section 401(k) of the Internal Revenue Code
thereby allowing eligible employees to make tax deferred contributions to the
plan. The plan permits, at the discretion of the Board of Directors, elective
and matching employer contributions. During 1996, the Company made elective
contributions of 2 1/2% of each eligible participants' compensation, in addition
to a 25% match of the first 6% of compensation contributed by participants.
The Company's contributions to the plan totaled $8,313,000, $6,436,000 and
$4,254,000 for 1996, 1995 and 1994, respectively.
6. LEASES AND COMMITMENTS
Rent expense, exclusive of amounts related to purchased transportation, totaled
approximately $23,677,000 for 1996, $22,119,000 for 1995 and $18,576,000 for
1994.
The future minimum rental commitments under noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
REVENUE OTHER
TOTAL STRUCTURES EQUIPMENT EQUIPMENT
-------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
1997 $19,814 $3,887 $ 2,597 $13,330
1998 10,451 2,018 2,596 5,837
1999 7,435 1,232 2,596 3,607
2000 6,477 662 2,596 3,219
2001 2,226 406 1,820
Thereafter 2,046 875 1,171
------------------------------------------------------
$48,449 $9,080 $13,376 $25,993
======================================================
</TABLE>
Certain leases have renewal options for periods from one to five years at the
fair rental value of the related property at renewal.
All capital lease obligations outstanding at December 31, 1995 were paid during
1996.
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continu
6. LEASES AND COMMITMENTS (CONTINUED)
Capitalized leases were included in property and equipment at December 31, 1995
as follows:
<TABLE>
<CAPTION>
1995
-------------
(In Thousands)
<S> <C>
Revenue equipment $ 4,136
Service, office and other equipment 23
Less accumulated amortization (1,742)
-------------
$ 2,417
=============
</TABLE>
Lease amortization is included in depreciation expense.
Certain of the lease agreements contained fixed price purchase options. The
lease agreements require the lessee to pay property taxes, maintenance and
operating expenses.
Commitments for land, Customer Centers and revenue equipment (including the cost
to complete construction in progress) aggregated approximately $12,190,000 at
December 31, 1996.
7. COMMON STOCK
In 1994, the Company completed a public offering of 2,125,000 shares (including
over-allotment option) of common stock at $18.25 per share. The net proceeds to
the Company were $36,651,000.
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1996
Operating revenue $166,160 $181,085 $192,497 $189,300
Operating expenses and costs 161,798 173,562 183,337 183,236
Net income 602 2,702 3,123 1,429
Net income per share .02 .09 .10 .05
Average shares outstanding 31,165 31,338 31,285 31,268
</TABLE>
<PAGE>
American Freightways Corporation and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
1995
Operating revenue $132,533 $141,969 $149,392 $148,206
Operating expenses and costs 120,277 126,445 142,946 151,669
Net income (loss) 6,278 8,148 2,444 (3,787)
Net income (loss) per share .20 .26 .08 (.12)
Average shares outstanding 31,376 31,426 31,398 30,895
</TABLE>
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Cash and cash equivalents - the carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Bond funds - the Company's debt service reserve fund is invested in money market
funds and the carrying amount reported in the balance sheet for bond funds
approximates fair value.
Long-term debt - the fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
---------------------------
<S> <C> <C>
1996
Cash and cash equivalents $ 4,394 $ 4,394
Bond funds 922 922
Long-term debt 238,239 242,567
1995
Cash and cash equivalents 2,642 2,642
Bond funds 901 901
Long-term debt 197,631 201,763
</TABLE>
<PAGE>
Exhibit 21
Subsidiary of Registrant
American Freightways, Inc., an Arkansas Corporation
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of American Freightways Corporation and Subsidiary of our report dated January
23, 1997, included in the 1996 Annual Report to Shareholders of American
Freightways Corporation.
Our audits also included the financial statement schedule of American
Freightways Corporation and Subsidiary listed in Item 14(a). This schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-63674) pertaining to the American Freightways Corporation Stock
Option Plan and in the Registration Statement (Form S-8 No. 33-76788) pertaining
to the American Freightways Stock Purchase Plan of our report dated January 23,
1997, with respect to the consolidated financial statements incorporated herein
by reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
American Freightways Corporation and Subsidiary.
/s/Ernst & Young LLP
Little Rock, Arkansas
March 7, 1997
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Frank L. Conner, his true and lawful attorney in fact and agent with
full powers of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Annual Report on Form 10-K, and
any or all amendments thereto (including post-effective amendments), to be filed
by American Freightways Corporation in accordance with the rules and regulations
governed by the Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned hereby sets his hand this 4th day of
February, 1997.
/s/Ben A. Garrison
- ----------------------------------------
Ben A. Garrison, Director
State of Arkansas )
)
County of Boone )
This 4th day of Febuary, 1997, personally came before me Ben A. Garrison,
who, being by me duly sworn says that he is a Director for American Freightways
Corporation, an Arkansas corporation, and that said writing was signed and
sealed by him, on behalf of said corporation, by its authority given.
/s/Serena McBee
------------------------------------
Notary Public
My commission expires: 3-28-04
---------------
(SEAL)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1996 YEAR TO DATE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,394
<SECURITIES> 0
<RECEIVABLES> 68,051
<ALLOWANCES> 1,378
<INVENTORY> 2,493
<CURRENT-ASSETS> 91,954
<PP&E> 634,791
<DEPRECIATION> 179,193
<TOTAL-ASSETS> 549,875
<CURRENT-LIABILITIES> 66,166
<BONDS> 226,776
0
0
<COMMON> 312
<OTHER-SE> 205,986
<TOTAL-LIABILITY-AND-EQUITY> 549,875
<SALES> 0
<TOTAL-REVENUES> 729,042
<CGS> 0
<TOTAL-COSTS> 701,933
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 14,708
<INCOME-PRETAX> 12,794
<INCOME-TAX> 4,938
<INCOME-CONTINUING> 7,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,856
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
<FN>
<F1>PROVISION FOR DOUBTFUL ACCOUNTS INCLUDED IN COSTS ANS EXPENSES APPLICABLE TO
REVENUES.
</FN>
</TABLE>
