<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
OF 1934
For the transition period from __________________ to ___________________
Commission File No. 34-0-17570
AMERICAN FREIGHTWAYS CORPORATION
(Exact name of registrant as specified in its charter)
Arkansas 74-2391754
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2200 Forward Drive, Harrison, Arkansas 72601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 741-9000
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 for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [X] Yes [_] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations 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 March 6, 1998: $335,406,696.
Number of shares of common stock outstanding at March 6, 1998: 31,567,689.
The Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1997 is incorporated by reference into Parts II and IV.
The Proxy Statement for Registrant's April 23, 1998 Annual Meeting is
incorporated by reference into Parts III and IV.
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<PAGE>
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 Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial
Owners and Management 8
13. Certain Relationships and Transactions 8
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 9
Signatures 13
List of Financial Statements and Financial Statement Schedules 14
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
American Freightways Corporation (the "Company") is a scheduled common and
contract carrier transporting primarily less-than-truckload (LTL) shipments of
general commodities. As of January 1, 1998, the Company serves all points in
Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana,
Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi,
Missouri, Nebraska, New Mexico, 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 92% of the Mexican
market through an alliance with Autolineas Mexicanas, S.A. DE C.V. of Monterrey,
Mexico. Effective May 1, 1997, AF began an exclusive marketing partnership with
X-PRESS Freight Forwarders, Inc. providing service to and from Puerto Rico.
Headquartered in Carolina, Puerto Rico, X-PRESS Freight Forwarders, Inc. owns
the largest for-hire fleet in Puerto Rico.
RECENT EVENTS
On January 1, 1998, the Company instituted a general rate increase of
approximately 5.5%. 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.
EXPANSION
The history of American Freightways has been growth. In 1982, the Company
began serving all points in one state, Arkansas. Today the Company's all-points
service coverage extends to 28 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 has expanded geographically each year since its inception, some
years adding only a few Customer Centers to its most aggressive expansion
undertaken in 1995 of adding seven states. The Company opened one state, New
Mexico, in 1997 and on May 1, 1997 opened service to and from Puerto Rico
through an exclusive marketing partnership with X-PRESS Freight Forwarders, Inc.
On January 1, 1998, the Company opened all-points service to Michigan. There
are no additional expansions planned at this time.
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,
1997, the Company utilized 13,577 van trailers, 11,844 of which were twin
trailers, and 5,143 tractors. The average ages of the tractors and trailers
were 4.3 and 4.8 years, respectively, at December 31, 1997.
1
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ASSOCIATES
At December 31, 1997, the Company utilized 12,201 associates. All drivers of
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.
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 to delivery of the freight at its destination, 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.
The Company has assessed the impact of the Year 2000 issues on its computer
software systems and applications, and determined that although many of its
applications are already compliant, the Company will have to modify or replace
other applications. The Company expects to have all remaining applications
fully compliant by the end of 1998. The Company also has initiated discussions
with its significant customers and suppliers to determine the extent to which
the Company's interface systems would be vulnerable to those third parties'
failure to remediate their own Year 2000 issues. There is no assurance that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
Expenditures related to the Company's Year 2000 initiatives have not been and
are not expected to be material to the Company's results of operations or
financial position.
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 97
Customer Center facilities in 22 states. At December 31, 1997, 113 of the
Company's Customer Centers were leased. The terms of the leases on the
facilities range from month-to-month to fifteen years. The availability of
suitable facilities determines whether the Company leases or constructs a
Company-owned facility.
2
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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 1997, the Company completed construction of a 64
door facility in Jacksonville, FL; a 40 door facility in Ft. Smith, AR; a 48
door facility in Greenville, SC; a 40 door facility in Columbia, SC; a 20 door
facility in Quincy, IL; and a 48 door facility in Lexington, KY. In addition,
the Company added capacity through the purchase of existing facilities or
additions to existing Customer Centers in several strategic locations such as
Albuquerque, NM; Chattanooga, TN; Chicago, IL; Farmington, NM; Fort Wayne, IN;
Goodland, KS; Grand Island, NE; Greensboro, NC; Roswell, NM; San Angelo, TX;
Amarillo, TX; El Paso, TX; Odessa, TX; Victoria, TX; Wichita Falls, TX; Canton,
OH; Mansfield, OH; and Memphis, TN. The Company has plans to either expand or
construct several additional Customer Centers in 1998.
At December 31, 1997, the Company's Customer Center network consisted of 210
Customer Centers. Of these Customer Centers, 206 were managed by Company
associates and 4 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 March 6, 1998. The latest price for
the Company's common stock on March 6, 1998, as reported by the NASDAQ was
$10.625 per share. At March 6, 1998, there were approximately 3,184 holders of
record of the Company's common stock.
<TABLE>
<CAPTION>
PERIOD HIGH Low
- --------------------------------------------------------------------------------
FISCAL YEAR 1996:
<S> <C> <C>
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 $ 14-1/4 $ 10-7/8
Second Quarter 16-1/4 10-1/2
Third Quarter 19-1/2 14
Fourth Quarter 20 7-7/8
FISCAL YEAR 1998:
First Quarter (through March 6, 1998) $ 11 $ 9
</TABLE>
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) 1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue.....................................$328,464 $465,588 $572,100 $729,042 $870,319
Operating expenses and costs:
Salaries, wages and benefits......................... 168,770 247,049 335,167 444,041 528,695
Operating supplies and expenses...................... 22,099 30,710 38,667 59,640 75,085
Operating taxes and licenses......................... 12,340 19,251 24,434 31,827 35,339
Insurance............................................ 7,891 15,360 21,595 27,113 26,327
Communications and utilities......................... 6,907 9,117 11,040 12,840 14,114
Depreciation and amortization........................ 21,519 27,888 37,560 46,918 52,596
Rents and purchased transportation................... 42,250 45,633 46,405 45,826 56,008
Other................................................ 15,782 20,880 26,469 33,728 36,899
-------- -------- -------- -------- --------
Total operating expenses............................ 297,558 415,888 541,337 701,933 825,063
------- -------- -------- -------- --------
Operating income...................................... 30,906 49,700 30,763 27,109 45,256
Interest expense...................................... (4,246) (6,832) (10,198) (14,708) (16,256)
Other income, net..................................... 329 442 415 303 330
Gain (loss) on disposal of assets..................... 1 292 329 90 (52)
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary charge.................................. 26,990 43,602 21,309 12,794 29,278
Income taxes.......................................... 10,238 16,571 8,226 4,938 11,477
-------- -------- -------- -------- --------
Income before extraordinary charge.................... 16,752 27,031 13,083 7,856 17,801
Extraordinary charge for early retirement
of debt, net of tax benefit of $205................... - (335) - - -
-------- -------- -------- -------- --------
Net income............................................$ 16,752 $ 26,696 $ 13,083 $ 7,856 $ 17,801
======== ======== ======== ======== ========
Per share:
Income before extraordinary charge:
Basic...............................................$ 0.60 $ 0.92 $ 0.43 $ 0.25 $ 0.57
Diluted.............................................$ 0.59 $ 0.89 $ 0.42 $ 0.25 $ 0.56
Extraordinary charge (basic and diluted)............. - (0.01) - - -
-------- -------- -------- -------- --------
Net income:
Basic...............................................$ 0.60 $ 0.91 $ 0.43 $ 0.25 $ 0.57
Diluted.............................................$ 0.59 $ 0.88 $ 0.42 $ 0.25 $ 0.56
======== ======== ======== ======== ========
Average shares outstanding (000's):
Basic............................................... 27,854 29,485 30,750 31,070 31,372
Diluted............................................. 28,581 30,357 31,334 31,266 31,672
</TABLE>
The per share amounts prior to 1997 have been restated as required by
Statement of Financial Accounting Standards No. 128, Earnings Per Share. See
Note 1 to Consolidated Financial Statements.
5
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(Dollars in thousands)
Current assets...............................$ 37,660 $ 54,247 $ 77,213 $ 91,954 $105,315
Current liabilities.......................... 35,083 44,378 52,514 66,166 78,521
Total assets................................. 251,130 355,348 477,762 549,875 575,573
Long-term debt (including
current portion)............................. 97,537 111,181 197,631 238,239 221,908
Shareholders' equity......................... 109,460 177,180 195,434 206,298 227,416
Working capital..............................$ 2,577 $ 9,869 $ 24,699 $ 25,788 $ 26,794
Debt to equity ratio......................... 0.89 0.63 1.01 1.15 0.98
Return on average shareholders' equity....... 16.8% 18.6% 7.0% 3.9% 8.2%
KEY OPERATING STATISTICS:
Operating ratio.............................. 90.6% 89.3% 94.6% 96.3% 94.8%
Total tractors............................... 2,453 3,344 4,521 4,985 5,143
Customer Centers............................. 132 144 186 203 210
Number of associates......................... 4,964 6,506 8,867 9,947 12,201
Gross tonnage hauled (000's)................. 2,051 2,759 3,380 4,149 4,635
Shipments (000's)............................ 3,237 4,267 5,486 7,016 8,044
Average length of haul....................... 550 567 588 595 587
Line haul load factor (tons)................. 10.90 10.96 10.91 10.40 9.94
Revenue per hundred weight...................$ 8.01 $ 8.46 $ 8.48 $ 8.80 $ 9.40
</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, 1997, pages 18 through 21.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial statements
included on pages 22 through 32 of the Annual Report to Shareholders for the
year ended December 31, 1997, are incorporated herein by reference.
Quarterly Results of Operations on page 30 of the Annual Report to
Shareholders for the year ended December 31, 1997, 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 directors and executive officers of American Freightways as of March 6,
1998, are as follows:
<TABLE>
<CAPTION>
Name AGE POSITION
---- --- --------
<S> <C> <C>
F. S. (Sheridan) Garrison 63 Chairman of the Board of Directors, President and Chief Executive Officer
Frank Conner 48 Executive Vice President-Accounting & Finance;
Chief Financial Officer; Director
Tom Garrison 38 Corporate Vice President; Secretary/Treasurer;
Director
Will Garrison 34 Executive Vice President-Operations; Director
Ben A. Garrison 66 Director
John Paul Hammerschmidt 75 Director
T. J. Jones 61 Director
Ken Reeves 50 Director
Doyle Z. Williams 58 Director
Dennis Beal 49 Vice President-Physical Assets
John Berry 44 Vice President-Risk Management
Terry Higginbotham 51 Vice President-Sales
Terry Stambaugh 44 Executive Vice President-Human Resources
</TABLE>
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 1998 Annual Meeting of Shareholders to be held on Thursday,
April 23, 1998.
ITEM 11. EXECUTIVE COMPENSATION
This Item is incorporated by this reference to applicable portions of the
Registrant's Notice and Proxy Statement for its 1998 Annual Meeting of
Shareholders to be held on Thursday, April 23, 1998.
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 1998 Annual Meeting of
Shareholders to be held on Thursday, April 23, 1998.
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 1998 Annual Meeting of
Shareholders to be held on Thursday, April 23, 1998.
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 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(c) Amended and Restated Elected Non-Employee Director Stock Option Plan,
incorporated by reference to Registrant's Form 10-Q for the quarterly
period ended June 30, 1997.
10(d) Appointed Non-Employee Director Stock Option Plan, incorporated by
reference to Registrant's Form 10-Q for the quarterly period ended June
30, 1997.
10(e) Amended and Restated Stock Purchase Plan for Certain Employees of
Registrant and subsidiaries as amended January 9, 1997, incorporated by
reference to Registrant's Form 10-Q for the quarterly period ended
September 31, 1997.
10(f) 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(g) $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(h) $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(i) $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(j) $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(k) $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(l) $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
<PAGE>
10(m) $50,000,000 Note dated April 18, 1997, issued under the $140,000,000
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, 1997.
10(n) 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(o) 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(p) 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(q) Letter Amendment No. 4 to Master Shelf Agreement with The Prudential
Insurance Company of America dated April 18, 1997, incorporated by
reference to Registrant's Form 10-Q for the quarterly period ended March
31, 1997.
10(r) 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(s) 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(t) 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(u) 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(v) Letter Amendment No. 5 to Note Agreement with The Prudential Insurance
Company of America dated April 18, 1997, incorporated by reference to
Registrant's Form 10-Q for the quarterly period ended March 31, 1997.
10(w) 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(x) 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(y) 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
<PAGE>
10(z) 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(aa) Fourth Amendment to Amended and Restated Credit Agreement among
NationsBank of Texas, N.A., as Agent, the Registrant and its Subsidiary
dated March 31,1997, incorporated by reference to Registrant's Form 10-Q
for the quarterly period ended March 31, 1997.
10(bb) 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, 1996.
10(cc) Master Lease Agreement with Volvo Truck Finance North America, Inc. dated
August 18, 1997, incorporated by reference to Registrant's Form 10-Q for
the quarterly period ended September 31, 1997.
13 Annual Report to Stockholders for the fiscal year ended December 31, 1997
21 Subsidiaries of Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
12
<PAGE>
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 6th day of
March, 1998.
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 March 6, 1998
- ------------------------------------------------------------- -------------
F. S. Garrison Date
Chairman of the Board of Directors, Chief Executive Officer
(Principal Executive Officer)
/s/Frank Conner March 6, 1998
- ------------------------------------------------------------- -------------
Frank Conner Date
Chief Financial Officer; Director
(Principal Accounting Officer)
/s/Tom Garrison March 6, 1998
- ------------------------------------------------------------- -------------
Tom Garrison Date
Director
/s/Will Garrison March 6, 1998
- ------------------------------------------------------------- -------------
Will Garrison Date
Director
/s/Ben A. Garrison March 6, 1998
- ------------------------------------------------------------- -------------
Ben A. Garrison Date
Director
/s/John Paul Hammerschmidt March 6, 1998
- ------------------------------------------------------------- -------------
John Paul Hammerschmidt Date
Director
/s/T. J. Jones March 6, 1998
- ------------------------------------------------------------- -------------
T. J. Jones Date
Director
/s/Ken Reeves March 6, 1998
- ------------------------------------------------------------- -------------
Ken Reeves Date
Director
/s/Doyle Z. Williams March 6, 1998
- ------------------------------------------------------------- -------------
Doyle Z. Williams Date
Director
13
<PAGE>
ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of American Freightways
Corporation and subsidiaries included in the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1997 are incorporated by
reference in Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements--December 31, 1997.
The following consolidated financial statement schedule of American
Freightways Corporation and subsidiaries is included in Item 14(d):
AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARIES
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, 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
========== ========== ============ ============= ==========
Year ended December 31, 1997:
Allowance for Doubtful Accounts $1,377,959 $1,633,070 $371,577(1) $1,608,564(2) $1,774,042
========== ========== ============ ============= ==========
</TABLE>
(1) - Recoveries of amounts previously written off.
(2) - Uncollectible accounts written off.
<PAGE>
Exhibit 13
ANNUAL REPORT TO SHAREHOLDERS
DECEMBER 31, 1997
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth, for the periods indicated, the percentages of
operating expenses and other items to operating revenue:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses and costs
Salaries, wages and benefits 60.8% 60.9% 58.6%
Operating supplies and expenses 8.6% 8.2% 6.8%
Operating taxes and licenses 4.1% 4.4% 4.3%
Insurance 3.0% 3.7% 3.8%
Communications and utilities 1.6% 1.8% 1.9%
Depreciation and amortization 6.0% 6.4% 6.5%
Rents and purchased transportation 6.5% 6.3% 8.1%
Other 4.2% 4.6% 4.6%
----- ----- -----
Total operating expenses and costs 94.8% 96.3% 94.6%
----- ----- -----
Operating income 5.2% 3.7% 5.4%
Interest expense 1.9% 2.0% 1.8%
Other income, net 0.1% 0.1% 0.1%
----- ----- -----
Income before income taxes 3.4% 1.8% 3.7%
Income taxes 1.3% 0.7% 1.4%
----- ----- -----
Net income 2.1% 1.1% 2.3%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Operating Revenue
- -----------------
Operating revenue for 1997 was $870,319,000, up 19.4%, compared to $729,042,000
for 1996. The growth in operating revenue was primarily the result of increased
revenue per hundred weight and increased tonnage from new and existing
customers.
1
<PAGE>
Revenue per hundred weight for 1997 was up 6.8% from levels experienced in 1996.
Factors contributing to the increase in revenue per hundred weight were:
. A general rate increase of approximately 5.9% effective January 1, 1997.
General rate increases initially affect approximately 45% of the Company's
customers. The remaining customers' rates are determined by contracts and
guarantees and are negotiated throughout the year.
. The Company initiated a fuel surcharge beginning September 16, 1996 to help
recover the increased costs of fuel. This surcharge is tied to the Department
of Energy's National Diesel Fuel Index and was 0.7% for LTL shipments as of
December 31, 1997. The surcharge is designed to suspend at the time this
national index moves below $1.15 per gallon. Effective January 7, 1998, the
fuel surcharge was suspended.
. The percentage of the Company's total revenue that was derived from truckload
shipments (greater than 10,000 pounds) declined to 5.7% during 1997 as
compared to 6.7% during 1996.
Tonnage handled by the Company during 1997 increased 11.7% over levels handled
during 1996. This increase in tonnage was mainly a result of the following:
. The Company continued to increase its market penetration into existing
service territories, particularly those geographic areas added during 1995
and 1996. During 1995, the Company expanded its all-points coverage to the
states of Colorado, Florida, Iowa, Nebraska, North Carolina, South Carolina
and Wisconsin. 1996 expansions included the states of Delaware, Maryland,
Minnesota, Virginia and West Virginia.
. The continued increase in intrastate tonnage following the deregulation of
intrastate commerce effective January 1, 1995.
. Effective August 4, 1997, the Company increased its all-points coverage to 27
states with the addition of the state of New Mexico.
Management expects that growth in operating revenue is sustainable in the near
term. However, the Company's planned expansions of service territory during
1998 are less aggressive than those initiated in recent years. The primary
focus for growth in operating revenue in the near term will be further
penetration of existing markets. As a result, any near-term percentage growth
in operating revenue will likely be less than that experienced in recent years.
The foregoing statement concerning the sustainability of revenue growth is
subject to a number of factors, including LTL industry capacity, increased
tonnage and general economic conditions.
Operating Expenses
- ------------------
Operating expenses as a percentage of operating revenue improved to 94.8% in
1997 from 96.3% in 1996. This overall improvement was primarily attributable
to:
. Salaries, wages and benefits as a percentage of operating revenue improved to
60.8% in 1997 from 60.9% in 1996. This improvement was largely the result of
the increased usage of purchased transportation. However, salaries, wages and
benefits as a percentage of operating revenue did not improve during 1997 to
the degree anticipated by management. Improvement in this area was slower
than expected principally due to the following factors: 1) slower than
anticipated productivity gains resulting from operational changes initiated
during 1996 and continued during 1997, 2) labor costs increased
disproportionately in relation to operating revenue during the strike by the
International Brotherhood of Teamsters against United Parcel Service during
August of 1997, and 3) expenses incurred during 1997 to educate the
workforce. Management anticipates the ongoing educational programs and
changes in operations will result in productivity gains, in the form of
improved pickup and delivery density, increased line haul load factor and
more direct line haul schedules, during 1998. However, these gains cannot be
assured and are subject to a variety of factors which may or may not be
within the control of management.
. Insurance as a percentage of operating revenue decreased to 3.0% in 1997 from
3.7% in 1996. This improvement was largely due to improved experience
involving vehicle accidents and cargo claims. Management does not expect this
downward trend to continue. Rather, it is expected that insurance costs as a
percentage of operating revenue will stabilize or gradually increase during
1998.
. Depreciation and amortization as a percentage of operating revenue improved
to 6.0% in 1997 from 6.4% in 1996. This improvement was largely due to the
increased usage of purchased transportation and off-balance sheet financing
of revenue equipment.
2
<PAGE>
. Other expenses as a percentage of operating revenue improved to 4.2% in 1997
from 4.6% in 1996. This improvement was mostly due to decreased hotel costs
for line haul drivers. The Company reconfigured its line haul network during
the last half of 1996. The purpose of this reconfiguration was to place
renewed emphasis on serving the regional and intrastate markets and to
improve asset utilization. One of the benefits of this reconfiguration was
that line haul drivers were required to spend less time in hotels.
. Operating taxes and licenses as a percentage of operating revenue improved to
4.1% in 1997 from 4.4% in 1996. There were two primary reasons for this
improvement. The first was fuel tax expense as a percent of operating revenue
decreased because of the increased utilization of purchased transportation.
The second reason was that the line haul reconfiguration, coupled with the
increased usage of purchased transportation, required few additions to the
fleet during 1997. Therefore, licensing expenses declined as a percentage of
operating revenue.
These improvements in operating expenses as a percentage of operating revenue
were partially offset by increases in the following areas:
. Operating supplies and expenses as a percentage of operating revenue
increased to 8.6% in 1997 from 8.2% in 1996. This increase primarily relates
to increased maintenance costs of equipment and facilities. Management
expects these maintenance costs will continue to gradually increase as the
Company's fleet ages. Fuel expenses as a percentage of operating revenue
declined moderately during 1997 as compared to 1996 due to overall lower
diesel prices and the increased use of purchased transportation during 1997.
. Rents and purchased transportation as a percentage of operating revenue
increased to 6.5% in 1997 from 6.3% in 1996. This increase was primarily a
result of the utilization of purchased transportation in selected lanes in
order to improve asset utilization and decrease overall costs of operations.
Management expects rents and purchased transportation as a percentage of
operating revenue to remain flat or gradually increase due to two principal
reasons: 1) the Company plans to continue the strategic use of purchased
transportation in selected line haul lanes and 2) the increased usage of off-
balance sheet financing of revenue equipment (See Liquidity and Capital
Resources).
Other
- -----
Interest expense as a percentage of operating revenue decreased to 1.9% in 1997,
compared to 2.0% in 1996.
The effective tax rate of the Company was 39.2% for 1997, up from 38.6% for
1996. This increase was mostly due to increased federal tax rates on higher
levels of income. Net income for 1997 was $17,801,000, up 126.6%, from
$7,856,000 for 1996.
1996 COMPARED TO 1995
Operating 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.
. 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.
3
<PAGE>
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 for the past 18 months. 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.
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.
. 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.
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.
4
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The focus on further penetration of existing markets coupled with improved asset
utilization reduced the capital requirements of the Company during 1997.
Capital requirements during 1997 consisted primarily of $65,397,000 in investing
activities. The Company invested $67,880,000 in capital expenditures during
1997 comprised of $2,966,000 in additional revenue equipment, $44,976,000 in new
Customer Center facilities or the expansion of existing facilities and
$19,938,000 in other equipment. Management expects capital expenditures for the
full year of 1998 will be greater than the amount incurred during 1997,
primarily due to anticipated investments in new and existing Customer Center
facilities. However, the actual amount of capital expenditures required in
1998 will be dependent on the growth rate of the Company and the timing and size
of any future expansions of service territory. At December 31, 1997, the
Company had commitments for land, Customer Centers, revenue and other equipment
of approximately $52,555,000.
The Company provided for its capital resource requirements in 1997 predominantly
with cash from operations. Cash from operations totaled $76,284,000 during 1997
compared to $63,252,000 provided by operations during 1996. Cash from
operations exceeded capital requirements by $10,887,000 during 1997. This
excess was used primarily to repay debt. Two primary sources of credit
financing were available to the Company: the revolving line of credit and the
Master Shelf facility.
. The Company experiences periodic cash flow fluctuations common to the
industry. Cash outflows are heaviest during the first part of any given year
while cash inflows are normally weighted towards the last two quarters of the
year. To smooth these fluctuations and to provide flexibility to fund future
growth, the Company utilizes a variable-rate, unsecured revolving line of
credit of $175,000,000 provided by NationsBank of Texas, N.A. (agent), Chase
Bank of Texas, N.A., Wachovia Bank of Georgia, N.A., ABN-AMRO Bank N.V., The
First National Bank of Chicago and Credit Lyonnais. Due to reduced capital
expenditures, improved cash from operations and proceeds from the issuance of
fixed rate debt, the Company reduced the amount outstanding under this
facility during 1997. At December 31, 1997, $63,000,000 was outstanding on
the revolving line of credit, leaving $112,000,000 available for borrowing.
The Company also had $10,000,000 available under its short-term, unsecured
revolving $10,000,000 line of credit with NationsBank of Texas, N.A. In
addition, the Company maintains a $10,000,000 line of credit with
NationsBank, N.A. to obtain letters of credit required for its self-insurance
program. At December 31, 1997, the Company had obtained letters of credit
totaling $4,076,000 for this purpose.
. To assist in financing longer-lived assets, the Company has an uncommitted
Master Shelf Agreement with the Prudential Insurance Company of America which
provides for the issuance of up to $140,000,000 in medium to long-term
unsecured notes at an interest rate calculated at issuance. On April 18,
1997, the Company utilized this facility to issue a $50,000,000 note at 8.11%
with a 15-year maturity. At December 31, 1997, the Company had $131,250,000
outstanding under this facility.
Management expects that the Company's existing working capital and its available
lines of credit are sufficient to meet the Company's commitments as of December
31, 1997, and to fund current operating and capital needs. However, if
additional financing is required, management believes it will be available.
The Company uses off-balance sheet financing in the form of operating leases
primarily in the following areas; land and structures, revenue equipment and
other equipment. At December 31, 1997, future rental commitments on operating
leases were $61,005,000 (See Note 6 of the Notes to Consolidated Financial
Statements). The Company prefers to utilize operating leases for these areas
and plans to use them in the future when such financing is available and
suitable.
5
<PAGE>
YEAR 2000 ISSUES
The Company has assessed the impact of the Year 2000 issues on its computer
software systems and applications, and determined that although many of its
applications are already compliant the Company will have to modify or replace
other applications. The Company expects to have all applications fully
compliant by the end of 1998. The Company also has initiated discussions with
its significant customers and suppliers to determine the extent to which the
Company's interface systems would be vulnerable to those third parties' failure
to remediate their own Year 2000 issues. There is no assurance that the systems
of other companies on which the Company's systems rely will be timely converted
and would not have an adverse effect on the Company's systems. Expenditures
related to the Company's Year 2000 initiatives have not been and are not
expected to be material to the Company's results of operations or financial
position.
ENVIRONMENTAL
At December 31, 1997, the Company had no outstanding inquiries with any state or
federal environmental agency.
INFLATION
Most of the Company's expenses are sensitive to inflation as increases in
inflation generally result in increased costs. The effect of inflation on the
operating results of the Company was minimal during 1997.
SEASONALITY
In the trucking industry, results of operations 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, 1998, the Company instituted a general rate increase of
approximately 5.5%. 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.
On January 1, 1998, the Company expanded its all-points coverage to 28 states
with the addition of Michigan.
6
<PAGE>
FINANCIAL STATEMENTS
American Freightways Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 9) $ 1,755 $ 4,394
Trade receivables, less allowance for doubtful accounts
(1997--$1,774; 1996--$1,378) 78,700 66,673
Operating supplies and inventories 2,882 2,493
Prepaid expenses 8,671 4,648
Deferred income taxes (Note 4) 13,306 10,649
Income taxes receivable 1 3,097
---------------------------------------
Total current assets 105,315 91,954
Property and equipment (Notes 3 and 6):
Land and structures 186,033 148,360
Revenue equipment 374,982 371,712
Service, office and other equipment 114,075 96,357
Land improvements 2,973 2,342
Construction in progress 21,113 16,020
Accumulated depreciation and amortization (230,870) (179,193)
---------------------------------------
468,306 455,598
Other assets:
Bond funds (Notes 3 and 9) 878 922
Other 1,074 1,401
---------------------------------------
1,952 2,323
---------------------------------------
$ 575,573 $ 549,875
=======================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
--------------------------------------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Trade accounts payable $ 12,910 $ 9,425
Accrued expenses (Note 2) 54,114 45,278
Current portion of long-term debt 11,497 11,463
--------------------------------------
Total current liabilities 78,521 66,166
Long-term debt, less current portion (Notes 3 and 9) 210,411 226,776
Deferred income taxes (Note 4) 59,225 50,635
Shareholders' equity (Notes 3, 5 and 7):
Common stock, par value $.01 per share; authorized 250,000 shares;
issued and outstanding 31,568 shares in 1997 and 31,242 in 1996 316 312
Additional paid-in capital 104,832 101,519
Retained earnings 122,268 104,467
--------------------------------------
227,416 206,298
Commitments (Note 6)
--------------------------------------
$575,573 $549,875
======================================
</TABLE>
See accompanying notes.
8
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Operating revenue $870,319 $729,042 $572,100
Operating expenses and costs:
Salaries, wages and benefits 528,695 444,041 335,167
Operating supplies and expenses 75,085 59,640 38,667
Operating taxes and licenses 35,339 31,827 24,434
Insurance 26,327 27,113 21,595
Communications and utilities 14,114 12,840 11,040
Depreciation and amortization 52,596 46,918 37,560
Rents and purchased transportation 56,008 45,826 46,405
Other 36,899 33,728 26,469
-----------------------------------------------
825,063 701,933 541,337
-----------------------------------------------
Operating income 45,256 27,109 30,763
Other income (expense):
Interest expense (16,256) (14,708) (10,198)
Interest income 247 137 146
Gain (loss) on disposal of assets (52) 90 329
Other, net 83 166 269
-----------------------------------------------
(15,978) (14,315) (9,454)
-----------------------------------------------
Income before income taxes
29,278 12,794 21,309
Federal and state income taxes (Note 4):
Current (credit) 5,310 (3,093) (422)
Deferred 6,167 8,031 8,648
-----------------------------------------------
11,477 4,938 8,226
-----------------------------------------------
Net income $ 17,801 $ 7,856 $ 13,083
===============================================
Per share (Notes 1 and 7):
Net income--basic $0.57 $0.25 $0.43
Net income--assuming dilution $0.56 $0.25 $0.42
===============================================
Average shares outstanding (Notes 1 and 7):
Basic 31,372 31,070 30,750
Assuming dilution 31,672 31,266 31,334
===============================================
</TABLE>
See accompanying notes.
9
<PAGE>
American Freightways Corporation and Subsidiaries
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, 1995 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
Stock option and purchase plans 326 4 3,313 - 3,317
Net income - - - 17,801 17,801
-----------------------------------------------------------------------------
Balances at December 31, 1997 $31,568 $316 $104,832 $122,268 $227,416
=============================================================================
</TABLE>
See accompanying notes.
10
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Cash received from customers $ 856,742 $ 714,932 $ 557,139
Cash paid to suppliers and employees (763,134) (641,956) (498,454)
Interest received 247 137 146
Interest paid (15,635) (14,413) (9,907)
Income taxes (paid) received (1,936) 4,552 (3,248)
-----------------------------------------------------------
Net cash provided by operating activities 76,284 63,252 45,676
INVESTING ACTIVITIES
Proceeds from sales of equipment 2,483 2,631 1,029
Capital expenditures (67,880) (107,383) (137,952)
-----------------------------------------------------------
Net cash used by investing activities (65,397) (104,752) (136,923)
FINANCING ACTIVITIES
Proceeds from notes payable and long-term borrowings
55,400 78,000 117,640
Principal payments on long-term debt (71,731) (37,392) (31,190)
Proceeds from issuance of common stock 2,805 2,644 3,440
Net cash provided (used) by financing activities (13,526) 43,252 89,890
-----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents
(2,639) 1,752 (1,357)
Cash and cash equivalents at beginning of year 4,394 2,642 3,999
Cash and cash equivalents at end of year $ 1,755 $ 4,394 $ 2,642
===========================================================
</TABLE>
11
<PAGE>
American Freightways Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 17,801 $ 7,856 $ 13,083
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 52,484 46,811 37,443
Amortization 112 107 117
Provision for losses on accounts receivable 1,633 1,721 929
Current tax effect of exercise of stock options
278 188 931
(Gain) loss on sale of equipment 52 (90) (329)
Casualty loss on destroyed equipment 153 135
Deferred income taxes 6,167 8,031 8,648
Changes in operating assets and liabilities:
Trade accounts receivable (13,660) (14,275) (15,230)
Operating supplies and inventories (389) (357) (617)
Prepaid expenses (4,023) 856 (1,257)
Income taxes receivable 3,096 1,271 (4,601)
Other assets 259 417 244
Trade accounts payable 3,485 (1,107) (2,826)
Accrued expenses 8,836 11,688 9,141
-----------------------------------------------------------
Total adjustments 58,483 55,396 32,593
-----------------------------------------------------------
Net cash provided by operating activities $ 76,284 $ 63,252 $ 45,676
===========================================================
</TABLE>
See accompanying notes.
12
<PAGE>
NOTES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of American
Freightways Corporation and its subsidiaries (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 27 contiguous
states from a network of 210 Customer Centers. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Historically, credit losses have been within management's expectations.
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 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, 1997, the Company was self-insured up to specified limits for
the following types of claims:
<TABLE>
<CAPTION>
Workers' compensation:
<S> <C>
All states of operation (with the exception of Colorado, Delaware,
Iowa, Maryland, Minnesota, Nebraska, New Mexico, North Dakota, Texas,
and Wisconsin) $1,000,000
State of Wisconsin FULLY INSURED
</TABLE>
13
<PAGE>
In the states of Colorado, Delaware, Iowa, Maryland, Minnesota, Nebraska, New
Mexico and Texas, workers' compensation claims are insured under a $1,000,000
deductible plan. In the state of North Dakota, 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 $1,000,000
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
The Company calculates earnings per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which was
issued by the Financial Accounting Standards Board in 1997. SFAS No. 128
requires the use and disclosure of two methods for calculating earnings per
share:
Earnings per share--basic is computed based on the weighted average number of
shares outstanding during each year.
Earnings per share--assuming dilution 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.
Earnings per share amounts have been restated to conform to SFAS No. 128
requirements.
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 accounts for any impairment of its long-lived assets using SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." 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.
14
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The provisions of SFAS No. 130 require
companies to classify items of comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
financial statements. The Company's comprehensive income items are not
material; accordingly, the effect of adopting this statement will not be
material when it becomes effective for 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Under
the provisions of SFAS No. 131, public business enterprises must report
financial and descriptive information about its reportable segments. Management
is currently studying and analyzing SFAS No. 131 as well as the Company's
operations to determine the Company's reportable segments. This statement will
be effective for 1998.
RECLASSIFICATIONS
Certain amounts previously reported in 1996 and 1995 have been reclassified to
conform with the 1997 presentation.
2. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1997 1996
--------------------------------------
(In Thousands)
<S> <C> <C>
Accrued salaries, wages and benefits $24,476 $21,581
Taxes other than income 3,910 1,689
Loss, injury, damage, health and workers' compensation claims
reserves 23,194 20,514
Other 2,534 1,494
--------------------------------------
$54,114 $45,278
======================================
</TABLE>
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
---------------------------------------
(In Thousands)
<S> <C> <C>
Bonds payable /(1)/ $ 6,700 $ 7,020
Revolving credit agreements /(2)/ 63,000 118,000
Mortgage notes /(3)/ 958 969
Unsecured senior notes /(4)/ 151,250 112,250
---------------------------------------
221,908 238,239
Less current portion (11,497) (11,463)
---------------------------------------
$210,411 $226,776
=======================================
</TABLE>
15
<PAGE>
(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 $710,000 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 $7,903,000 at December 31,
1997. The loan agreement requires that certain bond service funds be
maintained. As of December 31, 1997, there was $878,000 in a debt service
reserve fund. Mandatory annual sinking fund redemption payments began in
1995.
(2) The revolving credit agreements at December 31, 1997, include an unsecured
revolving credit agreement which provides for available borrowings of
$175,000,000. Borrowings under this revolving credit agreement at December
31, 1997 totaled $63,000,000. The term of this agreement extends to April 1,
2002 (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, 1997 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, 1997, the commitment fee was 0.20%. As of December 31, 1997, the amount
available for additional borrowing under this line of credit was
$112,000,000.
The Company also has $10,000,000 of available borrowings at December 31,
1997, 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, 1997 under this agreement.
This agreement matures May 29, 1998, unless terminated or renewed.
In addition, the Company maintains a $10,000,000 line of credit to fund
letters of credit. At December 31, 1997, the Company had utilized this line
of credit to obtain letters of credit totaling $4,076,000.
(3) Mortgage notes are due monthly or annually to November 2003 at an average
interest rate of 8.31%. The notes are collateralized by land and structures
with a net book value of $1,327,000 at December 31, 1997.
(4) Includes an unsecured senior note for $20,000,000 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 seven notes totaling $131,250,000; all issued under an
unsecured and uncommitted $140,000,000 Master Shelf Agreement with the
following characteristics:
16
<PAGE>
<TABLE>
<CAPTION>
OUTSTANDING PRINCIPAL INTEREST
MATURITY DATE RATE
- ----------------------------------------------------------------
<C> <S> <C>
$ 7,250,000 August 2000 6.25%
6,000,000 October 2000 6.00
8,000,000 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
50,000,000 April 2012 8.11
</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.
Annual maturities on long-term debt are $11,497,000 in 1998, $11,533,000 in
1999, $12,820,000 in 2000, $14,618,000 in 2001, $75,666,000 in 2002, and
$95,774,000 thereafter.
Interest costs of $831,000, $1,655,000 and $1,478,000 in 1997, 1996, and 1995,
respectively, were capitalized as part of the acquisition cost of certain
property and equipment.
4. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1997 and 1996, respectively, are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
(In Thousands)
Noncurrent deferred tax liabilities:
<S> <C> <C>
Tax over book depreciation $ 70,983 $65,760
Alternative minimum tax credit carryover (10,525) (8,988)
Federal and state loss carryovers (1,233) (6,137)
------------------------------
Net noncurrent deferred tax liabilities $ 59,225 $50,635
==============================
Current deferred tax assets:
Accrued expenses not deductible until paid $ 12,826 $10,514
Allowance for doubtful accounts 437 338
Revenue recognition differences 767 270
------------------------------
Total current deferred tax assets 14,030 11,122
Current deferred tax liabilities:
Prepaid expenses (724) (473)
------------------------------
Net current deferred tax assets $ 13,306 $10,649
==============================
</TABLE>
17
<PAGE>
The reconciliation between the effective income tax rate and the statutory
federal income tax rate is presented in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at the statutory federal rate of 35% $10,247 $4,478 $7,458
Federal income tax effects of:
State income taxes (552) (280) (336)
Nondeductible expenses 405 340 295
Effects of lower rates on taxable income below $15,000,000
(150) (400) (150)
Other (49)
--------------------------------------------
Federal income taxes 9,901 4,138 7,267
State income taxes 1,576 800 959
--------------------------------------------
$11,477 $4,938 $8,226
============================================
Effective income tax rate 39.2% 38.6% 38.6%
============================================
</TABLE>
The Company has alternative minimum tax credit carryovers of approximately
$10,525,000 which has reduced the deferred tax liability. These 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 $512,000, $364,000 and
$1,731,000 in 1997, 1996 and 1995, 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 617,033 shares of common stock remain reserved for
issuance under this plan at December 31, 1997. An eligible employee can purchase
shares having the fair market value of up to the greater of $1,200 or 200 shares
per year. 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.
Shares have been issued during 1995, 1996 and 1997 as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE EXERCISE
ISSUE DATE ISSUED PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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
April 30, 1997 71,557 12.01
October 31, 1997 87,397 8.29
</TABLE>
18
<PAGE>
During 1997 employees enrolled for options to purchase 172,582 shares under the
plan. In accordance with plan provisions, the shares must be purchased during
1998.
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 Plans.
Collective activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
STOCK APPRECIATION SHARES UNDER WEIGHTED
RIGHTS OPTION PRICE RANGE AVERAGE PRICE
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995
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
Granted - 414,200 11.00 - 15.94 11.16
Exercised (20,940) (176,340) 3.00 - 17.88 8.36
Canceled (11,460) (204,460) 6.31 - 21.38 12.92
-------------------------------------------------------------------------------
Outstanding at December 31, 1997
90,650 1,599,170 3.00 - 22.13 13.06
===============================================================================
</TABLE>
19
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- --------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING LIFE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER (YEARS) EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING PRICE EXERCISABLE PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3-$5 18,000 1.3 $ 3.00 18,000 $ 3.00
$5-$10 120,340 4.0 7.33 120,340 7.33
$10-$15 1,150,640 6.8 12.00 508,930 12.87
$15-$20 136,330 6.3 17.76 73,650 17.87
Greater than $20 173,860 6.5 21.38 68,740 21.39
-------------------------------------- -------------------
Total 1,599,170 6.5 789,660
====================================== ===================
</TABLE>
The number of shares of common stock reserved for granting future options under
these plans was 1,460,950, 1,686,770 and 2,017,790, at December 31, 1997, 1996,
and 1995, respectively. At December 31, 1997, options were exercisable to
purchase 789,660 shares.
The Company recorded a benefit related to the change in value of stock
appreciation rights of $243,000 in 1995. No benefit or expense was recorded in
1997 or 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 expense. If the Company had
elected to recognize compensation expense 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--assuming dilution would have
been reduced to the pro forma amounts indicated in the table below:
<TABLE>
<CAPTION>
(in thousands except per share amounts) 1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Net income - as reported $17,801 $7,856 $13,083
Net income - pro forma 16,951 6,799 12,079
Earnings per share--assuming dilution - as reported 0.56 0.25 0.42
Earnings per share--assuming dilution - pro forma 0.54 0.22 0.39
</TABLE>
The pro forma effect on net income for the years presented 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.
20
<PAGE>
The fair value of options was estimated as of the date of grant using the Black-
Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
Option Purchase Option Purchase Option Purchase
Plans Plans Plans Plans Plans Plans
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected dividend yield 0% 0% 0% 0% 0% 0%
Expected stock price volatility 29.8% 34.9% 26.9% 30.6% 20.9% 23.6%
Risk-free interest rate 6.06% 5.69% 5.42% 5.54% 7.50% 5.88%
Expected life of options 4.4 YEARS 1 YEAR 4.4 years 1 year 4.4 years 1 year
Weighted average value per option $3.87 $3.65 $3.29 $2.84 $6.90 $3.73
</TABLE>
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 1997, the Company made elective
contributions of 2.5% 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 $10,786,000, $8,313,000 and
$6,436,000 for 1997, 1996 and 1995, respectively.
6. LEASES AND COMMITMENTS
Rent expense, exclusive of amounts related to purchased transportation, totaled
approximately $21,941,000 for 1997, $23,677,000 for 1996 and $22,119,000 for
1995.
The future minimum rental commitments under noncancelable operating leases
having initial or remaining terms in excess of one year as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
REVENUE
TOTAL STRUCTURES EQUIPMENT OTHER EQUIPMENT
----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
1998 $19,110 $ 5,021 $ 4,801 $ 9,288
1999 14,849 2,998 4,801 7,050
2000 13,500 2,000 4,801 6,699
2001 7,513 1,465 4,025 2,023
2002 4,888 765 4,123 -
Thereafter 1,145 1,145 - -
----------------------------------------------------------------------
$61,005 $13,394 $22,551 $25,060
======================================================================
</TABLE>
Certain leases have renewal options for periods from one to five years at the
fair rental value of the related property at renewal.
21
<PAGE>
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 $52,555,000 at
December 31, 1997.
7. Earnings per Share
Net income for purposes of basic earnings per share and earnings per share--
assuming dilution was $17,801,000, $7,856,000, and $13,083,000 for the years
1997, 1996 and 1995, respectively. A reconciliation of average shares
outstanding for both computations is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Average shares outstanding--basic 31,372 31,070 30,750
Effect of dilutive stock options 300 196 584
-------------------------------------------
Average shares outstanding--assuming dilution 31,672 31,266 31,334
===========================================
</TABLE>
Antidilutive stock options are not included in the earnings per share
calculation. Average antidilutive options were 489,000, 921,000, and 211,000 for
1997, 1996, and 1995, respectively.
8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
1997
Operating revenue $193,051 $219,088 $233,760 $224,419
Operating expenses and costs 186,649 203,516 216,775 218,122
Net income 1,458 6,986 7,895 1,462
Net income per share:
Basic 0.05 .22 .25 .05
Assuming dilution 0.05 .22 .25 .05
Average shares outstanding:
Basic 31,258 31,301 31,414 31,515
Assuming dilution 31,490 31,597 31,811 31,790
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands, Except Per Share Data)
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
Basic .02 .09 .10 .05
Assuming dilution .02 .09 .10 .05
Average shares outstanding:
Basic 30,945 31,036 31,128 31,168
Assuming dilution 31,165 31,338 31,285 31,268
</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 consolidated
balance sheets 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 consolidated balance sheets 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
---------------------------------------------
1997
<S> <C> <C>
Cash and cash equivalents $ 1,755 $ 1,755
Bond funds 878 878
Long-term debt 221,908 232,777
1996
Cash and cash equivalents $ 4,394 $ 4,394
Bond funds 922 922
Long-term debt 238,239 242,567
</TABLE>
23
<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 subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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 subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
Little Rock, Arkansas
January 21, 1998
24
<PAGE>
MARKET INFORMATION
The Company'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 December 31, 1997. The Company has not paid cash
dividends in the past and does not intend to pay cash dividends in the
foreseeable future. At December 31, 1997, there were approximately 3,207
holders of record of the Company's Common Stock.
<TABLE>
<CAPTION>
PERIOD HIGH Low
----------------------------------------------------------------------------------
FISCAL YEAR 1996:
<S> <C> <C>
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 $ 14-1/4 $ 10-7/8
Second Quarter 16-1/4 10-1/2
Third Quarter 19-1/2 14
Fourth Quarter 20 7-7/8
</TABLE>
FORWARD-LOOKING INFORMATION
This report contains forward-looking information that is based on current
expectations and is subject to a number of risks and uncertainties. Actual
results could differ materially from current expectations due to a number of
factors including, but not limited to: general economic conditions; competitive
initiative and pricing pressures; shifts in market demand; weather conditions;
government regulations; actual future costs of operating expenses such as
employee wages and benefits, fuel and maintenance; self insurance claims;
availability and cost of capital; timing and scope of geographic expansion; and
the timing and amount of capital expenditures.
25
<PAGE>
SHAREHOLDER INFORMATION
Corporate Offices:
American Freightways Corporation
2200 Forward Drive
Harrison, Arkansas 72601
(870) 741-9000
Annual Meeting:
2 p.m.
April 23, 1998
Conference Center
Comfort Inn
1210 Hwy. 62-65 North
Harrison, Arkansas 72601
Independent Auditors:
Ernst & Young LLP
425 West Capitol
Suite 3600
Little Rock, Arkansas 72201
Transfer Agent:
Wachovia Bank of North Carolina, N.A.
Winston-Salem, North Carolina 27102
1-800-633-4236
Written shareholder correspondence and requests for transfer should be sent to:
Wachovia Bank of North Carolina, N.A.
P.O. Box 8217
Boston, Massachusetts 02266-8217
Investor Relations:
Mr. Frank Conner
American Freightways Corporation
2200 Forward Drive
Harrison, Arkansas 72601
(870) 741-9000
Form 10-K:
Information about American Freightways Corporation, including its annual report
on Form 10-K, may be obtained without charge by writing to Mr. Frank Conner,
Chief Financial Officer, at the Company's Corporate Headquarters.
Internet Address:
www.arfw.com
26
<PAGE>
Exhibit 21
Subsidiaries of Registrant
1. American Freightways, Inc., an Arkansas Corporation
2. Tran-Support, 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 Subsidiaries of our report dated January
21, 1998, included in the 1997 Annual Report to Shareholders of American
Freightways Corporation.
Our audits also included the financial statement schedule of American
Freightways Corporation and Subsidiaries 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 21,
1998, 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 Subsidiaries.
/s/Ernst & Young LLP
Little Rock, Arkansas
March 19, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1997 year to date consolidated financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,755
<SECURITIES> 0
<RECEIVABLES> 80,474
<ALLOWANCES> 1,774
<INVENTORY> 2,882
<CURRENT-ASSETS> 105,315
<PP&E> 699,176
<DEPRECIATION> 230,870
<TOTAL-ASSETS> 575,573
<CURRENT-LIABILITIES> 78,521
<BONDS> 210,411
0
0
<COMMON> 316
<OTHER-SE> 227,100
<TOTAL-LIABILITY-AND-EQUITY> 575,573
<SALES> 0
<TOTAL-REVENUES> 870,319
<CGS> 0
<TOTAL-COSTS> 825,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 16,256
<INCOME-PRETAX> 29,278
<INCOME-TAX> 11,477
<INCOME-CONTINUING> 17,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,801
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
<FN>
<F1>Provision for doubtful accounts included in costs and expenses applicable to
revenues.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1995 year to date consolidated financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-1-1995
<CASH> 2,642
<SECURITIES> 0
<RECEIVABLES> 54,964
<ALLOWANCES> 845
<INVENTORY> 2,136
<CURRENT-ASSETS> 77,213
<PP&E> 530,589
<DEPRECIATION> 132,887
<TOTAL-ASSETS> 477,762
<CURRENT-LIABILITIES> 52,514
<BONDS> 189,239
0
0
<COMMON> 309
<OTHER-SE> 195,125
<TOTAL-LIABILITY-AND-EQUITY> 477,762
<SALES> 0
<TOTAL-REVENUES> 572,100
<CGS> 0
<TOTAL-COSTS> 541,337
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 10,198
<INCOME-PRETAX> 21,309
<INCOME-TAX> 8,226
<INCOME-CONTINUING> 13,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,083
<EPS-PRIMARY> .43<F2>
<EPS-DILUTED> .42
<FN>
<F1>Provision for doubtful accounts included in costs and expenses applicable to
revenues.
<F2>Restated in accordance with Statement of Financial Accounting Standards Number
128.
</FN>
</TABLE>
