-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Khn2zYdrAAsFRfcEAea5KamAnlxbLcq+qt0sqIYpUQfSH+KLXHzkUUexRydmYB3m PYzSE36fcb3MgNnq4xmJhQ== 0000930661-97-000538.txt : 19970310 0000930661-97-000538.hdr.sgml : 19970310 ACCESSION NUMBER: 0000930661-97-000538 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970307 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FREIGHTWAYS CORP CENTRAL INDEX KEY: 0000846729 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 742391754 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17570 FILM NUMBER: 97552269 BUSINESS ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 BUSINESS PHONE: 5017419000 MAIL ADDRESS: STREET 1: 2200 FORWARD DR CITY: HARRISON STATE: AR ZIP: 72601 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION FORM 10-K Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended December 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____________________to_____________________ Commission File No. 34-0-17570 AMERICAN FREIGHTWAYS CORPORATION (Exact name of registrant as specified in its charter) Arkansas 74-2391754 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2200 Forward Drive Harrison, Arkansas 72601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including Area Code: (501) 741-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [_] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by nonaffiliates of the registrant at February 13, 1997: $398,571,324. Number of shares of common stock outstanding at February 13, 1997: 31,260,496. The Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996 is incorporated by reference into Parts II and IV. The Proxy Statement for Registrant's March 27, 1997 Annual Meeting is incorporated by reference into Parts III and IV. ================================================================================ TABLE OF CONTENTS ITEM PAGE - ---- ---- PART I 1. and 2. Business and Properties 1 3. Legal Proceedings 3 4. Submission of Matters to a Vote of Security Holders 3 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 4 6. Selected Financial Data 5 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 8. Financial Statements and Supplementary Data 7 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 7 PART III 10. Directors and Executive Officers of the Registrant 8 11. Executive Compensation 8 12. Security Ownership of Certain Beneficial Owners and Management 8 13. Certain Relationships and Related Transactions 8 PART IV 14. Exhibits, Financial Statement Schedules and Current Reports on Form 8-K 9 Signatures 13 Financial Statements and Financial Statement Schedules 14 PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES THE COMPANY American Freightways is a scheduled common and contract carrier transporting primarily less-than-truckload (LTL) shipments of general commodities. As of January 1, 1997, the Company serves all points in Alabama, Arkansas, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wisconsin. American Freightways also provides service to the ten provinces of Canada through an exclusive alliance with Day & Ross, a Canadian less-than- truckload carrier headquartered in Hartland, New Brunswick, Canada and provides service to 90% of the Mexican market through an alliance with Autolineas Mexicanas, S.A. DE C.V. of Monterrey, Mexico. RECENT EVENTS The LTL industry is impacted significantly by the availability and cost of diesel fuel. The price of diesel fuel increased dramatically, reaching a six year high in April 1996. The Company, as did the majority of the industry, implemented a fuel surcharge to offset higher fuel cost. The Company's fuel surcharge is adjusted weekly based on the Department of Energy's Diesel Fuel index. Congress passed legislation in 1994 deregulating intrastate traffic, freight moving within the borders of a given state, effective January 1, 1995. Prior to the deregulation, the Company had intrastate operating authority in Arkansas, Louisiana and Kansas. The Company provides intrastate service to all the states in which it operates. The Interstate Commerce Commission (ICC), the agency exercising regulatory authority over the transportation industry, was closed effective December 31, 1995, and its remaining responsibilities transferred to the Department of Transportation (DOT). EXPANSION The history of American Freightways has been growth. Fourteen years ago, the Company began serving all points in one state, Arkansas. Today the Company's all-points service coverage extends to 26 states. Perhaps the most distinguishing feature of the Company's operations is this all-points coverage. Management knows of no other LTL carrier that duplicates this coverage. The Company began operations by opening 20 customer centers on October 25, 1982. From 1983 through 1985, 11 customer centers were added to the system, including Chicago, Illinois; Oklahoma City and Tulsa, Oklahoma; and Houston, Texas. Thirteen customer centers were added in 1986, 20 customer centers in 1987, 12 customer centers in 1988, nine customer centers in 1989, 15 customer centers in 1990, 11 customer centers in 1991 and ten customer centers in 1992. During 1993, the opening of seven new customer centers in the state of Georgia and nine new customer centers in the state of Kentucky brought all-points coverage to these two states as well as the southern portions of the states of Indiana and Ohio. During 1994, the Company opened 14 new customer centers in Indiana and Ohio. 1 The Company's most aggressive expansions to date were in 1995. On January 1, 1995, the Company opened 13 customer centers and extended its all-points coverage to North Carolina and South Carolina. On April 17, 1995, customer centers were opened at Colorado Springs, Denver, Fort Collins and Pueblo, Colorado; Des Moines, Iowa; Madison and Milwaukee, Wisconsin; Minneapolis/St. Paul, Minnesota; and Omaha, Nebraska. On July 10, twelve additional customer centers were opened extending the Company's all-points coverage to Colorado, Iowa, Nebraska and Wisconsin. On August 14, 1995, the Company opened seven customer centers in Florida to provide all-points coverage to the state. On January 1, 1996, the Company opened 12 customer centers to provide all- points coverage to Delaware, Maryland, Virginia and West Virginia. Also, on January 1, 1996, the Company extended its coverage to all 10 Canadian provinces through an exclusive partnership with Day & Ross, one of Canada's leading less- than-truckload carriers. Day & Ross, Inc. is part of the Day & Ross transportation group, Canada's largest truck transportation conglomerate and is a wholly-owned subsidiary of Canadian-based McCain Food Company. On June 1, 1996, the Company extended coverage to 90% of the Mexican market through an alliance with Autolineas Mexicanas, S.A. DE C.V. of Monterrey, Mexico. On June 3, 1996, the Company added five additional customer centers in Minnesota increasing the Company's all-points coverage to 26 states. FLEET The Company's policy is to purchase equipment having uniform specifications that are, to the greatest possible extent, compatible with design improvements and resale values. This standardization enables the Company to simplify mechanic and driver training, to control the cost of spare parts and tire inventory, and in general to provide for a more efficient vehicle maintenance program. American Freightways utilizes twin trailers for movement of almost 100% of the freight among its customer centers to gain greater flexibility. The use of twin trailers (which can be operated singly or in tandem) provides more options for the achievement of the Company's service standards. At December 31, 1996, the Company utilized 13,536 van trailers, 11,804 of which were twin trailers, and 4,985 tractors. The average ages of the tractors and trailers were 3.4 and 3.8 years, respectively, at December 31, 1996. ASSOCIATES At December 31, 1996, the Company employed 9,947 associates. All drivers utilized by American Freightways are selected in accordance with specific Company guidelines relating primarily to safety records and driving experience. All associates are required to pass drug tests upon employment, randomly and for cause. State and federal regulations require drug testing of drivers and require drivers to comply with commercial driver's licensing requirements. Management believes that the Company is substantially in compliance with these regulations. The Company has not experienced a shortage of qualified drivers in the past, and management does not expect a significant shortage in the near future. None of the Company's personnel are currently represented by a collective bargaining unit. From time to time, associates of a particular customer center or facility may vote on representation by a collective bargaining unit. Management of the Company cannot predict the outcome of future elections. However, it believes any outcome will not have a material adverse affect on the Company's competitive position, operations or financial condition. In the opinion of management, the Company's relationship with its drivers, other associates and independent contractors is excellent. The Company's policy is to share its success with its associates through increased wages and benefits. 2 TECHNOLOGY American Freightways is a leader in the use of advanced technology to increase the value of service to its customers and to lower the cost of providing this service. The Company uses computer and electronic technology to compress time in the performance of operating and other processes and to compress the number of levels within the organization necessary to complete tasks. From the customer's call for a pickup through the capture of a signature verifying delivery of the freight, the Company's information technology captures information on the status of each shipment. In most cases the accumulation of the data is achieved automatically as the freight is moved. FACILITIES At the end of 1996, American Freightways changed the name of its terminal facilities to Customer Centers. This name change reflects AF's commitment to its customers. Associates at the local level are empowered to make decisions that are in the best interest of customers' service issues. The Company owns its general office located in Harrison, Arkansas and 81 customer center facilities in 19 states. At December 31, 1996, 122 of the Company's customer centers were leased. The terms of the leases on the facilities range from month-to-month to ten years. The availability of suitable facilities determines whether the Company leases or constructs a Company-owned facility. One of the principal features distinguishing American Freightways from its competitors is its extensive customer center network, placing customer centers nearer to the customer. During 1996, the Company completed construction of a 230 door facility in Atlanta, Georgia. In addition, the Company added capacity through the purchase of existing facilities, the construction of new customer centers or additions to existing customer centers in several strategic locations such as Akron, Ohio; Dayton, Ohio; Des Moines, Iowa; Ft. Myers, Florida; Hot Springs, Arkansas; Houston, Texas; Indianapolis, Indiana; Lincoln, Illinois; Memphis, Tennessee; Milwaukee, Wisconsin; Nashville, Tennessee; Orlando, Florida; and Phenix City, Alabama. The Company has plans to either expand or construct several additional customer centers in 1997. At December 31, 1996, the Company's customer center network consisted of 203 customer centers. Of these customer centers, 198 were managed by Company associates and 5 were operated and managed by independent contractors. Company- operated customer centers involve costs (such as operating taxes, salaries and wages and depreciation), whereas costs of independent contractor-operated customer centers generally are variable as a flat percentage of revenue. It is American Freightways' intent to primarily utilize Company-operated customer centers in future expansions. ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its competitive position, financial position or its results of operations. The Company maintains insurance in an amount which management believes is currently sufficient to cover its risks. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 3 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS American Freightways Corporation's Common Stock is traded under the symbol "AFWY" on the National Market System of the National Association of Securities Dealers Automated Quotation System (NASDAQ). The following table sets forth, for the periods indicated, the range of high and low prices for the Company's Common Stock as reported by NASDAQ through February 13, 1997. The latest price for the Company's Common Stock on February 13, 1997, as reported by the NASDAQ was $12.75 per share. At February 13, 1997, there were approximately 3,251 holders of record of the Company's Common Stock. PERIOD HIGH LOW ----------------------------------------------------------------- FISCAL YEAR 1995: First Quarter $ 24-1/8 $ 18-5/8 Second Quarter 24-1/4 18-3/8 Third Quarter 24 13-3/4 Fourth Quarter 15-1/8 9-7/8 FISCAL YEAR 1996: First Quarter $ 14-1/2 $ 9-1/2 Second Quarter 16-7/8 11 Third Quarter 12-1/2 8-1/2 Fourth Quarter 11-3/4 8-1/2 FISCAL YEAR 1997: First Quarter (through February 13, 1997) $ 14-1/4 $ 10-7/8 The Company has not paid cash dividends in the past and does not intend to pay cash dividends in the foreseeable future. Under certain of the Company's loan agreements, the Company is subject to certain restrictions on its ability to pay dividends. See Note 3 to the Consolidated Financial Statements incorporated by reference herein. 4 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.
YEARS ENDED DECEMBER 31 (Dollars in thousands, except per share data) 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- INCOME STATEMENT DATA: Operating revenue................................... $262,011 $328,464 $465,588 $572,100 $729,042 Operating expenses and costs: Salaries, wages and benefits....................... 125,152 168,770 247,049 335,167 444,041 Operating supplies and expenses.................... 17,169 22,099 30,710 38,667 59,640 Operating taxes and licenses....................... 9,647 12,340 19,251 24,434 31,827 Insurance.......................................... 8,705 7,891 15,360 21,595 27,113 Communications and utilities....................... 4,357 6,907 9,117 11,040 12,840 Depreciation and amortization...................... 17,059 21,519 27,888 37,560 46,918 Rents and purchased transportation................. 39,683 42,250 45,633 46,405 45,826 Other.............................................. 13,895 15,782 20,880 26,469 33,728 -------- -------- -------- -------- -------- Total operating expenses.......................... 235,667 297,558 415,888 541,337 701,933 -------- -------- -------- -------- -------- Operating income.................................... 26,344 30,906 49,700 30,763 27,109 Interest expense.................................... (4,844) (4,246) (6,832) (10,198) (14,708) Other income, net................................... 453 329 442 415 303 Gain on disposal of assets.......................... 9 1 292 329 90 -------- -------- -------- -------- -------- Income before income taxes, extraordinary charge and cumulative effect of accounting change.................................. 21,962 26,990 43,602 21,309 12,794 Income taxes........................................ 8,016 10,238 16,571 8,226 4,938 -------- -------- -------- -------- -------- Income before extraordinary charge and cumulative effect of accounting change............. 13,946 16,752 27,031 13,083 7,856 Extraordinary charge for early retirement of debt, net of tax benefit of $205................ - - (335) - - Cumulative effect of accounting change.............. (383) - - - - -------- -------- -------- -------- -------- Net income.......................................... $ 13,563 $ 16,752 $ 26,696 $ 13,083 $ 7,856 ======== ======== ======== ======== ======== Per share: Income before extraordinary charge and cumulative effect of accounting change............ $ 0.50 $ 0.59 $ 0.89 $ 0.42 $ 0.25 Extraordinary charge............................... - - (0.01) - - Cumulative effect of accounting change............. (0.02) - - - - -------- -------- -------- -------- -------- Net income......................................... $ 0.48 $ 0.59 $ 0.88 $ 0.42 $ 0.25 ======== ======== ======== ======== ======== Average shares outstanding (000's).................. 28,132 28,581 30,357 31,334 31,266
5
YEARS ENDED DECEMBER 31 1992 1993 1994 1995 1996 --------- --------- --------- --------- --------- BALANCE SHEET DATA: (Dollars in thousands) Current assets..................... $ 34,729 $ 37,660 $ 54,247 $ 77,213 $ 91,954 Current liabilities................ 19,348 35,083 44,378 52,514 66,166 Total assets....................... 175,531 251,130 355,348 477,762 549,875 Long-term debt (including current portion).................. 55,304 97,537 111,181 197,631 238,239 Shareholders' equity............... 89,709 109,460 177,180 195,434 206,298 Working capital.................... $ 15,381 $ 2,577 $ 9,869 $ 24,699 $ 25,788 Debt to equity ratio............... 0.62 0.89 0.63 1.01 1.15 Return on shareholders' equity..... 16.5% 16.8% 18.6% 7.0% 3.9% KEY OPERATING STATISTICS: Operating ratio.................... 89.9% 90.6% 89.3% 94.6% 96.3% Total tractors..................... 1,955 2,453 3,344 4,521 4,985 Customer centers................... 116 132 144 186 203 Number of employees................ 3,655 4,964 6,506 8,867 9,947 Gross tonnage hauled (000's)....... 1,615 2,051 2,759 3,380 4,149 Shipments (000's).................. 2,654 3,237 4,267 5,486 7,016 Average length of haul............. 525 550 567 588 595 Line haul load factor (tons)....... 10.79 10.90 10.96 10.91 10.40 Revenue per hundred weight......... $ 8.11 $ 8.01 $ 8.46 $ 8.48 $ 8.80
6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Item is incorporated by this reference to Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996, pages 16 through 19. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent auditors and consolidated financial statements included on pages 20 through 30 of the Annual Report to Shareholders for the year ended December 31, 1996, are incorporated herein by reference. Quarterly Results of Operations on page 29 of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 7 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The executive officers and directors of American Freightways as of February 13, 1997, are as follows: NAME AGE POSITION ---- --- -------- F. S. (Sheridan) Garrison 62 Chairman of the Board of Directors, President and Chief Executive Officer Frank Conner 47 Executive Vice President-Accounting & Finance; Chief Financial Officer; Director Tom Garrison 36 Vice President; Secretary/Treasurer; Director Will Garrison 33 Vice President; Director Ben A. Garrison 65 Director T. J. Jones 60 Director Ken Reeves 49 Director Gary Bouch 43 Vice President-Transportation Wil DeOrsey 38 Vice President-Operations Joe Dobbs 50 Vice President-Properties Daniel Garrison 42 Account Executive James Hearn 62 Vice President-Maintenance Terry Higginbotham 49 Vice President-Sales George Reid 49 Executive Vice President-Operations The remainder of this Item 10, Directors and Executive Officers of the Registrant, is incorporated by this reference to Registrant's Notice and Proxy Statement for its Annual Meeting of Shareholders to be held on Thursday, March 27, 1997. ITEM 11. EXECUTIVE COMPENSATION This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of Shareholders to be held on Thursday, March 27, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of Shareholders to be held on Thursday, March 27, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS This Item is incorporated by this reference to applicable portions of the Registrant's Notice and Proxy Statement for its 1997 Annual Meeting of Shareholders to be held on Thursday, March 27, 1997. 8 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 INDEX TO EXHIBITS 3(a) Amended and Restated Articles of Incorporation incorporated by reference to Registrant's Form 10-Q for the quarterly period ending March 31, 1995. 3(b) Amended and Restated Bylaws of American Freightways Corporation incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. 10(a) Amended and Restated 1993 Chairman Stock Option Plan, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 10(b) Amended and Restated 1993 Non-Employee Director Stock Option Plan as amended January 23, 1996, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 10(c) Amended and Restated 1993 Stock Option Plan for Key Employees as amended January 23, 1996, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 10(d) Amended and Restated Stock Purchase Plan for Certain Employees of Registrant and subsidiaries as amended January 23, 1996, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 10(e) Amended and Restated American Freightways Corporation Excess Benefit Plan as amended January 23, 1996, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 10(f) $50,000,000 Master Shelf Agreement ($10,000,000 Note attached) with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended September 30, 1993. 10(g) $10,000,000 Note dated February 2, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1993. 10(h) $10,000,000 Note dated April 13, 1994, issued under the $50,000,000 Master Shelf Agreement with The Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1994. 10(i) $15,000,000 Note dated January 30, 1995, issued under the $90,000,000 Master Shelf Agreement with the Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1995. 10(j) $20,000,000 Note dated June 15, 1995, issued under the $90,000,000 Master Shelf Agreement with the Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1995. 10 10(k) $25,000,000 Note dated May 1, 1996, issued under the $90,000,000 Master Shelf Agreement with the Prudential Insurance Company of America dated September 3, 1993, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1996. 10(l) Letter Amendment No. 1 to Master Shelf Agreement with The Prudential Insurance Company of America dated October 19, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(m) Letter Amendment No. 2 to Master Shelf Agreement with The Prudential Insurance Company of America dated December 14, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(n) Letter Amendment No. 3 to Master Shelf Agreement with The Prudential Insurance Company of America dated March 29, 1996, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1996. 10(o) Note Agreement among Prudential Capital Corporation, the Registrant and certain subsidiaries dated December 5, 1991, incorporated by reference to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991. 10(p) Letter Amendment No. 1 to Note Agreement with The Prudential Insurance Company of America dated January 15, 1992, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1992. 10(q) Letter Amendment No. 3 to Note Agreement with The Prudential Insurance Company of America dated October 19, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(r) Letter Amendment No. 4 to Note Agreement with The Prudential Insurance Company of America dated March 29, 1996, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1996. 10(s) Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and certain subsidiaries dated October 20, 1994, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1994. 10(t) First Amendment to Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as agent, the Registrant and its Subsidiary dated May 31, 1995, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1995. 10(u) Second Amendment to Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as Agent, the Registrant and its Subsidiary dated March 26, 1996, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended March 31, 1996. 11 10(v) Third Amendment to Amended and Restated Credit Agreement among NationsBank of Texas, N.A., as agent, the Registrant and its subsidiary dated May 31, 1996, incorporated by reference to Registrant's Form 10-Q for the quarterly period ended June 30, 1996. 10(w) Lease Agreement among VT Finance, Inc., the Registrant and its Subsidiary dated January 5, 1996, incorporated by reference to Registrant's Form 10-K for the fiscal year ended December 31, 1995. 13 Annual Report to Stockholders for the fiscal year ended December 31, 1996 21 Subsidiary of Registrant 23 Consent of Ernst & Young LLP 24 Power of Attorney 27 Financial Data Schedule 12 SIGNATURES Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated this 13th day of February, 1997. American Freightways Corporation By: /s/Frank Conner ----------------------------------- Frank Conner Chief Financial Officer; Director (Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/F. S. Garrison February 13, 1997 - ----------------------------------------------- ----------------- F. S. Garrison Date Chairman of the Board of Directors, Chief Executive Officer (Principal Executive Officer) /s/Frank Conner February 13, 1997 - ----------------------------------------------- ----------------- Frank Conner Date Chief Financial Officer; Director (Principal Accounting Officer) /s/Tom Garrison February 13, 1997 - ----------------------------------------------- ----------------- Tom Garrison Date Director /s/Will Garrison February 13, 1997 - ----------------------------------------------- ----------------- Will Garrison Date Director /s/Ben A. Garrison February 13, 1997 - ----------------------------------------------- ----------------- Ben A. Garrison Date Director /s/T. J. Jones February 13, 1997 - ----------------------------------------------- ----------------- T. J. Jones Date Director /s/Ken Reeves February 13, 1997 - ----------------------------------------------- ----------------- Ken Reeves Date Director 13 ANNUAL REPORT ON FORM 10-K--ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d) AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of American Freightways Corporation and subsidiary included in the Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1996 are incorporated by reference in Item 8: Consolidated Balance Sheets as of December 31, 1996 and 1995. Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements--December 31, 1996. The following consolidated financial statement schedule of American Freightways Corporation and subsidiary is included in Item 14(d): AMERICAN FREIGHTWAYS CORPORATION AND SUBSIDIARY Consolidated Financial Statement Schedule: Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 14 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AMERICAN FREIGHTWAYS CORPORATION
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 - --------------------------------------------------------------------------------- Year ended December 31, 1994: Allowance for Doubtful Accounts $493,039 $1,125,840 $423,029 (1) $1,403,102 (2) $ 638,806 ============================================================= Year ended December 31, 1995: Allowance for Doubtful Accounts $638,806 $ 928,974 $264,867 (1) $ 988,116 (2) $ 844,531 ============================================================= Year ended December 31, 1996: Allowance for Doubtful Accounts $844,531 $1,720,873 $225,618 (1) $1,413,063 (2) $1,377,959 ==============================================================
Note 1 - Recoveries of amounts previously written off. Note 2 - Uncollectible accounts written off. 15 EX-13 2 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 Annual Report to Shareholders Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------ The following table sets forth, for the years indicated, the percentages of operating expenses and other items to operating revenue:
1996 1995 1994 - ---------------------------------------------------------------- Operating revenue 100.0% 100.0% 100.0% Operating expenses and costs: Salaries, wages and benefits 60.9 58.6 53.1 Operating supplies and expenses 8.2 6.8 6.6 Operating taxes and licenses 4.4 4.3 4.1 Insurance 3.7 3.8 3.3 Communications and utilities 1.8 1.9 1.9 Depreciation and amortization 6.4 6.5 6.0 Rents and purchased transportation 6.3 8.1 9.8 Other 4.6 4.6 4.5 - ---------------------------------------------------------------- Total operating expenses 96.3 94.6 89.3 - ---------------------------------------------------------------- Operating income 3.7 5.4 10.7 Interest expense 2.0 1.8 1.5 Other income, net 0.1 0.1 0.2 - ---------------------------------------------------------------- Income before taxes 1.8 3.7 9.4 Income taxes 0.7 1.4 3.6 - ---------------------------------------------------------------- Income before extraordinary item 1.1 2.3 5.8 - ----------------------------------------------------------------
Results of Operations 1996 Compared to 1995 Revenue Operating revenue for 1996 was $729,042,000, up 27.4%, compared to $572,100,000 for 1995. This increase in operating revenue was due primarily to a 22.8% increase in tonnage handled by the Company from new and existing customers. The increase in tonnage handled by the Company was primarily a result of the following: . The Company continued to increase its market penetration into existing service territories, particularly those geographic areas added during 1995. . The increase in intrastate tonnage following the deregulation of intrastate commerce effective January 1, 1995. . On January 1, 1996, the Company expanded its all-points coverage to the states of Delaware, Maryland, Virginia and West Virginia with the opening of twelve new Customer Centers. . On June 3, 1996, the Company expanded its all-points coverage to 26 states with the addition of Minnesota. Five new Customer Centers were opened to complement the two Customer Centers already operating in that state. A 3.8% increase in revenue per hundred weight also contributed to the increase in operating revenue. The majority of the increase in revenue per hundred weight was experienced during the last half of 1996. During the last half of 1996, pricing stabilized due to increased overall demand for LTL services. This increased demand helped to absorb much of the excess capacity that existed in the industry during 1995 and the first half of 1996. In addition, the Company initiated a fuel surcharge beginning September 16, 1996 to help cover the increased costs of fuel. This surcharge is tied to the Department of Energy's National Diesel Fuel Index and was 1.6% for LTL shipments as of December 31, 1996. Other factors influencing revenue per hundred weight were: . A general rate increase of approximately 5.75% effective January 1, 1996. General rate increases initially affect approximately 45% of the Company's customers. The remaining customers' rates are determined by contracts and guarantees and are negotiated throughout the year. . The Company's average length of haul increased 1.2%, to 595 miles, in the 12 months ended December 31, 1996 as compared to the 12 months ended December 31, 1995. The increase in average length of haul was primarily a result of the Company's expanded service territory. . The percentage of the Company's total revenue that was derived from truckload shipments (greater than 10,000 pounds) declined to 6.7% in 1996 as compared to 7.8% in 1995. Management expects that growth in operating revenue is sustainable in the near term. The Company's planned expansions of service territory during 1997 are less aggressive than those initiated in recent years. The primary focus for growth in operating revenue in the near-term will be further penetration of existing markets. As a result, any near-term percentage growth in operating revenue will likely be less than that experienced in recent years. The foregoing statement concerning the sustainability of revenue growth is subject to a number of factors, including LTL industry capacity, increased tonnage and general economic conditions. Operating Expenses Operating expenses as a percentage of operating revenue increased to 96.3% in 1996 from 94.6% in 1995. This overall increase was primarily attributable to: . Salaries, wages and benefits as a percentage of operating revenue increased to 60.9% in 1996 from 58.6% in 1995. The increase in salaries, wages and benefits as a percentage of operating revenue was primarily a result of the following factors. First, the Company invested in additional people in order to improve on-time service. The timing of freight flows was interrupted in the second half of 1995 due to a large geographic expansion and a softening of general economic conditions. As a result, on-time service fell below the traditionally high levels established by the Company. The first half of 1996 was largely devoted to restoring on-time service. With on-time service reestablished at or near historical levels, the second half of 1996 was focused on improved asset utilization and cost reduction. Specifically, the Company reconfigured its line- haul operations and increased the flexibility of its workforce. While these changes were being implemented, there were some costs which overlapped during the second half of 1996 while associates learned new responsibilities. The second factor contributing to this increase was the continuation of the Company's philosophy of sharing its success with its associates through increased wages and enhanced benefits packages. On March 3, 1996, the Company increased the wages of its drivers, dockmen and clerical associates by approximately 3.0%. A third factor was the conversion of five Customer Centers from contractor-operated to Company- operated facilities during the first half of 1996. Given the operational improvements initiated during the last half of 1996, management does not expect salaries, wages and benefits as a percentage of operating revenue to continue in an upward trend. These expenses, as they relate to operating revenue, are expected to stabilize or gradually improve. However, a portion of salaries, wages and benefits are subject to factors beyond the control of management, such as inflation and general economic conditions. . Operating supplies and expenses as a percentage of operating revenue increased to 8.2% in 1996 from 6.8% in 1995. This increase primarily reflects the impact of higher fuel prices. Management believes the fuel surcharge implemented September 16, 1996, offset most of the impact of higher fuel prices from that time forward. However, during the period from February 1997 through August 1997, management estimates higher fuel costs resulted in lower earnings of $0.08 per share. Management cannot accurately predict fuel prices. However, given foreseeable market conditions, management does believe that increased fuel expenses due to higher fuel prices can be largely offset by the continuation of a fuel surcharge. These increases in operating expenses as a percentage of operating revenue were partially offset by improvements in the following area: . Rents and purchased transportation as a percentage of operating revenue improved to 6.3% in 1996 from 8.1% in 1995. This improvement was primarily due to the Company's philosophy of utilizing Company-operated Customer Centers rather than contractor-operated Customer Centers in expansions of service territory. In addition, five Customer Centers were converted from contractor-operated to Company-operated centers during 1996. Other Interest expense as a percentage of operating revenue increased to 2.0% in 1996 from 1.8% in 1995. This increase was primarily attributable to increased borrowings incurred by the Company to finance the expansion of service territory and support growth in operating revenue. The effective tax rate of the Company was 38.6% for 1996, the same as in 1995. Net income for 1996 was $7,856,000, down 40.0%, from $13,083,000 for 1995. 1995 Compared to 1994 Revenue Operating revenue for 1995 was $572,100,000, up 22.9%, compared to $465,588,000 for 1994. This increase in operating revenue was due almost entirely to a 22.5% increase in tonnage handled by the Company. Revenue per hundred weight was basically unchanged in 1995 from 1994 despite the Company effecting a rate increase of approximately 3.5% on January 1, 1995. This was primarily due to aggressive, discounted pricing as a result of excess capacity within the less- than-truckload industry. This excess capacity existed largely as a result of overall economic conditions during 1995. In order to utilize its excess capacity and better position the Company for the long-term, the Company elected to accelerate the pace of expansion of its service territory. The following expansions of service territory were initiated by the Company during 1995: . On January 1, 1995, the Company expanded its all-points coverage to the states of North Carolina and South Carolina with the opening of thirteen new Customer Centers. . On April 17, 1995, the Company expanded its service territory with the addition of facilities in: Colorado Springs, Denver, Fort Collins and Pueblo, CO; Des Moines, IA; Minneapolis/St. Paul, MN; Omaha, NE; Madison and Milwaukee, WI. . On July 10, 1995, the Company expanded its all-points coverage to the states of Colorado, Iowa, Nebraska and Wisconsin with the opening of twelve new Customer Centers. . On August 14, 1995, the Company provided all-points coverage to the state of Florida with the opening of seven new Customer Centers and added one additional Customer Center in the state of Georgia. These expansions of service territory from 14 to 21 states during 1995 were the primary reasons for the increase in tonnage handled by the Company. In addition, tonnage was increased by the deregulation of intrastate commerce, effective January 1, 1995, by the Federal Aviation Administration Authorization Act of 1994, and by continued market penetration into existing service territories. Operating Expenses Operating expenses as a percentage of operating revenue increased to 94.6% in 1995 from 89.3% in 1994. This overall increase was primarily attributable to: . Salaries, wages and benefits as a percentage of operating revenue increased to 58.6% in 1995 from 53.1% in 1994. The increase in salaries, wages and benefits as a percentage of operating revenue was primarily a result of three factors. First, the utilization of Company-operated Customer Centers, rather than contractor-operated Customer Centers, in expansions of service territory contributed to this increase. Second, the continuation of the Company's philosophy of sharing its success with its associates through increased wages and enhanced benefits packages contributed to this increase. On March 6, 1995, the Company increased the wages of its drivers, dockmen and clerical associates by approximately 5.5%. The third factor was the accelerated expansion of service territory during 1995. Within the expansion territories, wages and benefits were disproportionately high in relation to operating revenue as new associates were added to establish an operating base. . Insurance as a percentage of operating revenue increased to 3.8% in 1995 from 3.3% in 1994. This increase was primarily a result of the Company's increased experience of accidents and cargo claims, particularly in the areas of cargo care and liability insurance. . Depreciation and amortization as a percentage of operating revenue increased to 6.5% in 1995 from 6.0% in 1994. This increase was primarily due to two factors. The first factor was the decreased usage of rented equipment in favor of Company-owned equipment. The second factor was the rapid expansion of service territory. During the initial stages of expansion of service territory, depreciation expense is disproportionately high in comparison to operating revenue. These increases in operating expenses as a percentage of operating revenue were partially offset by improvements in the following area: . Rents and purchased transportation as a percentage of operating revenue improved to 8.1% in 1995 from 9.8% in 1994. This improvement was primarily due to the Company's philosophy of utilizing Company-operated Customer Centers rather than contractor-operated Customer Centers in expansions of service territory. In addition, this improvement was partially due to the decreased usage of rented equipment in favor of Company-owned equipment. Other Interest expense as a percentage of operating revenue increased to 1.8% in 1995 from 1.5% in 1994. This increase was primarily attributable to increased borrowings incurred by the Company to finance the expansion of service territory and support growth in operating revenue. The effective tax rate of the Company was 38.6% for 1995, up from 38.0% in 1994. This increase was primarily due to increased state income taxes. Net income for 1995 was $13,083,000, down 51.0%, from $26,696,000 for 1994. Liquidity and Capital Resources The continued growth in operating revenue and the expansion of service territory during 1996 required significant capital resources. Capital requirements during 1996 consisted primarily of $104,752,000 of investing activities. The Company invested $107,383,000 in capital expenditures during 1996 comprised of $43,396,000 in additional revenue equipment, $46,639,000 in new Customer Center facilities or the expansion of existing Customer Center facilities and $17,348,000 in other equipment. Management expects improvements in asset utilization as a result of the operational changes implemented during the last half of 1996. Therefore, management does not expect a similar amount of capital expenditures for revenue equipment will be required in 1997. However, similar amounts of capital expenditures are expected for Customer Centers in order to provide adequate facilities to handle growth in existing markets. The actual amount of capital expenditures required in 1997 will be dependent on the growth rate of the Company and the timing and size of any future expansions of service territories. At December 31, 1996, the Company had commitments for land, Customer Centers, revenue and other equipment of approximately $12,190,000. The Company provided for its capital resource requirements in 1996 with cash from operations and financing activities. Cash from operations totaled $63,252,000 in 1996 compared to $45,676,000 in 1995. Financing activities augmented cash flow by $43,252,000 in 1996, utilizing two primary sources of financing; the revolving line of credit and the Master Shelf facility. . The Company experiences periodic cash flow fluctuations common to the industry. Cash outflows are heaviest during the first part of any given year while cash inflows are normally weighted towards the last two quarters of the year. To smooth these fluctuations and to provide flexibility to fund future growth, the Company utilizes a variable-rate, unsecured revolving line of credit. This facility is provided by NationsBank of Texas, N.A. (agent), Texas Commerce Bank, N.A., Wachovia Bank of Georgia, N.A., ABN-AMRO Bank N.V., The First National Bank of Chicago and Credit Lyonnais. Effective May 31, 1996, the limit of this line of credit facility was increased to $175,000,000 from $125,000,000. During 1996, the Company utilized this facility to provide $24,000,000 of net financing, bringing outstanding borrowings under the facility to $118,000,000 and leaving $57,000,000 available for borrowing. The Company also maintains a short-term, unsecured revolving line of credit with NationsBank of Texas, N.A. Effective May 31, 1996, the limit of this short-term facility was increased to $10,000,000 from $7,500,000. At December 31, 1996, $10,000,000 was available for borrowing. In addition, the Company maintains a $10,000,000 line of credit with NationsBank, N.A. to obtain letters of credit required for its self-insurance program. At December 31, 1996, the Company had obtained letters of credit totaling $5,076,000 for this purpose. . To assist in financing longer-lived assets, the Company has an uncommitted Master Shelf Agreement with the Prudential Insurance Company of America which provides for the issuance of up to $90,000,000 in medium to long-term unsecured notes at an interest rate calculated at issuance. On May 1, 1996, the Company utilized this agreement to issue a $25,000,000 note at 7.51% with a ten year maturity. The proceeds of these notes were used primarily to repay borrowings from the revolving line of credit or to fund capital expenditures. With the issuance of these notes, the Company had fully utilized the existing capacity of this facility. Management expects that the Company's existing working capital and its available lines of credit are sufficient to meet the Company's commitments as of December 31, 1996, and to fund current operating and capital needs. However, if additional financing is required, management believes it will be available. The Company utilizes off-balance sheet financing in the form of operating leases, when appropriate and suitable, to finance computer equipment, Customer Center facilities and revenue equipment. At December 31, 1996, future rental commitments on operating leases were $48,449,000. Environmental At December 31, 1996, the Company had no outstanding inquiries with any state or federal environmental agency. Inflation With the exception of fuel prices, the effect of inflation on the operating results of the Company was minimal during 1996. Management estimates that higher fuel prices resulted in lower earnings of $0.08 per share prior to the implementation of a fuel surcharge on September 16, 1996. Most of the Company's expenses are sensitive to inflation as increases in inflation generally result in increased costs. Seasonality In the trucking industry, results of operations generally show a seasonal pattern because customers reduce shipments during winter months. In addition, the Company's operating expenses as a percentage of operating revenues have historically been higher during the winter. Recent Events On January 1, 1997, the Company effected a general rate increase of approximately 5.9%. This rate increase initially affected approximately 45% of its customers. Rates for other customers are covered by contracts and guarantees and are negotiated throughout the year. Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders American Freightways Corporation We have audited the accompanying consolidated balance sheets of American Freightways Corporation and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Freightways Corporation and subsidiary at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Little Rock, Arkansas January 23, 1997 American Freightways Corporation and Subsidiary Consolidated Balance Sheets (In Thousands, Except Per Share Data)
DECEMBER 31 1996 1995 ----------------------- ASSETS Current assets: Cash and cash equivalents (Note 9) $ 4,394 $ 2,642 Trade receivables, less allowance for doubtful accounts (1996--$1,378; 1995--$845) 66,673 54,119 Operating supplies and inventories 2,493 2,136 Prepaid expenses 4,648 5,504 Deferred income taxes (Note 4) 10,649 8,444 Income taxes receivable 3,097 4,368 ----------------------- Total current assets 91,954 77,213 Property and equipment (Notes 3 and 6): Land and structures 148,360 97,303 Revenue equipment 371,712 322,748 Service, office and other equipment 96,357 66,012 Land improvements 2,342 1,650 Construction in progress 16,020 42,876 Accumulated depreciation and amortization (179,193) (132,887) ----------------------- 455,598 397,702 Other assets: Bond funds (Notes 3 and 9) 922 901 Other 1,401 1,946 ----------------------- 2,323 2,847 ----------------------- $ 549,875 $ 477,762 =======================
DECEMBER 31 1996 1995 ---------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 9,425 $ 10,532 Accrued expenses (Note 2) 45,278 33,590 Current portion of long-term debt 11,463 8,392 ---------------------- Total current liabilities 66,166 52,514 Long-term debt, less current portion 226,776 189,239 (Notes 3 and 9) Deferred income taxes (Note 4) 50,635 40,575 Shareholders' equity (Notes 3, 5 and 7): Common stock, par value $.01 per share; authorized 250,000 shares; issued and outstanding 31,242 shares in 1996 and 30,931 in 1995 312 309 Additional paid-in capital 101,519 98,514 Retained earnings 104,467 96,611 ---------------------- 206,298 195,434 Commitments (Note 6) ---------------------- $549,875 $477,762 ======================
See accompanying notes. American Freightways Corporation and Subsidiary Consolidated Statements of Income (In Thousands Except Per Share Data)
YEAR ENDED DECEMBER 31 1996 1995 1994 ----------------------------------- Operating revenue $729,042 $572,100 $465,588 Operating expenses and costs: Salaries, wages and benefits 444,041 335,167 247,049 Operating supplies and expenses 59,640 38,667 30,710 Operating taxes and licenses 31,827 24,434 19,251 Insurance 27,113 21,595 15,360 Communications and utilities 12,840 11,040 9,117 Depreciation and amortization 46,918 37,560 27,888 Rents and purchased transportation 45,826 46,405 45,633 Other 33,728 26,469 20,880 ----------------------------------- 701,933 541,337 415,888 ----------------------------------- Operating income 27,109 30,763 49,700 Other income (expense): Interest expense (14,708) (10,198) (6,832) Interest income 137 146 195 Gain on disposal of assets 90 329 292 Other, net 166 269 247 ----------------------------------- (14,315) (9,454) (6,098) ----------------------------------- Income before income taxes and extraordinary charge 12,794 21,309 43,602 Federal and state income taxes (Note 4): Current (credit) (3,093) (422) 7,071 Deferred 8,031 8,648 9,500 ----------------------------------- 4,938 8,226 16,571 ----------------------------------- Income before extraordinary charge 7,856 13,083 27,031 Extraordinary charge for early retirement of debt, net of tax benefit of $205 (Note 3) - - (335) ----------------------------------- Net income $ 7,856 $ 13,083 $ 26,696 =================================== Per share (Note 1): Income before extraordinary charge $0.25 $0.42 $0.89 Extraordinary charge - - (0.01) ----------------------------------- Net income $0.25 $0.42 $0.88 =================================== Average shares outstanding (Note 1) 31,266 31,334 30,357 ===================================
See accompanying notes. American Freightways Corporation and Subsidiary Consolidated Statements of Shareholders' Equity
COMMON STOCK ------------------- ADDITIONAL PAR PAID-IN RETAINED SHARES VALUE CAPITAL EARNINGS TOTAL -------------------------------------------------------------- (In Thousands) Balances at January 1, 1994 28,023 $ 280 $ 52,348 $ 56,832 $ 109,460 Sale of stock (Note 7) 2,125 21 36,630 - 36,651 Stock option and purchase plans 348 4 4,369 - 4,373 Net income - - - 26,696 26,696 -------------------------------------------------------------- Balances at December 31, 1994 30,496 305 93,347 83,528 177,180 Stock option and purchase plans 435 4 5,167 - 5,171 Net income - - - 13,083 13,083 -------------------------------------------------------------- Balances at December 31, 1995 30,931 309 98,514 96,611 195,434 Stock option and purchase plans 311 3 3,005 - 3,008 Net income - - - 7,856 7,856 -------------------------------------------------------------- Balances at December 31, 1996 31,242 $ 312 $101,519 $104,467 $ 206,298 ==============================================================
See accompanying notes. American Freightways Corporation and Subsidiary Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1996 1995 1994 ----------------------------------- (In Thousands) OPERATING ACTIVITIES Cash received from customers $ 714,932 $ 557,139 $ 454,308 Cash paid to suppliers and employees (641,956) (498,454) (377,424) Interest received 137 146 195 Interest paid (14,413) (9,907) (7,152) Income taxes received (paid) 4,552 (3,248) (4,426) ----------------------------------- Net cash provided by operating 63,252 45,676 65,501 activities INVESTING ACTIVITIES Proceeds from sales of equipment 2,631 1,029 945 Capital expenditures (107,383) (137,952) (116,272) ----------------------------------- Net cash used by investing activities (104,752) (136,923) (115,327) FINANCING ACTIVITIES Proceeds from notes payable and long-term borrowings 78,000 117,640 74,500 Principal payments on long-term debt (37,392) (31,190) (60,856) Proceeds from issuance of common stock 2,644 3,440 39,938 ----------------------------------- Net cash provided by financing activities 43,252 89,890 53,582 ----------------------------------- Net increase (decrease) in cash and cash equivalents 1,752 (1,357) 3,756 Cash and cash equivalents at beginning of year 2,642 3,999 243 ----------------------------------- Cash and cash equivalents at end of year $ 4,394 $ 2,642 $ 3,999 ===================================
American Freightways Corporation and Subsidiary Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1996 1995 1994 -------------------------------- (In Thousands) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 7,856 $ 13,083 $ 26,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 46,811 37,443 27,805 Amortization 107 117 83 Provision for losses on accounts receivable 1,721 929 1,126 Current tax effect of exercise of stock options 188 931 1,086 Gain on sale of equipment (90) (329) (292) Casualty loss on destroyed equipment 135 Deferred income taxes 8,031 8,648 9,500 Changes in operating assets and liabilities: Trade accounts receivable (14,275) (15,230) (11,521) Operating supplies and inventories (357) (617) (664) Prepaid expenses 856 (1,257) (986) Federal and state income taxes 1,271 (4,601) 1,353 Other assets 417 244 100 Trade accounts payable (1,107) (2,826) 3,534 Accrued expenses 11,688 9,141 7,681 -------------------------------- Total adjustments 55,396 32,593 38,805 -------------------------------- Net cash provided by operating activities $ 63,252 $ 45,676 $ 65,501 ================================
See accompanying notes. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements December 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of American Freightways Corporation and its subsidiary (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated. BUSINESS The Company primarily operates as a regional and an interregional, scheduled, for hire, less-than-truckload motor carrier, serving all points in 26 contiguous states from a network of 203 Customer Centers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Historically, credit losses have not been significant. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. REVENUE RECOGNITION The Company recognizes revenue and direct shipment costs upon the delivery of the related freight. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method over the estimated useful lives of 3 to 12 years for revenue and service equipment, 15 to 40 years for structures and improvements and 3 to 10 years for furniture and office equipment. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Gains and losses are recognized in the year of disposal. Effective for periods beginning July 1, 1994, the Company changed the service lives and salvage values for certain revenue equipment. These changes in estimates were made to more accurately reflect the Company's experience as to service lives of the equipment. These changes increased 1994 net income by approximately $565,000, or $.02 per common share. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Effective for periods beginning October 1, 1995, the Company changed the service lives for certain structures and improvements, ancillary and computer equipment and furniture and fixtures. These changes in estimates were made to more accurately reflect future service lives of the assets. These changes increased 1995 net income by approximately $453,000, or $.01 per common share. INSURANCE As of December 31, 1996, the Company was self-insured up to specified limits for the following types of claims: Workers' compensation: All states of operation (with the exception of Colorado, Delaware, Indiana, Iowa, Maryland, Minnesota, Nebraska, North Dakota, Texas, West Virginia and Wisconsin) $500,000 State of Wisconsin FULLY INSURED In the states of Colorado, Delaware, Indiana, Iowa, Maryland, Minnesota, Nebraska and Texas, workers' compensation claims are insured under a $500,000 deductible plan. In the states of North Dakota and West Virginia, workers' compensation claims are insured under the mandatory State Plan as private plans are not permitted. Wisconsin law does not allow deductible plans and those claims are fully insured. All other types of claims are self-insured with a retention limit of $500,000 per occurrence. INCOME TAXES Deferred income taxes are accounted for under the liability method. Deferred income tax assets and liabilities reflect the effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. EARNINGS PER SHARE Earnings per share is computed based on the weighted average number of shares outstanding during each year, adjusted to include common stock equivalents attributable to dilutive stock options. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. STOCK-BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly, recognizes no compensation expense for the stock option grants. IMPAIRMENT OF ASSETS The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", on January 1, 1996. Under SFAS No. 121, impairment losses are recognized when information indicates the carrying amount of long- lived assets, identifiable intangibles and goodwill related to those assets will not be recovered through future operations or sale. Impairment losses for assets to be held or used in operations will be based on the excess of the carrying amount of the asset over the asset's fair value. Assets held for disposal, except for discontinued operations, will be carried at the lower of carrying amount or fair value less cost to sell. SFAS No. 121 was applied prospectively from the date of adoption and the effect of adoption was not material. RECLASSIFICATIONS Certain amounts previously reported in 1995 and 1994 have been reclassified to conform with the 1996 presentation.
2. ACCRUED EXPENSES 1996 1995 -------------------- (In Thousands) Accrued salaries, wages and benefits $21,581 $13,796 Taxes other than income 1,689 2,363 Loss, injury, damage, health and workers' compensation claims reserves 20,514 16,320 Other 1,494 1,111 -------------------- $45,278 $33,590 ====================
American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT 1996 1995 -------------------- (In Thousands) Bonds payable /(1)/ $ 7,020 $ 7,310 Revolving credit agreements /(2)/ 118,000 94,000 Mortgage notes /(3)/ 969 1,107 Capitalized lease obligations /(4)/ - 214 Unsecured senior notes /(5)/ 112,250 95,000 -------------------- 238,239 197,631 Less current portion (11,463) (8,392) ----------------------- $226,776 $189,239 =======================
(1) Represents the Company's liability under a loan agreement with Arkansas Development Finance Authority, issuer of economic development revenue bonds to construct Customer Centers and a general office facility. The loan agreement provides that the Company will make payments sufficient to pay the principal and interest on the bonds. The bonds include a $1,030,000 term bond due in 1999 and a $5,990,000 term bond due in 2009. The bonds bear interest at fixed rates of 8.25% and 8.50%, respectively, and are collateralized by land and structures with a net book value of $8,086,000 at December 31, 1996. The loan agreement requires that certain bond service funds be maintained. As of December 31, 1996, there was $922,000 in a debt service reserve fund. Mandatory annual sinking fund redemption payments began in 1995. (2) The revolving credit agreements at December 31, 1996, include an unsecured revolving credit agreement which provides for available borrowings of $175,000,000. Borrowings under this revolving credit agreement at December 31, 1996 totaled $118,000,000. The term of this agreement extends to April 1, 2001 (unless terminated or renewed). Interest is applied to outstanding borrowings at variable interest rates based on the London Interbank rate or the prime rate. The weighted average rate on outstanding borrowings at December 31, 1996 was 6.6%. The agreement contains covenants which limit, among other things, indebtedness, loans, investments and dividend payments, as well as require the Company to meet certain financial tests. The Company pays an annual commitment fee based on the unused commitment. At December 31, 1996, the commitment fee was 0.30%. As of December 31, 1996, the amount available for additional borrowing under this line of credit was $57,000,000. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 3. LONG-TERM DEBT (CONTINUED) The Company also has $10,000,000 of available borrowings at December 31, 1996, under a separate unsecured revolving credit agreement. The terms of this agreement provide for borrowings up to $10,000,000 at the prime rate of interest or at a rate of interest agreed upon at the time of any borrowings. No borrowings were outstanding at December 31, 1996 under this agreement. This agreement matures May 31, 1997, unless terminated or renewed. In addition, the Company maintains a $10,000,000 line of credit to fund letters of credit. At December 31, 1996, the Company had utilized this line of credit to obtain letters of credit totaling $5,076,000. (3) Mortgage notes are due monthly or quarterly to November 2003 at an average interest rate of 8.44%. The notes are collateralized by land and structures with a net book value of $1,543,000 at December 31, 1996. (4) Capitalized lease obligations consisted primarily of installment obligations for revenue equipment purchases. (5) Includes an unsecured senior note for $25,000,000 payable in equal annual installments of $5,000,000 through November 2001. The note bears interest at a fixed rate of 8.91% payable semi-annually. Also includes six notes totaling $87,250,000; all issued under an unsecured and uncommitted $90,000,000 Master Shelf Agreement with the following characteristics:
OUTSTANDING INTEREST PRINCIPAL MATURITY DATE RATE --------------------------------------------------- $ 9,250,000 August 2000 6.25% 8,000,000 October 2000 6.00 10,000,000 April 2001 7.55 15,000,000 January 2005 8.85 20,000,000 June 2005 6.92 25,000,000 May 2006 7.51
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. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 3. LONG-TERM DEBT (CONTINUED) Annual maturities on long-term debt are $11,463,000 in 1997, $11,495,000 in 1998, $11,539,000 in 1999, $12,835,000 in 2000, $132,546,000 in 2001, and $58,361,000 thereafter. Interest costs of $1,655,000, $1,478,000 and $1,002,000 in 1996, 1995, and 1994, respectively, were capitalized as part of the acquisition cost of certain property and equipment. In 1994, the Company paid a note prior to its maturity date and incurred a prepayment charge of $540,000 which has been classified as an extraordinary charge in the 1994 statement of income, net of the related income tax benefit of $205,000. 4. FEDERAL AND STATE INCOME TAXES Significant components of the Company's deferred tax liabilities and assets as of December 31, 1996 and 1995, respectively, are as follows:
1996 1995 --------------------- (In Thousands) Noncurrent deferred tax liabilities: Tax over book depreciation $65,760 $49,490 Alternative minimum tax credit (8,988) (8,915) carryover Federal and state loss carryovers (6,137) - --------------------- Net noncurrent deferred tax liabilities $50,635 $40,575 ===================== Current deferred tax assets: Accrued expenses not deductible until $10,514 $ 8,802 paid Allowance for doubtful accounts 338 224 Revenue recognition differences 270 88 --------------------- Total current deferred tax assets 11,122 9,114 Current deferred tax liabilities: Prepaid expenses 473 (670) --------------------- Net current deferred tax assets $10,649 $ 8,444 =====================
American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 4. FEDERAL AND STATE INCOME TAXES (CONTINUED) The reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:
1996 1995 1994 --------------------------- (In Thousands) Income tax at the statutory federal rate of 35% $4,478 $7,458 $15,261 Federal income tax effects of: State income taxes (280) (336) (613) Nondeductible expenses 340 295 214 Effects of lower rates on taxable income below $15,000,000 (400) (150) (100) Other - - 58 ------------------------------ Federal income taxes 4,138 7,267 14,820 State income taxes 800 959 1,751 ------------------------------ $4,938 $8,226 $16,571 ============================== Effective income tax rate 38.6% 38.6% 38.0% ==============================
The Company has a federal tax loss carryover of $15,424,000 and alternative minimum tax credit carryovers of approximately $8,988,000 which have reduced the deferred tax liability. The federal tax loss will expire at December 31, 2011 if not used to offset future taxable income. The alternative minimum tax credits carry over indefinitely. Tax benefits of stock option and purchase plans recorded as paid-in capital and which did not reduce income tax expense amounted to $364,000, $1,731,000 and $1,086,000 in 1996, 1995 and 1994, respectively. 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS STOCK PURCHASE PLAN The Company maintains a stock purchase plan covering substantially all employees of the Company. A total of 275,987 shares of common stock remain reserved for issuance under this plan at December 31, 1996. An eligible employee can purchase shares having a fair market value on the date of grant of up to the greater of $1,200 or the fair market value of 200 shares. The price per share is 85% of the lower of the fair market value at the date of grant or the date of exercise, which is one year from the date of grant. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) Shares have been issued during 1994, 1995 and 1996 as follows:
NUMBER OF PER SHARE ISSUE DATE SHARES ISSUED EXERCISE PRICE - --------------------------------------------------------------------- April 30, 1994 91,199 $ 12.75 October 31, 1994 55,795 16.58 April 30, 1995 59,093 16.15 October 31, 1995 74,014 10.84 April 30, 1996 90,284 12.86 October 31, 1996 100,622 8.39
During 1996 employees enrolled for options to purchase 198,498 shares under the plan. In accordance with plan provisions, the shares must be purchased during 1997. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS The 1993 Stock Option Plan provides for the issuance of qualified or nonqualified options to purchase common stock of the Company, and the awarding of stock appreciation rights payable in shares or cash. The stock appreciation rights issued in 1993 are payable only in cash. No option or right may be issued for less than the fair market value of the stock on the date of grant. The options and rights vest over a five year period from the date of grant and will expire if not exercised after ten years from the date of grant. The Company also reserves shares for issuance under the Chairman Stock Option Plan and the Nonemployee Director Stock Option Plan. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) Collective activity within the plans is summarized as follows:
STOCK SHARES WEIGHTED APPRECIATION UNDER AVERAGE RIGHTS OPTION PRICE RANGE PRICE ------------------------------------------------------------------------------------- Outstanding at January 1, 1994 195,300 1,709,860 $ 3.00 - $19.88 $ 9.40 Granted - 154,500 17.88 - 22.13 17.93 Exercised (10,690) (201,600) 3.00 - 13.06 6.59 Canceled (9,490) (29,020) 3.00 - 17.88 10.58 ------------------------------------------------------------------------------------- Outstanding at December 31, 1994 175,120 1,633,740 3.00 - 22.13 10.60 Granted - 231,950 14.81 - 21.38 21.34 Exercised (21,800) (290,990) 3.00 - 17.88 6.68 Canceled (15,030) (76,920) 3.00 - 21.38 11.95 ------------------------------------------------------------------------------------- Outstanding at December 31, 1995 138,290 1,497,780 3.00 - 22.13 12.86 Granted - 309,000 10.32 - 15.69 10.47 Exercised (3,660) (140,210) 4.25 - 13.07 6.46 Canceled (11,580) (100,800) 6.32 - 21.38 13.66 ------------------------------------------------------------------------------------- Outstanding at December 31, 1996 123,050 1,565,770 $ 3.00 - 22.13 $12.93 ===================================================================================== The following table summarizes information concerning currently outstanding and exercisable options: OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------------------- -------------------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED LIFE AVERAGE AVERAGE RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE EXERCISE PRICES OUTSTANDING (YEARS) PRICE EXERCISABLE PRICE - ------------------------------------------------------------------------------------------------------------------------------ $3-$5 27,000 2.3 $ 3.00 21,000 $ 3.00 $5-$10 266,560 0.8 7.22 206,840 7.06 $10-$15 915,590 7.0 12.22 369,790 13.04 $15-$20 153,330 7.2 17.81 56,580 17.87 Greater than $20 203,290 8.1 21.38 41,010 21.39 ------------------------------------ ----------- Total 1,565,770 6.0 695,220 ==================================== ===========
American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) The number of shares of common stock reserved for granting future options under these plans was 1,686,770, 2,017,790 and 2,172,820, at December 31, 1996, 1995, and 1994, respectively. At December 31, 1996, options were exercisable to purchase 695,220 shares. The Company recorded a benefit related to the change in value of stock appreciation rights of $243,000 in 1995 and expense of $256,000 in 1994. No benefit or expense was recorded in 1996. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost. If the Company had elected to recognize compensation cost based on the fair value of options granted at grant date as prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation", net income and earnings per share would have been reduced to the pro forma amounts indicated in the table below:
(in thousands except per share amounts) 1996 1995 ------------------- Net income - as reported $7,856 $13,083 Net income - pro forma 6,799 12,079 Earnings per share - as reported 0.25 0.42 Earnings per share - pro forma 0.22 0.39
The pro forma effect on net income for 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The fair value of each 1996 option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
OPTION PLANS PURCHASE PLAN ------------------------------ Expected dividend yield 0% 0% Expected stock price volatility 26.9% 30.6% Risk-free interest rate 5.42% 5.54% Expected life of options 4.4 YEARS 1 YEAR Weighted average value per option $3.29 $2.84
American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continu 5. EMPLOYEE BENEFIT AND COMPENSATION PLANS (CONTINUED) RETIREMENT PLAN The Company maintains a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax deferred contributions to the plan. The plan permits, at the discretion of the Board of Directors, elective and matching employer contributions. During 1996, the Company made elective contributions of 2 1/2% of each eligible participants' compensation, in addition to a 25% match of the first 6% of compensation contributed by participants. The Company's contributions to the plan totaled $8,313,000, $6,436,000 and $4,254,000 for 1996, 1995 and 1994, respectively. 6. LEASES AND COMMITMENTS Rent expense, exclusive of amounts related to purchased transportation, totaled approximately $23,677,000 for 1996, $22,119,000 for 1995 and $18,576,000 for 1994. The future minimum rental commitments under noncancelable operating leases having initial or remaining terms in excess of one year as of December 31, 1996 are as follows:
REVENUE OTHER TOTAL STRUCTURES EQUIPMENT EQUIPMENT ------------------------------------------------------- (In Thousands) 1997 $19,814 $3,887 $ 2,597 $13,330 1998 10,451 2,018 2,596 5,837 1999 7,435 1,232 2,596 3,607 2000 6,477 662 2,596 3,219 2001 2,226 406 1,820 Thereafter 2,046 875 1,171 ------------------------------------------------------ $48,449 $9,080 $13,376 $25,993 ======================================================
Certain leases have renewal options for periods from one to five years at the fair rental value of the related property at renewal. All capital lease obligations outstanding at December 31, 1995 were paid during 1996. American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continu 6. LEASES AND COMMITMENTS (CONTINUED) Capitalized leases were included in property and equipment at December 31, 1995 as follows:
1995 ------------- (In Thousands) Revenue equipment $ 4,136 Service, office and other equipment 23 Less accumulated amortization (1,742) ------------- $ 2,417 =============
Lease amortization is included in depreciation expense. Certain of the lease agreements contained fixed price purchase options. The lease agreements require the lessee to pay property taxes, maintenance and operating expenses. Commitments for land, Customer Centers and revenue equipment (including the cost to complete construction in progress) aggregated approximately $12,190,000 at December 31, 1996. 7. COMMON STOCK In 1994, the Company completed a public offering of 2,125,000 shares (including over-allotment option) of common stock at $18.25 per share. The net proceeds to the Company were $36,651,000. 8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1996 and 1995:
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------------------------------------------- (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 .02 .09 .10 .05 Average shares outstanding 31,165 31,338 31,285 31,268
American Freightways Corporation and Subsidiary Notes to Consolidated Financial Statements (continued) 8. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ------------------------------------------------- (In Thousands, Except Per Share Data) 1995 Operating revenue $132,533 $141,969 $149,392 $148,206 Operating expenses and costs 120,277 126,445 142,946 151,669 Net income (loss) 6,278 8,148 2,444 (3,787) Net income (loss) per share .20 .26 .08 (.12) Average shares outstanding 31,376 31,426 31,398 30,895
9. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and cash equivalents - the carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Bond funds - the Company's debt service reserve fund is invested in money market funds and the carrying amount reported in the balance sheet for bond funds approximates fair value. Long-term debt - the fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows (in thousands):
CARRYING AMOUNT FAIR VALUE --------------------------- 1996 Cash and cash equivalents $ 4,394 $ 4,394 Bond funds 922 922 Long-term debt 238,239 242,567 1995 Cash and cash equivalents 2,642 2,642 Bond funds 901 901 Long-term debt 197,631 201,763
EX-21 3 SUBSIDIARY OF REGISTRANT Exhibit 21 Subsidiary of Registrant American Freightways, Inc., an Arkansas Corporation EX-23 4 CONSENT OF ERNST & YOUNG Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of American Freightways Corporation and Subsidiary of our report dated January 23, 1997, included in the 1996 Annual Report to Shareholders of American Freightways Corporation. Our audits also included the financial statement schedule of American Freightways Corporation and Subsidiary listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-63674) pertaining to the American Freightways Corporation Stock Option Plan and in the Registration Statement (Form S-8 No. 33-76788) pertaining to the American Freightways Stock Purchase Plan of our report dated January 23, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of American Freightways Corporation and Subsidiary. /s/Ernst & Young LLP Little Rock, Arkansas March 7, 1997 EX-24 5 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Frank L. Conner, his true and lawful attorney in fact and agent with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign the Annual Report on Form 10-K, and any or all amendments thereto (including post-effective amendments), to be filed by American Freightways Corporation in accordance with the rules and regulations governed by the Securities and Exchange Commission. IN WITNESS WHEREOF, the undersigned hereby sets his hand this 4th day of February, 1997. /s/Ben A. Garrison - ---------------------------------------- Ben A. Garrison, Director State of Arkansas ) ) County of Boone ) This 4th day of Febuary, 1997, personally came before me Ben A. Garrison, who, being by me duly sworn says that he is a Director for American Freightways Corporation, an Arkansas corporation, and that said writing was signed and sealed by him, on behalf of said corporation, by its authority given. /s/Serena McBee ------------------------------------ Notary Public My commission expires: 3-28-04 --------------- (SEAL) EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1996 YEAR TO DATE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 4,394 0 68,051 1,378 2,493 91,954 634,791 179,193 549,875 66,166 226,776 0 0 312 205,986 549,875 0 729,042 0 701,933 0 0 14,708 12,794 4,938 7,856 0 0 0 7,856 .25 .25 PROVISION FOR DOUBTFUL ACCOUNTS INCLUDED IN COSTS ANS EXPENSES APPLICABLE TO REVENUES.
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