-----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, COym4J7wARzZrXY/ZBkGxbJbz8HI+HlXtS7Bazt2+9r8ypFdy/HXBDVofg0bj3pn Px+Vszp9SmumjCOHVnWzuw== 0000930661-98-000533.txt : 19980323 0000930661-98-000533.hdr.sgml : 19980323 ACCESSION NUMBER: 0000930661-98-000533 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 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-K405 SEC ACT: SEC FILE NUMBER: 000-17570 FILM NUMBER: 98568632 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-K405 1 FORM 10-K ================================================================================ 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. ================================================================================ 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 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 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 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 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.
PERIOD HIGH Low - -------------------------------------------------------------------------------- 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 $ 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
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) 1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- 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
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
YEARS ENDED DECEMBER 31 1993 1994 1995 1996 1997 --------- --------- --------- --------- --------- 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
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, 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 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:
Name AGE POSITION ---- --- -------- 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
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 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 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 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 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 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 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 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, 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 ========== ========== ============ ============= ==========
(1) - Recoveries of amounts previously written off. (2) - Uncollectible accounts written off. EX-13 2 ANNUAL REPORT 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:
1997 1996 1995 ------ ------ ------ 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% ===== ===== =====
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 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 . 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 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 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 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 FINANCIAL STATEMENTS American Freightways Corporation and Subsidiaries Consolidated Balance Sheets (In Thousands, Except Per Share Data)
DECEMBER 31 1997 1996 --------------------------------------- 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 =======================================
7
DECEMBER 31 1997 1996 -------------------------------------- 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 ======================================
See accompanying notes. 8 American Freightways Corporation and Subsidiaries Consolidated Statements of Income (In Thousands Except Per Share Data)
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------- 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 ===============================================
See accompanying notes. 9 American Freightways Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity
COMMON STOCK -------------------------- ADDITIONAL PAR PAID-IN RETAINED SHARES VALUE CAPITAL EARNINGS TOTAL ----------------------------------------------------------------------------- (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 =============================================================================
See accompanying notes. 10 American Freightways Corporation and Subsidiaries Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------------- (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 ===========================================================
11 American Freightways Corporation and Subsidiaries Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1997 1996 1995 ----------------------------------------------------------- (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 ===========================================================
See accompanying notes. 12 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:
Workers' compensation: 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
13 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 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
1997 1996 -------------------------------------- (In Thousands) 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 ======================================
3. LONG-TERM DEBT
1997 1996 --------------------------------------- (In Thousands) 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 =======================================
15 (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
OUTSTANDING PRINCIPAL INTEREST MATURITY DATE RATE - ---------------------------------------------------------------- $ 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
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:
1997 1996 ------------------------------ (In Thousands) Noncurrent deferred tax liabilities: 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 ==============================
17 The reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:
1997 1996 1995 -------------------------------------------- (In Thousands) 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% ============================================
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:
NUMBER OF SHARES PER SHARE EXERCISE ISSUE DATE ISSUED PRICE - ----------------------------------------------------------------------------------------- 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
18 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:
STOCK APPRECIATION SHARES UNDER WEIGHTED RIGHTS OPTION PRICE RANGE AVERAGE PRICE ------------------------------------------------------------------------------- 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 ===============================================================================
19 The following table summarizes information concerning currently outstanding and exercisable options:
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 - ---------------------------------------------------------------------------------------------------------------------- $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 ====================================== ===================
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:
(in thousands except per share amounts) 1997 1996 1995 ---------------------------------------------- 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
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 The fair value of options was estimated as of the date of grant using the Black- Scholes option-pricing model with the following assumptions:
1997 1996 1995 Option Purchase Option Purchase Option Purchase Plans Plans Plans Plans Plans Plans ------------------------------------------------------------------------------------ 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
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:
REVENUE TOTAL STRUCTURES EQUIPMENT OTHER EQUIPMENT ---------------------------------------------------------------------- (In Thousands) 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 ======================================================================
Certain leases have renewal options for periods from one to five years at the fair rental value of the related property at renewal. 21 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:
1997 1996 1995 ------------------------------------------- (In Thousands) 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 ===========================================
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:
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------------------------------------------------------------------------- (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
22
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 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
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):
CARRYING AMOUNT FAIR VALUE --------------------------------------------- 1997 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
23 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 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.
PERIOD HIGH Low ---------------------------------------------------------------------------------- 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 $ 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
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 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 EX-21 3 SUBSIDIARIES Exhibit 21 Subsidiaries of Registrant 1. American Freightways, Inc., an Arkansas Corporation 2. Tran-Support, Inc., an Arkansas Corporation EX-23 4 CONSENT OF ERNST & YOUNG LLP 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 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 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. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1,755 0 80,474 1,774 2,882 105,315 699,176 230,870 575,573 78,521 210,411 0 0 316 227,100 575,573 0 870,319 0 825,063 0 0 16,256 29,278 11,477 17,801 0 0 0 17,801 .57 .56 Provision for doubtful accounts included in costs and expenses applicable to revenues.
EX-27.2 6 FINANCIAL DATA SCHEDULE
5 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. 12-MOS DEC-31-1995 JAN-01-1995 DEC-1-1995 2,642 0 54,964 845 2,136 77,213 530,589 132,887 477,762 52,514 189,239 0 0 309 195,125 477,762 0 572,100 0 541,337 0 0 10,198 21,309 8,226 13,083 0 0 0 13,083 .43 .42 Provision for doubtful accounts included in costs and expenses applicable to revenues. Restated in accordance with Statement of Financial Accounting Standards Number 128.
-----END PRIVACY-ENHANCED MESSAGE-----