SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended JuneSeptember 30, 1994
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State of incorporation or organization)
91-0837469
---------------------------------
(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
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(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (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.
Yes: XXX No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share
Outstanding (net of 315,150 treasury shares)
as of JuneSeptember 30, 1994 20,967,374 shares
-----------------
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended SixNine Months Ended
September 30 September 30
------------------ ----------------
June 30 June 30
------- ------------------------
1994 1993 1994 1993
---- ---- ---- ----
REVENUES:
Domestic $407,657 $363,744 $804,541 $709,704$415,417 $378,276 $1,219,958 $1,087,980
International 76,885 56,137 146,553 108,94374,327 55,947 220,880 164,890
-------- -------- -------- --------
484,542 419,881 951,094 818,647---------- ----------
489,744 434,223 1,440,838 1,252,870
OPERATING EXPENSES:
Transportation purchased 162,534 131,454 317,532 256,234164,745 133,685 482,277 389,919
Station and ground operations 144,931 130,669 290,141 257,226147,915 131,001 438,056 388,227
Flight operations and maintenance 65,454 61,135 131,236 119,75473,046 60,635 204,282 180,389
General and administrative 36,552 34,699 72,268 66,70535,898 36,346 108,166 103,051
Sales and marketing 14,037 12,478 27,332 25,12913,679 12,942 41,011 38,071
Depreciation and amortization 33,309 33,152 67,074 65,36934,763 33,472 101,837 98,841
-------- -------- ---------- ----------
470,046 408,081 1,375,629 1,198,498
-------- -------- 456,817 403,587 905,583 790,417
-------- -------- -------- ------------------ ----------
EARNINGS FROM OPERATIONS 27,725 16,294 45,511 28,23019,698 26,142 65,209 54,372
INTEREST, NET (6,069) (6,066) (12,010) (12,026)6,212 6,108 18,222 18,134
-------- -------- -------- ------------------ ----------
EARNINGS BEFORE INCOME TAXES 21,656 10,228 33,501 16,20413,486 20,034 46,987 36,238
INCOME TAXES (8,593) (3,946) (13,438) (6,296)5,341 8,968 18,779 15,264
-------- -------- -------- ------------------ ----------
NET EARNINGS BEFORE CHANGES IN 8,145 11,066 28,208 20,974
ACCOUNTING 13,063 6,282 20,063 9,908
CUMULATIVE EFFECT OF CHANGES IN - - - 3,828
ACCOUNTING
-------- -------- -------- ------------------ ----------
NET EARNINGS 13,063 6,282 20,063 13,7368,145 11,066 28,208 24,802
PREFERRED STOCK DIVIDENDS (103) (688) (687) (1,369)105 695 792 2,064
-------- -------- -------- ------------------ ----------
NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS $ 12,9608,040 $ 5,59410,371 $ 19,37627,416 $ 12,36722,738
SHAREHOLDERS
======== ======== ======== ================== ==========
NET EARNINGS PER COMMON SHARE:
Primary -
Before changes in accounting $ .61.38 $ .29.53 $ .931.31 $ .44.97
Cumulative effect of changes in - - - .19
accounting
-------- -------- -------- ------------------ ----------
Net earnings available to common $ .38 $ .53 $ 1.31 $ 1.16
shareholders
$ .61 $ .29 $ .93 $ .63======== ======== ========== ==========
Fully Diluted -
Before changes in accounting $ .57.38 $ .29.52 $ .891.31 $ .44.97
Cumulative effect of changes in - - - .19
accounting
-------- -------- -------- ------------------ ----------
Net earnings available to common $ .57.38 $ .29.52 $ .891.31 $ .631.16
shareholders
======== ======== ======== ================== ==========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .15.225 $ .15.225
======== ======== ======== ================== ==========
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
JuneSeptember 30 December 31
------------------- -----------
ASSETS ------ 1994 1993
------ ---- ----
(Unaudited)
CURRENT ASSETS:
Cash $ 6,04510,622 $ 7,134
Trade accounts receivable, less 205,582 190,787
allowance of $7,325$7,443 and $6,925 204,331 190,787
Spare parts and fuel inventory 27,44227,498 27,224
Deferred income tax assets 16,52516,962 15,206
Prepaid expenses 14,97715,541 18,815
---------- ----------
TOTAL CURRENT ASSETS 269,320276,205 259,166
PROPERTY AND EQUIPMENT, NET 759,762757,817 733,963
EQUIPMENT DEPOSITS and OTHER ASSETS 17,10715,489 13,780
---------- ----------
TOTAL ASSETS $1,046,189$1,049,511 $1,006,909
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 106,546110,770 $ 95,684
Salaries, wages and related taxes 38,05935,487 37,885
Accrued expenses 58,71363,609 55,545
Income taxes payable 2,7331,727 3,638
Current portion of debt 5,8995,958 5,850
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TOTAL CURRENT LIABILITIES 211,950217,551 198,602
LONG-TERM DEBT 280,933270,234 269,250
SUBORDINATED DEBT 118,580 122,150
DEFERRED INCOME TAX LIABILITIES 29,88231,231 28,262
OTHER LIABILITIES 26,90127,505 29,821
REDEEMABLE PREFERRED STOCK 6,000 40,000
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares, no shares
issued
Common stock, par value $1 per share -
Authorized 60,000,000 shares
Issued 21,282,524 and 19,688,731 21,283 19,689
shares 21,282 19,689
Additional paid-in capital 184,337184,338 149,156
Retained earnings 167,295173,760 150,950
---------- ----------
372,914379,381 319,795
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
371,943378,410 318,824
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,046,189$1,049,511 $1,006,909
========== ==========
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
SixNine Months Ended
JuneSeptember 30
----------------
1994 1993
---- ----
OPERATING ACTIVITIES:
Net Earnings $ 20,06328,208 $ 13,73624,802
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Cumulative effect of changes in -- (3,828)
accounting - (3,828)
Depreciation and amortization 62,119 59,75494,511 90,411
Provision for aircraft engine 7,326 8,430
overhauls 4,955 5,615
Deferred income taxes 301 (1,250)1,213 444
Other (2,920) (2,103)(2,316) (1,055)
-------- --------
CASH PROVIDED BY OPERATIONS 84,518 71,924128,942 119,204
Change in:
Receivables (13,544) (8,604)(14,795) (14,421)
Inventories and prepaid expenses 3,620 (1,026)3,000 (4,452)
Accounts payable 12,218 3,79216,442 3,335
Accrued expenses, salaries &and 3,755 23,069
taxes payable 2,437 7,749
-------- --------
NET CASH PROVIDED BY OPERATING 137,344 126,735
ACTIVITIES 89,249 73,835
INVESTING ACTIVITIES:
Additions to property and equipment (94,267) (89,144)
Dispositions(125,861) (113,184)
Disposition of property and equipment 755 188913 228
Expenditures for engine overhauls (3,064) (1,934)(2,821)
Other (889) (2,094)(653) (1,889)
-------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (97,465) (92,984)(128,665) (117,666)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net 47,000 29,20037,100 (2,500)
Principal payments on debt (38,838) (4,491)(39,578) (5,034)
Proceeds from common stock issuance 2,803 6052,805 626
Dividends paid (3,838) (4,265)(5,518) (6,399)
-------- -----------------
NET CASH PROVIDED (USED) BY FINANCING (5,191) (13,307)
ACTIVITIES
7,127 21,049
-------- -----------------
NET INCREASE (DECREASE) IN CASH (1,089) 1,9003,488 (4,238)
CASH AT DECEMBER 31JANUARY 1 7,134 10,179
-------- -----------------
CASH AT JUNESEPTEMBER 30 $ 6,04510,622 $ 12,0795,941
======== =================
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANACIALFINANCIAL STATEMENTS
JuneSeptember 30, 1994
(Unaudited)
NOTE A--SUMMARY OF FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements included herein are unaudited but
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the
1994 presentation.
NOTE B--LONG-TERM DEBT:
Long-term debt consists of the following:
JuneSeptember 30 December 31
------- ----------------------- ------------
1994 1993
---- ----
(In thousands)
Senior debt:
Revolving bank credit $152,000$142,100 $105,000
Notes payable -- 34,000
Senior notes 100,000 100,000
Revenue bonds 13,200 13,200
Other debt 18,06217,322 19,330
-------- --------
283,262272,622 271,530
Subordinated debt:
Senior subordinated notes 7,150 10,720
Convertible subordinated debentures 115,000 115,000
-------- --------
122,150 125,720
-------- --------
Total long-term debt 405,412394,772 397,250
Less current portion 5,8995,958 5,850
-------- --------
$399,513$388,814 $391,400
======== ========
NOTE C--EARNINGS PER COMMON SHARE:
Primary earnings per common share are based upon the weighted average
number of common shares outstanding during the interim period plus dilutive
common equivalent shares applicable to the assumed exercise of outstanding
stock options.
Fully diluted earnings per share for the three and six months ended JuneSeptember 30,
1994,1993, assumes conversion of the Company's redeemable preferred stock and convertible subordinated debentures as well as
the dilutive common equivalent shares applicable to the assumed exercise of
stock options. Net earnings as adjusted for the elimination of preferred
stock dividends and
interest expense, net of applicable taxes, relative to the assumed conversionsconversion was $14,128,000 and $22,193,000$11,067,000 for the
three and six month periods, respectively. Fully diluted earnings per share for the three and
six month period ended June 30, 1993 are the same as primary earnings per
share.period.
Average shares outstanding used in earnings per share computations were as
follows:
Three Months Ended SixNine Months Ended
------------------ ----------------
June-----------------
September 30 JuneSeptember 30
------- ------------------- ------------
1994 1993 1994 1993
---- ---- ---- ----
AVERAGE SHARES OUTSTANDING
Primary 21,404 19,571 20,788 19,53921,288 19,542 20,955 19,540
Fully Diluted 24,900 19,614 24,900 19,60021,288 21,298 20,955 19,590
NOTE D--ACCOUNTING CHANGES:
The Company adopted several new accounting standards as of January 1, 1993
and recorded the effect of the changes in the quarter ended March 31, 1993.
The new standards change the Company's methods used to account for income
taxes and post-retirement health care benefit costs. The net cumulative
effect of adopting these standards was to increase net earnings for the
period ended March 31, 1993 by $3,828,000 or $.19 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance induring the second quarterfirst nine months of 1994
resulted in significantly higher operating income and net earnings compared to the second quarterfirst
nine months of 1993, continuing the trend of improved comparative1993. However, operating results realized in firstthe third quarter 1994. This improvement waswere
disappointing due primarily to three factors: a slowdown in the
result of strong productivity gains, cost controls, and strong growth in
international heavyweight business. The growth
rate of higher yielding overnight domestic business,
while good, slowed somewhat versus prior periods.shipments; higher than normal
aircraft maintenance costs; and, a negative impact to international margins
due to higher linehaul rates on certain lane segments.
Net earnings available to common shareholders for the first sixnine months of
1994 were $19.4$27.4 million, or $.93$1.31 per share, compared to $12.4$22.7 million, or
$.44$.97 per share for the first halfnine months of 1993. The 1993 net earnings
are before the cumulative effect of changes in accounting which resulted in
a net increase to earnings of $.19 per share, increasing the net earnings
available to common shareholders to $.63$1.16 per share.
SecondThird quarter 1994 earnings available to common shareholders were $.61$.38 per
share compared to $.29$.53 per share for the secondthird quarter of 1993. On a
fully diluted basis, earnings per share were $.89 and $.57 for the first
six months and second quarter of 1994, respectively.
The following table sets forth selected shipment and revenue data for the
comparative periods indicated:
Three Months Ended SixNine Months Ended
------------------ ----------------
JuneSeptember 30 JuneSeptember 30
------- ------------------- ------------
1994 1993 1994 1993
---- ---- ---- ----
Shipments (in thousands):
Domestic
Overnight
Letters 8,498 8,144 16,974 16,0638,571 8,277 25,545 24,340
0-2 Lbs. 11,002 10,291 21,790 20,07211,128 10,628 32,918 30,700
3-99 Lbs. 9,670 8,717 19,298 16,992
------ ------ ------ ------
29,170 27,152 58,062 53,1279,877 9,142 29,175 26,134
------- ------- ------- -------
29,576 28,047 87,638 81,174
Select Delivery Service
0-2 Lbs. 10,132 7,598 19,698 14,97910,808 7,800 30,506 22,779
3-99 Lbs. 6,024 4,394 11,806 8,406
------ ------ ------ ------
16,156 11,992 31,504 23,3856,475 4,706 18,281 13,112
------- ------- ------- -------
17,283 12,506 48,787 35,891
100 Lbs. &and over 89 90 87 176 171
------ ------ ------ ------265 261
------- ------- ------- -------
Total Domestic 45,416 39,231 89,742 76,683
------ ------ ------ ------46,948 40,643 136,690 117,326
------- ------- ------- -------
International
Express 859 783 1,663 1,528891 795 2,554 2,323
All Other 122 100 234 194
------ ------ ------ ------120 97 354 291
------- ------- ------- -------
Total International 981 883 1,897 1,722
------ ------ ------ ------1,011 892 2,908 2,614
------- ------- ------- -------
Total Shipments 46,397 40,114 91,639 78,405
====== ====== ====== ======47,959 41,535 139,598 119,940
======= ======= ======= =======
Average Pounds per Shipment:
Domestic 4.8 4.7 4.74.8 4.8 4.7
International 64.9 44.1 63.2 44.160.0 42.9 62.1 43.7
Average Revenue per Pound:
Domestic $ 1.83 $ 1.93 $ 1.87 $ 1.97 $ 1.89 $ 1.971.96
International $ 1.201.23 $ 1.461.47 $ 1.211.22 $ 1.441.45
Average Revenue per Shipment:
Domestic $ 8.988.85 $ 9.31 $ 8.92 $ 9.27
International $ 8.9773.52 $ 9.26
International $78.37 $63.58 $77.26 $63.2762.72 $ 75.96 $ 63.08
Total shipments increased 16% in the first nine months of 1994 compared to
24% in the first nine months of 1993. Total revenues increased 15% in the
first nine months of 1994 compared to 15% in 1993.
Domestic shipments increased 17% in the first sixnine months of 1994 compared
to an increase of 25% in the first six months of 1993. Domestic and
international shipments increased by 17% and 10%, respectively, during this
period of 1994 compared to 26% and 6%, respectively, for the same period of 1993. Domestic shipments increased 16% and international shipments
increased 11% in
the secondthird quarter of 1994 compared to 1993.
The growth23% in international shipments was aided by the growth in higher
yielding freight shipments which increased 21% in the first six months of
1994 compared to a decrease of 8% for the same period of 1993. The growth in domestic
shipments continues to be aided by growth in the Company's deferred service
product, Select Delivery Service (SDS), which provides next afternoon and
second-day delivery service. For the first sixnine months of 1994, SDS
accounted for over 35%36% of total domestic shipments, compared to 30%31% for the
first sixnine months of 1993. While the overall domestic growth rate induring
the first twothree quarters of 1994 is fairly strong, it is a lower
growth rate than
experienced in previous periods. Domestic revenues increased 12% in the
first nine months of 1994 compared to 18% in 1993. The lower growth rate
of higher yielding overnight shipments of 5.5% was a primary contributor to
the decline in the average domestic revenue per shipment for the third
quarter of 1994 to $8.85 per shipment versus $8.98 in the second quarter of
1994. This slower rate appearsrepresents a 1.4% decline compared to be the resultsecond quarter of
uncertain economic conditions.1994 and 4.9% decline compared to the third quarter of 1993. The domestic
growth rate will be key to results in the second halffourth quarter of the year.
Domestic revenuesInternational shipments increased 13%11% in the first sixnine months of 1994
compared to 17%7% in 1993, and 13% in the third quarter of 1994 compared to
8% in the same period of 1993. International revenuesThe growth in international shipments was
aided by the growth in higher yielding freight shipments which increased
35%22% in the first sixnine months of 1994 compared to a decrease of 3% in7% for the
same period of 1993. The strong growth rate of
heavyweight international shipments is driving the significant growth rate
of international revenues. TotalInternational revenues increased 16%34% in the first
sixnine months of 1994 compared to 14%a decrease of 2% in the first six months of 1993.
Average domestic revenue per shipment for the second quarter of 1994
declined only 3.1% compared to the second quarter of 1993 to $8.98 per
shipment. International
revenue per shipment and the average weight per shipment increased
significantly as a result of the strong unit growth in higher yielding
freight shipments. International margins were negatively impacted in
September of 1994 as the international carriers raised rates on traffic
moving out of the Far East to the U.S.
Operating expenses as a percentage of revenues were 95.2%95.5% for the first
sixnine months of 1994 compared to 96.6%95.7% in the first sixnine months of 1993 and
95.2% for all of 1993. Operating cost per shipment handled decreased approximatelyless
than 2% to $9.88 for the first sixnine months of 1994 compared to the
first six months of 1993. This reduction in total operating cost per
shipmentdecline
appears low due to the increase of costs in the transportation purchased
category and the correlating increase in the transportation purchased cost
per shipment. Operating cost per shipment decreased approximately 6%5% for
all other operating expense categories combined, factoring out
transportation purchased, for this same period. The severe winter weather
and the Los Angeles earthquake also negatively affected operating expenses
during the first quarter of 1994. The Company experienced a
6% improvement in productivity for the secondthird quarter of 1994 as measured by
shipments handled per paid employee hour. Comparisons of certain operating
expense components are discussed below.
Transportation purchased increased as a percentage of revenues to 33.4%33.5% in
the first sixnine months of 1994 compared to 31.3%31.1% in 1993. This increase was
primarily due to higher commercial airline costs resulting from the
increase in international freight shipments discussed above.
Station and ground expense as a percentage of revenues in the first sixnine
months of 1994 was 30.5%30.4% compared to 31.4%31.0% in the first sixnine months of
1993, as productivity gains achievedhelped offset costs incurred to maintain service
integrity.any inflationary pressures on
costs.
Flight operations and maintenance expense as a percentage of revenues
during the first sixnine months of 1994 was 13.8%14.2%, compared to 14.6%14.4% in the
first sixnine months of 1993. This category of expense as a percentage of
revenues increased to 14.9% in the third quarter of 1994 compared to 14.0%
in the same quarter of 1993. During the third quarter of 1994 a higher
than normal number of periodic maintenance checks ("C" checks) were
performed, and some of those checks turned out to be more costly than is
standard. Average aviation fuel price for the first halfnine months of 1994
was $.59 per gallon compared to the average price of $.66$.65 per gallon induring
the first halfsame period of 1993. Aviation fuel consumption increased 16%15% to 59.690
million gallons in the first halfnine months of 1994 compared to the same
period in 1993. The
increase in fuel consumption is a result of additional Company operated
aircraft placed in service since the first quarter of 1993 and to the
disruption to air operations as a result of severe winter weather. The
increased number of aircraft in service also accounted for the slight
increase in depreciation and amortization expense which, as a percentage of
revenues in the first halfnine months of 1994 wasdeclined to 7.1%, compared to
8.0%7.9% for the same period in 1993.
General and administrative, and sales and marketing expenses decreased as a
percentage of revenues in the first sixnine months of 1994 compared to 1993.
This was primarily the result of continuing productivity gains and a strong
focus on all discretionary spending.
Interest expense in the first sixnine months of 1994 was comparable to the
level of expense in the same period of 1993, as slightly higher effective
interest rates and lower amount of capitalized interest were offset by the
benefit of lower average outstanding borrowings.
The Company's effective tax rate was 40.1%40.0% in the first sixnine months of 1994
compared to 38.9%42.1% in the first sixnine months of 1993 and 40.2% for all of
1993. The Company anticipates the effective tax rate for the 1994 year to
be comparable to the first sixnine months of 1994.
LIQUIDITY AND CAPITAL RESOURCES:
Capital expenditures and associated financing continue to be the primary
factors affecting the financial condition of the Company. The Company
anticipates total capital expenditures to approximate $185$180-$185 million in
1994, of which a significant portion is related to the acquisition and
modification of aircraft. During the first sixnine months of 1994, total
capital expenditures net of dispositions were $94$125 million.
The principal sourcessource of liquidity for financing capital expenditures during
the first sixnine months of 1994 werewas cash provided by operations and
financing under the Company's bank lines of credit.operations.
The Company's unsecured revolving bank credit agreement has traditionally
been used as a major source of liquidity for periods between other
financing transactions. The Company has a revolving bank credit agreement
providing for a total commitment of $240 million, subject to a maximum
level of Company indebtedness permitted by certain covenants in the
agreement and other loan agreements. The Company also has available $25
million under unsecured uncommitted money market lines of credit with
several banks, used in conjunction with the revolving credit agreement to
facilitate settlement and accommodate short-term borrowing fluctuations.
At JuneSeptember 30, 1994, a total of $152$142.1 million was outstanding under the
revolving bank credit and money market credit lines.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1994
operations and other sources of borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1994.
PART II. OTHER INFORMATION
--------------------------
InformationItem 6. Exhibits and Reports or Form 8-K.
(a) Exhibits
Exhibit No. 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
Other information required under Part II is not applicable for the quarter
ended JuneSeptember 30, 1994.
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
Date: 8/12/11/10/94 /s/Roy C. Liljebeck
------------------------- --------------------------------- -------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 8/12/11/10/94 /s/Lanny H. Michael
------------------------- --------------------------------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller