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 March 31,June 30, 1995
                                     
                       Commission File Number 1-6512
                                     
                       AIRBORNE FREIGHT CORPORATION
          ------------------------------------------------------
          (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
                      ------------------------------
                  (Address of Principal Executive Office)

Registrant's telephone number, including area code:    (206) 285-4600
                                                       --------------

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 March 31,June 30, 1995                            21,050,336 shares
                                                       -----------------


               AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF NET EARNINGS
               (Dollars in thousands except per share data)
                                (Unaudited)                                     
Three Months Ended March 31Six Months Ended ------------------ ---------------- June 30 June 30 ------- ------- 1995 1994 1995 1994 ---- ---- ---- ---- REVENUES: Domestic $442,177 $396,884$452,631 $407,657 $ 894,808 $ 804,541 International 87,739 69,66893,309 76,885 181,048 146,553 -------- -------- 529,916 466,552---------- --------- 545,940 484,542 1,075,856 951,094 OPERATING EXPENSES: Transportation purchased 188,785 154,998196,726 162,534 385,511 317,532 Station and ground operations 165,114 145,210170,812 144,931 335,926 290,141 Flight operations and maintenance 78,061 65,78279,311 65,454 157,372 131,236 General and administrative 37,494 35,71637,019 36,552 74,513 72,268 Sales and marketing 15,631 13,29516,250 14,037 31,881 27,332 Depreciation and amortization 34,802 33,76534,846 33,309 69,648 67,074 -------- -------- 519,887 448,766---------- --------- 534,964 456,817 1,054,851 905,583 -------- -------- ---------- --------- EARNINGS FROM OPERATIONS 10,029 17,78610,976 27,725 21,005 45,511 INTEREST, NET 6,725 5,9416,964 6,069 13,689 12,010 -------- -------- ---------- --------- EARNINGS BEFORE INCOME TAXES 3,304 11,8454,012 21,656 7,316 33,501 INCOME TAXES 1,424 4,8451,750 8,593 3,174 13,438 -------- -------- ---------- --------- NET EARNINGS 1,880 7,0002,262 13,063 4,142 20,063 PREFERRED STOCK DIVIDENDS 71 58468 103 139 687 -------- -------- ---------- --------- NET EARNINGS AVAILABLE TO COMMON $1,809 $6,416 SHAREHOLDERS $ 2,194 $ 12,960 $ 4,003 $ 19,376 ======== ======== ========== ========= NET EARNINGS PER COMMON SHARE $.09 $.32SHARE: Primary - $ .10 $ .61 $ .19 $ .93 ======== ======== ========== ========= Fully Diluted - $ .10 $ .57 $ .19 $ .89 ======== ======== ========== ========= DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .15 $ .15 ======== ======== ========
========== ========= See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
March 31June 30 December 31 ------------------- ----------- ASSETS ------ 1995 1994 ---- ---- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash $ 10,81514,451 $ 10,318 Trade accounts receivable, less allowance 217,635 221,788 of $7,550 and $7,500 219,887 221,788 Spare parts and fuel inventory 29,64330,845 28,071 Deferred income tax assets 12,86213,040 12,458 Prepaid expenses 22,24220,865 20,701 ---------- ---------- TOTAL CURRENT ASSETS 293,197299,088 293,336 PROPERTY AND EQUIPMENT, NET 790,662806,832 766,346 EQUIPMENT DEPOSITS and OTHER ASSETS 18,12518,557 18,824 ---------- ---------- TOTAL ASSETS $1,101,984$1,124,477 $1,078,506 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 121,479111,649 $ 117,194 Salaries, wages and related taxes 41,01645,299 43,858 Accrued expenses 63,85359,889 59,053 Income taxes payable 104348 342 Current portion of debt 6,0796,152 6,018 ---------- ---------- TOTAL CURRENT LIABILITIES 232,531223,337 226,465 LONG-TERM DEBT 300,168334,397 279,422 SUBORDINATED DEBT 118,580115,000 118,580 DEFERRED INCOME TAX LIABILITIES 29,65629,806 30,402 OTHER LIABILITIES 28,10128,374 31,239 REDEEMABLE PREFERRED STOCK 3,948 5,000 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 21,365,486 and 21,285,924 shares 21,366 21,286 Additional paid-in capital 185,661 184,369 Retained earnings 182,944183,559 182,714 ---------- ---------- 389,971390,586 388,369 Treasury stock, 315,150 shares, at cost (971) (971) ---------- ---------- 389,000389,615 387,398 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,101,984$1,124,477 $1,078,506 ========== ========== ==========
See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
ThreeSix Months Ended March 31 ------------------June 30 ---------------- 1995 1994 ---- ---- OPERATING ACTIVITIES: Net Earnings $ 1,8804,142 $ 7,00020,063 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 32,335 31,31964,689 62,119 Provision for aircraft engine 2,467 2,446 overhauls 4,959 4,955 Deferred income taxes (1,150) (1,006)(1,178) 301 Other (3,175) (3,495)(2,791) (2,920) -------- -------- CASH PROVIDED BY OPERATIONS 32,357 36,26469,821 84,518 Change in: Receivables 4,153 (10,448)1,901 (13,544) Inventories and prepaid expenses (3,113) 1,183(2,938) 3,620 Accounts payable 4,285 6,133(5,545) 12,218 Accrued expenses, salaries and& taxes 1,720 7,321 payable 2,283 2,437 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 39,402 40,45365,522 89,249 INVESTING ACTIVITIES: Additions to property and equipment (55,588) (49,106)(106,098) (94,267) Dispositions of property and equipment 55 39340 755 Expenditures for engine overhauls (2,555) (676)(3,922) (3,064) Other (291) (1,443)(257) (889) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (58,379) (51,186)(109,937) (97,465) FINANCING ACTIVITIES: Proceeds onfrom bank notes,note borrowings, net 33,700 6,20068,600 47,000 Principal payments on debt (12,893) (453)(17,071) (38,838) Proceeds from common stock issuance 320 2,6362,803 Dividends paid (1,653) (2,149)(3,301) (3,838) -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 19,474 6,23448,548 7,127 -------- -------- NET INCREASE (DECREASE) IN CASH 497 (4,499)4,133 (1,089) CASH AT JANUARY 1 10,318 7,134 -------- -------- CASH AT MARCH 31JUNE 30 $ 10,81514,451 $ 2,6356,045 ======== ======== ========
See notes to consolidated financial statements. AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31,June 30, 1995 (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 1995 presentation. NOTE B--LONG-TERM DEBT: Long-term debt consists of the following:
MarchJune 30 December 31 December 31------- ----------- 1995 1994 ---- ---- (In thousands) Senior debt: Revolving bank credit $170,000$219,000 $135,000 Notes payable 15,7001,600 17,000 Senior notes 100,000 100,000 Revenue bonds 13,200 13,200 Other debt 3,7773,169 16,670 -------- -------- 302,677336,969 281,870 Subordinated debt: Senior subordinated notes 7,1503,580 7,150 Convertible subordinated debentures 115,000 115,000 -------- -------- 122,150118,580 122,150 -------- -------- Total long-term debt 424,827455,549 404,020 Less current portion 6,0796,152 6,018 -------- -------- $418,748$449,397 $398,002 ======== ========
NOTE C--EARNINGS PER COMMON SHARE: NetPrimary earnings per common share are computed by dividing net earnings available to common shareholders bybased upon the weighted average number of common shares outstanding during the interim period plus dilutive common equivalent shares applicable to the assumed exercise of employeeoutstanding stock options. Fully diluted earnings per common share for the three and six months ended June 30, 1995 are the same as netprimary earnings per commonshare. Fully diluted earnings per share for the interimthree and six month period ended June 30, 1994, 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 conversion was $14,128,000 and $22,193,000 for the three and six month periods, presented herein. Average common shares outstanding used in earnings per share computations at March 31, 1995 and 1994 were 21,184,000 and 20,173,000, respectively. Average shares outstanding used in earnings per share computations were as follows:
Three Months Ended Six Months Ended ------------------ ---------------- June 30 June 30 ------- ------- 1995 1994 1995 1994 ---- ---- ---- ---- AVERAGE SHARES OUTSTANDING Primary 21,178 21,404 21,182 20,788 Fully Diluted 21,180 24,900 21,182 24,900
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: The Company's operating performance in the firstsecond quarter of 1995 resulted in significantly lower operating income and net earnings compared to the second quarter of 1994. During the second quarter of 1995, the Company experienced similar pressures on the average weight and revenue per domestic shipment as were experienced in the first quarter of 1994. Domestic yields were negatively impacted by a decline in1995, although the average weight per shipment. Coupled with the higher growth rate of lower yielding deferred service shipments, this resulted in a higher than normal decline in the average revenue per domestic shipment. Operating costs per shipment were lowereddownward trend stabilized during the quarter, aided by strong productivity improvement. However, the operating cost decreases were not adequate to keep pace with the decline in average revenue per shipment.second quarter. Net earnings available to common shareholders for the firstsecond quarter of 1995 were $1.8$2.2 million, or $.09$.10 per share, compared to $6.4$13.0 million, or $.32$.61 per share, for the second quarter of 1994. Net earnings were $4.0 million, or $.19 per share for the first six months of 1995, compared to $19.4 million, or $.93 per share for the corresponding period in 1994. Earnings per share on a fully diluted basis for the second quarter of 1995 and 1994 were $.10 and $.57, respectively, and for the first six months of 1995 were $.19 compared to $.89 for the corresponding period in 1994. The following table sets forth selected shipment and revenue data for the periods indicated:
Three Months Ended March 31 ---------------------------Six Months Ended ------------------ ---------------- June 30 June 30 -------- ------- 1995 1994 1995 1994 ---- ---- ---- ---- Shipments (in thousands): Domestic Overnight Letters 9,130 8,4769,017 8,498 18,147 16,974 0-2 Lbs. 12,013 10,78812,208 11,002 24,221 21,790 3-99 Lbs. 10,472 9,62810,509 9,670 20,981 19,298 ------ ------ 31,615 28,892------- ------ 31,734 29,170 63,349 58,062 Select Delivery Service 0-2 Lbs. 13,903 9,56614,558 10,132 28,461 19,698 3-99 Lbs. 7,676 5,7828,143 6,024 15,819 11,806 ------ ------ 21,579 15,348------- ------ 22,701 16,156 44,280 31,504 100 Lbs. and& over 81 8690 162 176 ------ ------ ------- ------ Total Domestic 53,275 44,32654,516 45,416 107,791 89,742 ------ ------ ------- ------ International Express 936 8041,013 859 1,949 1,663 All Other 130 112142 122 272 234 ------ ------ ------- ------ Total International 1,066 9161,155 981 2,221 1,897 ------ ------ ------- ------ Total Shipments 54,341 45,24255,671 46,397 110,012 91,639 ====== ====== ======= ====== Average Pounds per Shipment: Domestic 4.5 4.8 4.5 4.7 International 67.8 61.562.5 64.9 65.0 63.2 Average Revenue per Pound: Domestic $ 1.821.80 $ 1.901.87 $ 1.81 $ 1.89 International $ 1.221.30 $ 1.231.20 $ 1.26 $ 1.21 Average Revenue per Shipment: Domestic $ 8.298.27 $ 8.958.98 $ 8.28 $ 8.97 International $82.31 $76.06$80.79 $78.37 $81,52 $77.26
Total shipments increased 20% in the firstsecond quarter of 1995 compared to an increase of 16% in the second quarter of 1994. Domestic and international shipments increased 20% and 18%, respectively, during this period of 1995 compared to 16% and 11%, respectively, for the corresponding period of 1994. Domestic shipments increased 20% and international shipments increased 17% in the first quarter of 1994. Total revenues increased 14% in the first quarterhalf of 1995 compared to 17% in 1994. Domestic shipments increased 20% in the first quarter of 1995 compared to 18%and 10%, respectively, for the samecorresponding period ofin 1994. The growth in domestic shipments continued to be aided by strong growth in the Company's deferred service product, Select Delivery Service (SDS). For the first quartersix months of 1995, SDS accountedshipments increased 41% compared to an increase of 35% for 1994, accounting for over 40%41% of total domestic shipments compared to 35% forin the first quartersix months of 1994.1995. Domestic overnight shipment growth was 9% infor the first quartersix months of 1995 compared to 11% for the same period in 1994.and 1994, respectively. Domestic revenues increased 11% in both the second quarter and the first quartersix months of 1995, compared to 15%12% and 13%, respectively, for the corresponding periods in 1994. Revenue growth during the first half of 1995 was negatively impacted by a 3.5% decline in the average weight per domestic shipment.shipment to 4.5 pounds compared to 4.7 pounds in the first half of 1994. This decline in average weight per shipment in combination with the trend of a higher growth rate in lower yielding SDS shipments, resulted in a decrease in the average revenue per domestic shipment of more than 7.5%approximately 7.7% to $8.29$8.28 per shipment in the first six months of 1995 compared to $8.97 in the corresponding period of 1994. During the second quarter of 1995 versus $8.95 in 1994. The decline inthe Company experienced similar pressures on the average weight per shipment is assumed to be due to the market place adjusting to current inventory levels and economic conditions. The stabilization of domestic weight per shipment and relatedaverage revenue per domestic shipment yields will be key to quarterly results in upcoming quarters of 1995. International shipments increased 16%as were experienced in the first quarter of 1995 compared to 9% in 1994.1995. However, the downward trends stabilized during the second quarter. The growth in international shipments continues to beduring the first half of 1995 was aided by the relatively balanced growth in higher yielding freight shipments whichas well as express shipments. International revenues increased 16%21% in the firstsecond quarter of 1995 compared to 19%37% in 1994, and for the same period of 1994. International revenues increased 26% in the first quarterhalf of 1995 compared to 32% in 1994.and 1994 increased 24% and 35%, respectively. International revenue per shipment and the average weight per shipment increased significantlyduring the first half of 1995 compared to the corresponding 1994 period, as a result of the continued strong unit growth in higher yielding freight shipments. Going forward, the Company intends to take a more aggressive pricing approach to enhance domestic revenue yields. Pricing for new business will be monitored closely. Also, pricing for existing business will be increased where not covered by existing contracts and where market conditions will allow. Operating expenses as a percentage of revenues were 98.1%98.0% for the first quartersix months of 1995 compared to 96.2%95.2% in the first quartersix months of 1994 and 95.5% for all of 1994. Operating cost per shipment handled decreased 3.5%3% to $9.59 for the first six months 1995 compared to the first six months of 1994. The operating cost per shipment for the second quarter of 1995 decreased 2.4% to $9.61, compared to the second quarter of 1994, but was slightly higher than the first quarter of 1995 compared to 2% decrease in 1994. During the early partcost per shipment of the first quarter of 1994, operating expenses were negatively impacted by severe winter weather and the California earthquake.$9.57. The Company experienced a 9.5%6% improvement in productivity for the firstsecond quarter of 1995, compared to the second quarter of 1994, as measured by shipments handled per paid employee hour comparedwhile productivity improvement for the first half of the year was approximately 8% over the corresponding period of 1994. However, operating expenses were negatively impacted during the first half of 1995 primarily due to 6%an increase in first quarter of 1994.costs in the transportation purchased category. Comparisons of certain operating expense components are discussed below. Transportation purchased increased as a percentage of revenues to 35.6%35.8% in the first quartersix months of 1995 compared to 33.2%33.4% in 1994. This increase was primarily due to additional commercial airline costs resulting from the growth in international freight shipments discussed above.above and to higher cartage costs related to contract pickup, delivery and trucking operations. Station and ground expense as a percentage of revenues was 31.2% in the first quartersix months of 1995 which is comparablewas 31.2% compared to 30.5% in the first quartersix months of 1994, as productivity1994. Productivity gains achieved were offset any inflationary pressures on costs.by costs incurred to maintain service integrity. Flight operations and maintenance expense as a percentage of revenues during the first quartersix months of 1995 was 14.7%14.6%, compared to 14.1%13.8% in the first quartersix months of 1994. The average aviation fuel price for the first quarterhalf of 1995 was $.59 per gallon, compared to $.60which was also the average price per gallon in the first quartercorresponding period of 1994. Aviation fuel consumption increased to 33.767.9 million gallons in the first quarterhalf of 1995, a 12%14% increase compared to the first quarterhalf of 1994. The increase in fuel consumption is a result of additional Company operated aircraft placed in service since the first quarterhalf in 1994. The effect of comparatively lower average fuel costs in the first quarter of 1995 was offset byCompany incurred higher aircraft maintenance costs.costs during the first six months of 1995 compared to the corresponding period of 1994. The Company anticipates that aircraft maintenance costs in the second quarter of 1995 will be comparable to the first quarter costs, but will decrease as a percent of revenuessomewhat lower in the third and fourth quarters.quarters of this year compared to the first two quarters of 1995. The increased number of aircraft in service also accounted for the increase in depreciation and amortization expense which, as a percentage of revenues in the first quarterhalf of 1995.1995 was 6.5%, compared to 7.1% for the corresponding period in 1994. General and administrative and sales and marketing expenses on a combined basis decreased as a percentage of revenues in the first quarterhalf of 1995 compared to 1994. This was primarily the result of continuing productivity gains and a strong focus on all discretionary spending. Interest expense in the first quarterhalf of 1995 was higher than the samecorresponding period ofin 1994. This increase was the result of slightly higher average outstanding borrowings combined with higher effective interest rates. The Company's effective tax rate was 43.1%43.4% in the first quartersix months of 1995 compared to 40.9%40.1% in the first quartersix months of 1994 and 39.6% for all of 1994. The higher effective tax rate for the first quarterhalf of 1995 was athe result of certain taxes and nondeductible expenses that are not directly related to the level of earnings. LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures and associated financing continuecontinued to be the primary factors affecting the financial condition of the Company. The Company anticipates total capital expenditures to approximate $235$230 million in 1995, of which a significant portion is related to the acquisition and modification of aircraft. During the first quarterhalf of 1995, total capital expenditures net of dispositions were $56$106 million. The principal sources of liquidity for financing capital expenditures during the first quarterhalf of 1995 were cash provided by operations and financing under the Company's bank lines of credit. 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 also has available $45$65 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 March 31,June 30, 1995, a total of $185.7$220.6 million was outstanding under the revolving bank credit and money market credit lines. The Company amended its revolving bank credit agreement effective March 31, 1995, increasing the total commitment from $240 million to $250 million, subject tofiled a maximum level of Company indebtedness permitted by certain covenants in the agreement and other loan agreements. The amended agreement is effective through May 31, 1998, with option to extend to May 31, 2000. Theregistration statement for $100 million aircraft financing facility commitmentof debt securities with Mitsui & Co. expired in Marchthe Securities Exchange Commission on July 27, 1995. Management intends to complete the issuance of ten year notes under this shelf registration during the third quarter of 1995. The net proceeds from this transaction are intended to be used to pay down the Company's bank lines of credit. In management's opinion, the available capacity under the bank credit agreements coupled with internally generated cash flow from remaining 1995 operations and other sources of intended borrowing should provide adequate flexibility to finance anticipated capital expenditures for the balance of 1995. PART II. OTHER INFORMATION -------------------------- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - EXHIBIT NO. 10 Material Contracts 10. First Amendment to Revolving Loan Facility dated as of March 31, 1995 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc., National City Bank, Columbus, Bank of America National Trust and Savings Association, The Bank of New York and NBD Bank, N.A. EXHIBIT NO. 27 Financial Data Schedule (b) Reports on form 8-K -5. Other Information. A Form 8-K dated May 2,S-3 registration statement was filed with the Securities and Exchange Commission on July 27, 1995 has been duly filed. The form includedfor Debt Securities in the following information: (1) Electionamount of Directors for terms expiring in 1998. (2) Adopted the 1995 - 1999 Executive Incentive Compensation Plan (3) Approval of the selection of Deloitte & Touche LLP as the independent public accountants for the ensuing year. (4) Re-election of all exiting officers including the principal executive officers of the corporation.
Name Title ----- ----- Robert S. Cline Chairman of the Board Chief Executive Officer Robert G. Brazier President Chief Operating Officer
(5) Declared dividends on common and preferred stock.$100,000,000. 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: 5/12/8/11/95 /s/Roy C. Liljebeck ------- --------------------------------------------- ------------------------- Roy C. Liljebeck Executive Vice President, Chief Financial Officer Date: 5/12/8/11/95 /s/Lanny H. Michael ------- -------------------------------------------- ------------------------- Lanny H. Michael Senior Vice President, Treasurer and Controller