1
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, 1997
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(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 275,150 treasury shares)
as of March 31,June 30, 1997 21,365,35621,410,329 shares
-----------------2
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
------- -------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Domestic $562,111 $506,121$611,999 $524,055 $1,174,110 $1,030,176
International 93,411 91,788100,785 98,343 194,196 190,131
-------- -------- 655,522 597,909---------- ----------
712,784 622,398 1,368,306 1,220,307
OPERATING EXPENSES:
Transportation purchased 208,890 202,532228,663 207,207 437,553 409,739
Station and ground operations 200,250 192,317210,856 193,346 411,106 385,663
Flight operations and maintenance 103,783 94,769100,913 92,973 204,696 187,742
General and administrative 51,829 43,26257,271 47,903 109,100 91,165
Sales and marketing 16,178 15,44817,901 15,030 34,079 30,478
Depreciation and amortization 42,271 38,86142,210 40,124 84,481 78,985
-------- -------- 623,201 587,189---------- ----------
657,814 596,583 1,281,015 1,183,772
-------- -------- ---------- ----------
EARNINGS FROM OPERATIONS 32,321 10,72054,970 25,815 87,291 36,535
INTEREST, NET 8,447 8,3418,049 8,191 16,496 16,532
-------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 23,874 2,37946,921 17,624 70,795 20,003
INCOME TAXES 9,500 1,06518,634 6,935 28,134 8,000
-------- -------- ---------- ----------
NET EARNINGS 14,374 1,31428,287 10,689 42,661 12,003
PREFERRED STOCK DIVIDENDS -- 68 -- 136
-------- -------- ---------- ----------
NET EARNINGS AVAILABLE $ 14,37428,287 $ 1,24610,621 $ 42,661 $ 11,867
TO COMMON SHAREHOLDERS ======== ======== ========== ==========
NET EARNINGS PER COMMON SHARE:
PRIMARYPrimary $ .671.30 $ .06.50 $ 1.97 $ .56
======== ======== FULLY DILUTED========== ==========
Fully Diluted $ .621.17 $ .06.48 $ 1.78 $ .56
======== ======== ========== ==========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .15 $ .15
======== ======== ========== ==========
See notes to consolidated financial statements.3
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31June 30 December 31
------------------- -----------
1997 1996
---- ----
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 10,67813,857 $ 35,816
Trade accounts receivable,
303,529 287,515
less allowance of $8,530$8,855 and $8,345 306,753 287,515
Spare parts and fuel inventory 36,61737,734 34,761
Deferred income tax assets 15,46814,646 15,012
Prepaid expenses 23,885and other 28,781 42,118
---------- ----------
TOTAL CURRENT ASSETS 390,177401,771 415,222
PROPERTY AND EQUIPMENT, NET 863,888865,005 866,627
EQUIPMENT DEPOSITS and OTHER ASSETS 27,94124,222 25,573
---------- ----------
TOTAL ASSETS $1,282,006$1,290,998 $1,307,422
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 133,563138,376 $ 139,036
Salaries, wages and related taxes 58,91861,465 63,835
Accrued expenses 76,11588,558 68,759
Income taxes payable 6,4445,658 1,782
Current portion of debt 358365 353
---------- ----------
TOTAL CURRENT LIABILITIES 275,398294,422 273,765
LONG-TERM DEBT 366,378320,285 409,440
SUBORDINATED DEBT 115,000 115,000
DEFERRED INCOME TAX LIABILITIES 43,85050,837 40,816
OTHER LIABILITIES 35,27336,708 36,571
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 21,640,50621,685,479 and 21,621,596 shares 21,64121,686 21,622
Additional paid-in capital 191,763192,675 190,405
Retained earnings 233,551260,233 220,774
---------- ----------
446,955474,594 432,801
Treasury stock, 275,150 and 315,150
(848) (971)
shares, at cost (848) (971)
---------- ----------
446,107473,746 431,830
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,282,006$1,290,998 $1,307,422
========== ==========
See notes to consolidated financial statements.4
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
ThreeSix Months Ended
March 31
----------------------------------
June 30
----------------
1997 1996
---- ----
OPERATING ACTIVITIES:
Net Earnings $ 14,37442,661 $ 1,31412,003
Adjustments to reconcile net earnings to net
cash provided by provided by operating activities:
Depreciation and amortization 39,284 35,86778,116 72,965
Provision for aircraft engine overhauls 2,987 2,9946,365 6,020
Deferred income taxes 2,578 (893)10,387 211
Other (1,252) (1,048)229 147
-------- --------
CASH PROVIDED BY OPERATIONS 57,971 38,234137,758 91,346
Change in:
Receivables (16,014) (715)(19,238) (3,667)
Inventories and prepaid expenses 16,377 2,183(7,636) 1,108
Accounts payable (5,473) (10,049)(660) (13,385)
Accrued expenses, salaries 8,201 909
and& taxes payable 22,405 6,032
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 61,062 30,562132,629 81,434
INVESTING ACTIVITIES:
Additions to property and equipment (39,668) (34,681)(78,716) (85,621)
Proceeds from insurance on aircraft accident 18,000 --
Dispositions of property and equipment 47 --2,615 52
Expenditures for engine overhauls (2,585) (3,861)(6,036) (6,966)
Other 260 (613)537 (998)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (41,946) (39,155)(63,600) (93,533)
FINANCING ACTIVITIES:
Proceeds (payments) on bank notes, net (43,000) 8,200(89,000) 14,200
Principal payments on debt (57) (4,164)(143) (4,912)
Proceeds from common stock issuance 400 4671,357 574
Dividends paid (1,597) (1,653)(3,202) (3,307)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (44,254) 2,850(90,988) 6,555
-------- --------
NET DECREASE IN CASH (25,138) (5,743)(21,959) (5,544)
CASH AT JANUARY 1 35,816 17,906
-------- --------
CASH AT MARCH 31JUNE 30 $ 10,67813,857 $ 12,16312,362
======== ========
See notes to consolidated financial statements.5
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997(Unaudited)June 30, 1997
(Unaudited)
NOTE A--SUMMARYA - 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
1997 presentation.
NOTE B--LONG-TERMB - LONG-TERM DEBT:
Long-term debt consists of the following:
MarchJune 30 December 31
December 31------- -----------
1997 1996
---- ----
(In thousands)
Senior debt:
Revolving bank credit $130,000$ 75,000 $145,000
Notes payable 15,50024,500 43,500
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 8,0367,950 8,093
-------- --------
366,736320,650 409,793
Subordinated debt:
Convertible subordinated debentures 115,000 115,000
-------- --------
115,000 115,000
-------- --------
Total long-term debt 481,736435,650 524,793
Less current portion 358365 353
-------- --------
$481,378$435,285 $524,440
======== ========
NOTE C--EARNINGSC - 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 months and six months ended
March 31,June 30, 1997, assumes conversion of the Company's 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 interest expense, net of applicable taxes, relative to the
assumed conversion was $15,438,418. Fully diluted
earnings per common share are the same as net earnings per common share$29,352,000 for the three month period and
$44,791,000 for the six month period.
Fully diluted earnings per share for the three months ended March 31, 1996.June 30, 1996,
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 $11,753,000 for the three month period. Fully diluted
earnings per share for the six month period ended June 30, 1996 was the
same a primary earnings per share.
6
Average shares outstanding used in earnings per share computations were as
follows:
Three Months Ended Six Months Ended
------------------ March 31----------------
June 30 June 30
------- -------
1997 1996 1997 1996
---- ---- ---- ----
AVERAGE SHARES OUTSTANDING:OUTSTANDING
Primary 21,527 21,32821,828 21,316 21,690 21,321
Fully Diluted 24,869 21,32825,182 24,728 25,142 21,322
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share",
which will be effective for the Company's fourth quarter interim and fiscal
1997 earnings per share disclosures. SFAS No. 128 changes the calculation
and disclosures of earnings per share as previously prescribed by APB
Opinion No. 15. The adoption of this standard will not materially change
earnings per share amounts disclosed in the Company's consolidated
financial statements.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the second quarter and the first quartersix
months of 1997 resulted in record earnings and operating income and net
earnings significantly higher than the first
quartercomparable periods of 1996, and stronger than they have been for some time. Steady1996. Strong
growth in domestic shipments, and a growth rate in domestic revenue that
exceeded the growth rate in shipments, wasand a domestic fuel surcharge were
positive factorfactors impacting operating results. In addition,results
Net earnings available to common shareholders for the operating marginssecond quarter of
1997 were $28.3 million, or $1.30 per share on international
business continuedrevenues of $713 million,
compared to improve at a much faster rate than revenue.$10.6 million, or $.50 per share on revenues of $622 million,
for the second quarter of 1996. Net earnings for the first quartersix months of
1997 were $14.4$42.7 million, or $0.67$1.97 per share $0.62on revenues of $1.368 billion,
compared to $11.9 million, or $.56 per share on revenues of $1.220 billion
for the corresponding period in 1996.
Earnings per share on a fully diluted basis for the second quarter of 1997
and 1996 were $1.17 and $.48, respectively, and for the first six months of
1997 were $1.78 compared to net earnings
of $1.2 million, or $0.06 per share$.56 for the comparablecorresponding period ofin 1996.
First quarter 1996 results were negatively impacted by costs related to
severe weather that occurred in that period.
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
-------- % ------- %
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
Shipments (in thousands):
Domestic
Overnight 39,639 35,67442,287 36,105 17.1% 81,926 71,779 14.1%
Next Afternoon Service 12,164 2,16013,717 5,938 N/M 25,881 8,098 N/M
Second Day Service 15,809 24,537
100 Lbs. And over 74 7316,657 21,165 N/M 32,466 45,702 N/M
------ ------ ------ ------
Total Domestic 67,686 62,444Deferred Services 30,374 27,103 12.1% 58,347 53,800 8.5%
100 Lbs. & Over 80 75 6.7% 154 148 4.1%
------ ------ ------- -------
Total Domestic 72,741 63,283 14.9% 140,427 125,727 11.7%
------ ------ ------- -------
International
Express 1,181 1,058
All Other 116 1461,271 1,129 12.6% 2,452 2,187 12.1%
Freight 122 150 (18.7)% 238 296 (19.6)%
------ ------ ------- -------
Total International 1,297 1,2041,393 1,279 8.9% 2,690 2,483 8.3%
------ ------ ------- -------
Total Shipments 68,983 63,64874,134 64,562 14.8% 143,117 128,210 11.6%
====== ====== ======= =======
Average Pounds per Shipment:
Domestic 4.3 4.54.31 4.46 (3.4)% 4.31 4.45 (3.2)%
International 50.0 58.453.63 57.22 (6.3)% 51.88 57.80 (10.2)%
Average Revenue per Pound:
Domestic $ 1.92 $ 1.80$1.94 $1.82 6.6% $1.93 $1.81 6.6%
International $ 1.41 $ 1.29$1.32 $1.32 0.0% $1.37 $1.30 5.4%
Average Revenue per Shipment:
Domestic $8.40 $ 8.298.25 1.8% $8.35 $ 8.088.17 2.2%
International $72.02 $76.24$72.35 $76.89 (5.9)% $72.19 $76.57 (5.7)%
Total8
Domestic revenue growth for the second quarter and first half of 1997
continued to be positively impacted by strong growth in higher yielding
overnight shipments and the Company's continuing focus on yield
enhancement. Domestic revenues increased 8.4%16.8% in the second quarter of
1997 and 14.0% for the first half of 1997 compared to the corresponding
periods in 1996. The average revenue per domestic shipment increased 1.8%
to $8.40 in the second quarter of 1997 compared to 17.1% in the first quarter of 1996. Total revenues increased 9.6% in the
first quarter of 1997 compared to 12.8% in the firstsecond quarter of
1996.
Domestic shipments increased 8.4%revenues included $15.5 million of fuel surcharge revenue in the
first half of 1997, including $10.6 million in the second quarter of 1997.
The fuel surcharge was implemented on February 17, 1997 compared to
17.2% for the same period of 1996. The growth of higher yieldingmost domestic
Overnight shipmentsbusiness and was 11.1%repealed effective July 1, 1997. This fuel surcharge
revenue accounted for approximately $.11 per domestic shipment and
approximately $.36 per primary share ($.31 fully diluted) in the first quarterhalf
of 1997 compared to
12.8%1997.
Overnight shipments accounted for over 58.3% of total domestic shipments in
the first quarterhalf of 1996. For the first quarter of 1997
Overnight service accounted for over 58.6% of total domestic shipments, compared to 57.1% for the first half of 1996. The
higher yielding overnight shipments increased 17.1% and 14.1% in the second
quarter of 1996.1997 and in the first half of 1997, respectively, compared to
comparable 1996 periods. The strong growth in the overnight product had a
positive impact on domestic revenue growth. The Company's deferred service
products increased 4.8%8.5% on a combined basis in the first quarterhalf of 1997
compared to 23.7%21.5% in the first quartercorresponding period of 1996. Beginning in 1995
and continuing into 1996, the Company redefined its deferred service
product through the creation of two distinct levels of service, Next
Afternoon Service (NAS) and Second Day Service (SDS), replacing the Select
Delivery Service category. This redefinition was not completed until late
1996, which makes comparison of separate NAS and SDS results for the first
quarterhalf 1997 to 1996 for NAS and SDS
categories on a separate basis not meaningful.
DomesticInternational shipments increased 8.9% and 8.3% in the second quarter and
first six months of 1997, respectively, compared to the same periods in
1996. International revenues increased 11.1%grew 2.5% in the second quarter of 1997 and
2.1% in the first half of 1997 compared to the prior year. International
revenue per shipment and the average weight per shipment decreased as a
result of the decrease in higher yielding freight shipments in the second
quarter and the first half of 1997 compared to 1996
Operating expenses as a percentage of revenues were 93.6% for the first six
months of 1997 compared to 97.0% in the first six months of 1996 and 96.8%
for all of 1996. Operating cost per shipment handled decreased 3.0% to
$8.95 for the first six months 1997 compared to the first six months of
1996. The operating cost per shipment for the second quarter of 1997
decreased 4.0% to $8.87, compared to the second quarter of 1996 while
operating expense as a percentage of revenues decreased to 92.3%. The
operating margin of 7.7% in the second quarter of 1997 was the highest in a
number of years.
The Company experienced a 9.0% improvement in productivity for the second
quarter of 1997, compared to 14.5%the second quarter of 1996, as measured by
shipments handled per paid employee hour while productivity improvement for
the first half of the year improved approximately 8.2% over the
corresponding period of 1996. Very strong productivity improvement and
continued emphasis on cost control were significant factors having a
positive impact on 1997 operating results. Comparisons of certain
operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 32.0% in
the first quarter of 1996. Domestic revenue growth continued to
be positively impacted by a comparatively strong growth in higher yielding
overnight shipments and the Company's continuing focus on yield
enhancement. The average revenue per domestic shipment increased to $8.29
in the first quartersix months of 1997 compared to $8.0833.6% in the comparable period of
1996. SteadyThis decrease was primarily due to commercial airline costs which,
although higher in total, were lower as a percentage of total revenues in
the first half of 1997 due to the lower growth in domesticinternational freight
shipments discussed above. The suspension of the Federal Aviation Excise
Tax reduced costs in the first half of 1996 by $11.0 million compared to a
$4.3 million benefit in the first half of 1997. The Aviation Excise Tax
moratorium was effective through March 6, 1997, subsequent to which the tax
became effective once again.
Station and ground expense as a growth ratepercentage of revenues was 30.0% in domestic
revenue that exceeded the
growth ratefirst half of 1997 compared to 31.6% in shipments hadthe first half of 1996. For the
second quarter of 1997, this category of expense as a significant
positive impact on domestic operating marginspercentage of
revenues was 29.6% compared to 31.1% in 1996. This category of expense was
negatively impacted during the first quarter of 1997.
Also,1996 by the weather,
resulting in lower productivity and additional costs.
9
Flight operations and maintenance expense as a percentage of revenues
during the first half of 1997 was 15.0%, compared to 15.4% in the first six
months of 1996, and was 14.2% in the second quarter of 1997 compared to
14.9% in 1996. The average aviation fuel price for the first six months
and second quarter of 1997 was $.76 per gallon and $.70 per gallon,
respectively, compared to $.71 per gallon and $.73 per gallon for the
comparable periods of 1996. Aviation fuel consumption increased to 81.2
million gallons in the first half of 1997, a 2.3% increase over the first
half of 1996.
General and administrative expense as a percentage of revenues includedduring the
first half of 1997 was 8.0% compared to 7.5% in the first half of 1996.
This increase was primarily due to approximately $4.9$10.4 million of
fuel surcharge revenue, whichincremental accrued profit sharing and bonus costs in the first half of
1997 compared to the corresponding period of 1996. The increase is a
result of the improved operating results in 1997.
The increase in depreciation and amortization expense in the first half of
1997 is due in large part to the increased number of aircraft in service
since the first half of 1996.
The Company's effective tax rate was implemented on February 17,39.7% in the first half of 1997
compared to 40.0% in the first half of 1996 and 40.3% for most
domestic business.all of 1996.
The Company is encouraged by the positive domestic yield environment as the
Company and competitors are focused on improving operating margins. If
sustained, this environment should have a positive effect through the
balance of the year. The Company also expects to continue its focus on
improving international margins. The first quarterFurther, the strength of 1997 had one less operating day than the first quarterU.S. economy
will have an impact on the results of 1996. On a per-day basis, first quarter 1997 domestic revenues and
shipments increased 13% and 10% respectively.
International shipments increased 7.7%operations for the balance of 1997.
As disclosed in the firstCompany's 1996 Annual Report on Form 10-K, the
Company's agreement with its pilots became amendable on July 31, 1995. The
Company concluded negotiations with the pilot's during the second quarter
of 1997
comparedand an amended agreement, effective through July 31, 2000, was ratified and
signed on June 25, 1997. The Company had made adequate accruals in
previous periods to 12.9% incover the comparable quarter of 1996. International
revenues increased 1.8% in the first quarter of 1997 compared to 4.6% in
the first quarter of 1996. International revenue per shipment and the
average weight per shipment decreased significantly as a resultcost of the decrease in higher yielding freight shipments in the first quarter of 1997
comparedagreement retroactive to 1996. While growth in overall international shipments was
modest, the operating margins on international business continued to
improve at a much faster rate than revenue growth.
Operating expenses as a percentage of revenues were 95.1% for the first
quarter of 1997 compared to 98.2% in the first quarter of 1996 and 96.8%
for all of 1996. Operating cost per shipment handled decreased 2.2% for
the first quarter of 1997 compared to a 3.6% decrease in the first quarter
of 1996. The Company experienced a 7.3% improvement in productivity for
the first quarter of 1997, as measured by shipments handled per paid
employee hour, compared to a 3.2% improvement in first quarter of 1996.
Comparisons of certain operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 31.9% in
the first quarter of 1997 compared to 33.9% in the comparable period of
1996. This decrease was primarily due to commercial airline costs which,
although higher in total, were lower as a percentage of total revenues in
the first quarter of 1997 due to the lower growth in international freight
shipments discussed above. The suspension of the Federal Aviation Excise
Tax reduced costs in the first quarter of 1996 by $5.5 million compared to
a $4.3 million benefit in the first quarter of 1997. The Aviation Excise
Tax moratorium was effective through March 6, 1997, subsequent to which the
tax became effective once again.
Station and ground expense as a percentage of revenues was 30.5% in the
first quarter of 1997 compared to 32.2% in the first quarter of 1996. This
category of expense was negatively impacted during the first quarter of
1996 by the weather, resulting in lower productivity and additional costs.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1997 was 15.8%, compared to 15.9% in the first
quarter of 1996. The average aviation fuel price for the first quarter of
1997 was $0.82 per gallon compared to $0.70 per gallon in the first quarter
of 1996. Aviation fuel consumption increased to 40.4 million gallons in
the first quarter of 1997, a .4% increase over the first quarter of 1996.
The higher fuel costs were offset by the revenue fuel surcharge discussed
above and proceeds from fuel hedging contracts of approximately $1.7
million.
General and administrative expense as a percentage of revenues during the
first quarter of 1997 was 7.9% compared to 7.2% in the first quarter of
1996. This increase was primarily due to approximately $4.3 million of
incremental accrued profit sharing and bonus costs in the first quarter of
1997 compared to the first quarter of 1996. The increase is a result of
the improved operating results in 1997.
Sales and marketing expenses decreased as a percentage of revenues in the
first quarter of 1997 to 2.5% compared to 2.6% in the comparable period ofJuly 31,
1995. This was primarily the result of continuing productivity gains and a
strong focus on all discretionary spending.
The increase in depreciation and amortization expense in the first quarter
of 1997 is due in large part to the increased number of aircraft in service
since the first quarter of 1996.
Interest expense in the first quarter of 1997 was only slightly higher than
the same period of 1996, but was lower as a percentage of revenues. The
average outstanding borrowings and overall interest rates on borrowings
during the first quarter of 1997 were comparable to the first quarter of
1996.
The Company's effective tax rate was 39.8% in the first quarter of 1997
compared to 44.8% in the first quarter of 1996 and 40.3% for all of 1996.
The higher effective tax rate for the first quarter of 1996 was a result of
certain taxes that are not directly related to the level of earnings,
resulting in a higher rate in periods of lower earnings.
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 $220$215 million in 1997,
of which a significant portion is related to the acquisition and
modification of aircraft. During the first quartersix months of 1997, total
capital expenditures net of dispositions were $39.6$76 million. The principal
source of liquidity for financingfunding capital expenditures during the first quartersix
months of 1997 was cash provided by operations.operations which was $133 million
compared to $81 million for the same period of 1996.
The Company's $250 million 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 $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, 1997, a total of $145.5$99.5 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 1997
operations should provide adequate flexibility to finance anticipated
capital expenditures for the balance of 1997.
10
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports onor Form 8-K.
(a) Exhibits -
EXHIBIT NO.Exhibit No. 27 - Financial Data Schedule
(b) Reports on form 8-K - A Form 8-K dated April 22, 1997, has been
duly filed. The form included the following information:
(1) Election of Directors for terms expiring in 2000.
(2) Approval of the selection of Deloitte & Touche LLP as the
independent public accountants for the ensuing year.
(3) Declared dividends on common stock.11
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: 5/14/8/13/97 /s/Roy C. Liljebeck
------- ---------------------------------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/14/8/13/97 /s/Lanny H. Michael
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Lanny H. Michael
Senior Vice President,
Treasurer and Controller