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 September 30, 1997March 31, 1998
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 265,150497,078 treasury shares)
as of September 30, 1997 24,879,754March 31, 1998 50,184,794 shares
-----------------
2
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended
Nine Months EndedMarch 31
------------------
-----------------
September 30 September 30
------------------ -----------------1998 1997 1996 1997 1996
---- ----
---- ----
REVENUES:
Domestic $687,549 $522,040 $1,861,659 $1,552,216$662,518 $562,111
International 101,049 89,987 295,245 280,11887,675 93,411
-------- --------
---------- ----------
788,598 612,027 2,156,904 1,832,334750,193 655,522
OPERATING EXPENSES:
Transportation purchased 242,521 201,744 680,074 611,483230,323 208,890
Station and ground operations 224,945 194,688 636,051 580,351222,694 200,250
Flight operations and maintenance 110,949 97,301 315,645 285,043117,403 103,783
General and administrative 64,842 44,937 173,942 136,10259,950 51,829
Sales and marketing 19,742 14,694 53,821 45,17217,399 16,178
Depreciation and amortization 41,688 42,239 126,169 121,22444,888 42,271
-------- --------
---------- ----------
704,687 595,603 1,985,702 1,779,375692,657 623,201
-------- -------- ---------- ----------
EARNINGS FROM OPERATIONS 83,911 16,424 171,202 52,95957,536 32,321
INTEREST, NET 7,026 8,343 23,522 24,8753,916 8,447
-------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 76,885 8,081 147,680 28,08453,620 23,874
INCOME TAXES 30,266 3,370 58,400 11,37021,260 9,500
-------- --------
---------- ----------
NET EARNINGS 46,619 4,711 89,280 16,714
PREFERRED STOCK DIVIDENDS -- 69 -- 205
-------- -------- ---------- ----------
NET EARNINGS AVAILABLE $ 46,619 $ 4,642 $ 89,280 $ 16,509
TO COMMON SHAREHOLDERS32,360 14,374
======== ======== ========== ==========
NET EARNINGS PER COMMON SHARE
PrimarySHARE:
BASIC $ 2.05.65 $ .22 $ 4.04 $ .78.34
======== ========
========== ==========
Fully DilutedDILUTED $ 1.87.63 $ .22 $ 3.64 $ .78.31
======== ========
========== ==========
DIVIDENDS PER COMMON SHARE $ .075.038 $ .075 $ .225 $ .225
========.038
======== ========== ==========
See notes to consolidated financial statements.========
See notes to consolidated financial statements.
3
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30March 31 December 31
------------ -----------
ASSETS------------
1998 1997
1996
------ ---- ----
(Unaudited) (Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 22,15622,166 $ 35,81625,525
Trade accounts receivable,
less allowance of $10,040$10,290 and $8,345 345,374 287,515$10,290 320,121 322,549
Spare parts and fuel inventory 36,693 34,76139,387 37,966
Deferred income tax assets 14,772 15,01215,477 14,530
Prepaid expenses and other 24,946 42,11823,676 25,982
---------- ----------
TOTAL CURRENT ASSETS 443,941 415,222420,827 426,552
PROPERTY AND EQUIPMENT, NET 880,286 866,627922,080 916,331
EQUIPMENT DEPOSITS and OTHER ASSETS 24,524 25,57326,546 23,090
---------- ----------
TOTAL ASSETS $1,348,751 $1,307,422$1,369,453 $1,365,973
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 137,973136,584 $ 139,036143,966
Salaries, wages and related taxes 65,548 63,83560,762 80,154
Accrued expenses 103,470 68,75984,137 100,126
Income taxes payable 14,046 1,78212,475 5,440
Current portion of debt 371 353386 381
---------- ----------
TOTAL CURRENT LIABILITIES 321,408 273,765294,344 330,067
LONG-TERM DEBT 291,889 409,440
SUBORDINATED DEBT -- 115,000248,993 250,559
DEFERRED INCOME TAX LIABILITIES 58,479 40,81672,711 65,322
OTHER LIABILITIES 38,491 36,57147,987 49,110
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 25,114,90450,681,872 and 21,621,59650,428,548 shares 25,115 21,62250,682 50,429
Additional paid-in capital 309,026 190,405290,935 287,208
Retained earnings 305,160 220,774364,567 334,083
---------- ----------
639,301 432,801706,184 671,720
Treasury stock, 265,150497,078 and 315,150522,300 (766) (805)
shares, at cost (817) (971)
---------- ----------
638,484 431,830705,418 670,915
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,348,751 $1,307,422
==========$1,369,453 $1,365,973
========== See notes to consolidated financial statements.==========
See notes to consolidated financial statements.
4
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NineThree Months Ended
-----------------
September 30
----------------March 31
------------------
1998 1997 1996
---- ----
OPERATING ACTIVITIES:
Net Earnings $ 89,28032,360 $ 16,71414,374
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 116,303 112,18641,302 39,284
Provision for aircraft engine overhauls 9,866 9,0383,586 2,987
Deferred income taxes 17,903 1,7276,442 2,578
Other 2,411 1,363(1,076) (1,252)
-------- --------
CASH PROVIDED BY OPERATIONS 235,763 141,02882,614 57,971
Change in:
Receivables (57,859) (1,878)2,428 (16,014)
Inventories and prepaid expenses (2,760) 2,239885 (1,623)
Accounts payable (1,063) (21,117)(7,382) (5,473)
Accrued expenses, salaries and taxes payable 49,788 7,339(28,005) 8,201
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 223,869 127,61150,540 43,062
INVESTING ACTIVITIES:
Additions to property and equipment (135,433) (135,491)(47,949) (39,668)
Disposition of property and equipment 4,425 141136 47
Expenditures for engine overhauls (4,238) (2,585)
Proceeds from insurance on aircraft accident -- 18,000
--
Expenditures for engine overhauls (8,821) (10,218)
Other 214 (916)(2,088) 260
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (121,615) (146,484)(54,139) (23,946)
FINANCING ACTIVITIES:
Proceeds (payments)Payments on bank notes, net (117,300) 21,700(1,500) (43,000)
Principal payments on debt (316) (5,576)(62) (57)
Proceeds from common stock issuance 6,596 5693,678 400
Dividends paid (4,894) (4,961)(1,876) (1,597)
-------- --------
NET CASH PROVIDED (USED) PROVIDED BY FINANCING ACTIVITIES (115,914) 11,732240 (44,254)
-------- --------
NET DECREASE IN CASH (13,660) (7,141)(3,359) (25,138)
CASH AT JANUARY 1 25,525 35,816 17,906
-------- --------
CASH AT SEPTEMBER 30MARCH 31 $ 22,15622,166 $ 10,765
========10,678
======== See notes to consolidated financial statements.========
See notes to consolidated financial statements.
5
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997March 31, 1998 (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
19971998 presentation.
NOTE B - LONG-TERMB--LONG-TERM DEBT:
Long-term debt consists of the following:
September 30March 31 December 31
------------ ------------1998 1997 1996
---- ----
(In thousands)
Senior debt:
Revolving bank credit $ 40,000 $ 145,000
Notes payable 31,200 43,500$ 28,500 $ 30,000
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 7,860 8,093
--------- ---------
292,260 409,793
Subordinated debt:
Convertible subordinated debentures -- 115,000
--------- ---------
Total long-term debt 292,260 524,7937,678 7,740
-------- --------
249,378 250,940
Less current portion 371 353
--------- ---------
$ 291,889 $ 524,440
========= =========385 381
-------- --------
$248,993 $250,559
======== ========
In August 1997,NOTE C--EARNINGS PER SHARE:
Basic earnings per share are based upon the Company called for the redemption of its 6 3/4%
convertible subordinated debentures due in 2001, of which approximately
$114.6 million was outstanding. The conversionweighted average number of
common shares outstanding during the quarter resulted in the issuance of 3,236,938 shares of common stock as
substantially all debenture holders elected conversion rather than
redemption.
NOTE C - EARNINGS PER COMMON SHARE:
Primaryinterim period. Diluted 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 dilutedDiluted earnings per share for the three and nine months ended September 30,March 31, 1997,
assumes conversion of the Company's convertible subordinated debentures as of the beginning of the period 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 $47,459,000 for the three month period and $92,249,000 for the nine month
period.$15,438,000.
6
Fully diluted earnings per share for the three months and nine months ended
September 30, 1996 were the same as primary earnings per share.
AverageWeighted average shares outstanding used in earnings per share computations
were as follows:
Three Months Ended
Nine Months Ended
------------------
-----------------
September 30 September 30
------------ ------------March 31
-------
1998 1997 1996 1997 1996
---- ----
---- ----
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary 22,759 21,253 22,079 21,299
FullyOUTSTANDING:
Basic 50,026,298 42,637,255
Diluted 25,414 21,253 25,372 21,300
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
of earnings per share as previously prescribed by APB Opinion No. 15 and
requires the related disclosure of basic and diluted earnings per share.
Earnings51,181,203 49,533,160
/TABLE
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the first quarter of 1998 resulted
in operating income and net earnings significantly higher than the first
quarter of 1997. Strong growth in domestic shipments, and a growth rate in
domestic revenue that exceeded the growth rate in shipments were positive
factors impacting operating results. The operating margin of 7.7% is the
strongest first quarter performance experienced by the Company.
Net earnings for the first quarter of 1998 were $32.4 million, or $.63 per
share would haveon a diluted basis, compared to net earnings of $14.4 million, or
$.31 per share for the comparable period of 1997.
The following table sets forth selected shipment and revenue data for the
periods indicated:
Three Months Ended March 31
---------------------------
1998 1997
---- ----
Shipments (in thousands):
Domestic
Overnight 45,759 39,639
Next Afternoon Service 14,383 12,164
Second Day Service 18,011 15,809
100 Lbs. and Over 91 74
------ ------
Total Domestic 78,244 67,686
------ ------
International
Express 1,389 1,181
Freight 110 116
------ ------
Total International 1,499 1,297
------ ------
Total Shipments 79,743 68,983
====== ======
Average Pounds per Shipment:
Domestic 4.36 4.30
International 44.15 49.99
Average Revenue per Pound:
Domestic $ 1.92 $ 1.92
International $ 1.31 $ 1.41
Average Revenue per Shipment:
Domestic $ 8.46 $ 8.29
International $58.49 $72.02
Total shipments increased 15.6% in the first quarter of 1998 compared to
8.4% in the first quarter of 1997. Total revenues increased 14.4% in the
first quarter of 1998 compared to 9.6% in the first quarter of 1997.
Domestic revenue growth for the first quarter of 1998 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 17.9% in the first quarter of 1998 compared to 11.1% in the first
quarter of 1997. A growth rate in domestic revenue that exceeded the
growth rate in shipments had a significant positive impact on domestic
operating margins in the first quarter of 1998. The average revenue per
domestic shipment increased 2.1% to $8.46 in the first quarter of 1998
compared to the first quarter of 1997.
Domestic revenues in the first quarter of 1997 included $4.9 million of
revenue from a fuel surcharge which was implemented on February 17, 1997
for most domestic business and was repealed effective July 1, 1997. This8
fuel surcharge revenue accounted for approximately $.05 per share in the
first quarter of 1997.
Overnight shipments accounted for 58.5% of total domestic shipments in the
first quarter of 1998, comparable to the overnight shipment percentage
achieved in the first quarter of 1997. The higher yielding overnight
shipments increased 15.4% in the first quarter of 1998, compared to 11.1%
in the corresponding 1997 period. The Company's deferred service products
also experienced strong growth, increasing 15.8% on a combined basis in the
first quarter of 1998 compared to 4.8% in the corresponding period of 1997.
International revenues decreased 6.1% in the first quarter of 1998,
primarily the result of economic troubles in parts of Asia. This compares
to a 1.8% increase in revenues in the first quarter of 1997. Shipments in
the heavier weight, higher revenue per shipment freight segment decreased
5.2% in the first quarter. Mitigating some of the weakness in freight
volumes, the Company experienced strong growth in its international express
segment. International express shipments increased 17.6% in the first
quarter of 1998 compared to 11.6% in the corresponding period of 1997.
Operating expenses as a percentage of revenues were 92.3% for the first
quarter of 1998 compared to 95.1% in the corresponding period of 1997 and
92.3% for all of 1997. Operating cost per shipment handled decreased 3.9%
to $8.69 for the first quarter of 1998 compared to the first quarter of
1997. The Company experienced a 6.8% improvement in productivity for the
first quarter of 1998, compared to the first quarter of 1997, as measured
by shipments handled per paid employee hour. Continued strong productivity
improvement and continued emphasis on cost control were significant factors
having a positive impact on 1998 operating results. Comparisons of certain
operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 30.7% in
the first quarter of 1998 compared to 31.9% in the comparable period of
1997. 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 1998 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 1997 by $4.3 million. The
Aviation Excise Tax moratorium was effective through March 6, 1997,
subsequent to which the tax became effective once again; therefore, no cost
reduction was realized in 1998.
Station and ground expense as a percentage of revenues decreased to 29.7%
in the first quarter of 1998 compared to 30.5% in the first quarter of
1997. Strong productivity improvement had a positive impact on this
category of expense measured as a percentage of revenues.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1998 was 15.6%, compared to 15.8% in the first
quarter of 1997. The average aviation fuel price for the first quarter of
1998 was $.62 per gallon compared to $.82 per gallon in the first quarter
of 1997. Aviation fuel consumption increased to 44.1 million gallons in
the first quarter of 1998, a 9.3% increase over the first quarter of 1997.
As a result of fuel hedging contracts, the Company incurred $1.0 million of
expense in the first quarter of 1998 compared to a $1.7 million benefit in
the first quarter of 1997. Offsetting the lower fuel costs were higher
costs associated with periodic aircraft maintenance checks.
The increase in depreciation and amortization expense in the first quarter
of 1998 is due in large part to the increased number of aircraft in service
since the first quarter of 1997.
Interest expense in the first quarter of 1998 was significantly lower than
the same period of 1997. This is attributable to the significant reduction
in average outstanding borrowings in the first quarter of 1998, compared to
the corresponding period of 1997.
The Company's effective tax rate was 39.6% in the first quarter of 1998
compared to 39.8% in the first quarter of 1997 and 39.2% for all of 1997.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operations net of change in working capital increased for
the first quarter of 1998 to $51 million, compared to $43 million in the
first quarter of 1997. This increased liquidity is primarily the result of
the significant increase in profitability in 1998.9
Capital expenditures continue to be a primary factor affecting the
financial condition of the Company. The Company anticipates total capital
expenditures to approximate $274 million in 1998. During the first quarter
of 1998, total capital expenditures net of dispositions were $48 million.
Cash provided by operations was the primary source for funding capital
expenditures.
The Company's strong operating cash flow has become the major source of
liquidity, whereas, the Company's $250 million unsecured revolving bank
credit agreement had traditionally been used as follows if provisionsthe major source of
this
standard had been adoptedliquidity 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. Reliance on the bank facilities has decreased
commensurately, with a total of $28.5 million outstanding at March 31, 1998
under the revolving bank credit and money market credit lines, compared to
$30.0 million outstanding at December 31, 1997 and $145.5 million
outstanding at March 31, 1997.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1998
operations should provide adequate flexibility to finance anticipated
capital expenditures for the balance of 1998.10
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of Airborne Freight Corporation was held at Cavanaugh's
on Fifth Avenue, 1415 Fifth Avenue, Seattle, Washington 98101 on April 28,
1998, at which a total of 45,474,266 shares were represented at the meeting
comprising 89.9% of the outstanding shares of the Company entitled to vote
at the meeting on the record date (February 23, 1998).
The following directors were duly elected for terms ending in 2001, in each
case by an affirmative vote in excess of 99.1% of the shares represented at
the meeting:
Number of Shares
Voted For
---------
Andrew Brimmer 45,114,648
Harold M. Messmer, Jr. 45,106,118
Mary Agnes Wilderotter 45,115,890
The following are continuing directors with terms expiring as indicated:
Terms Expiring in 1999 Terms Expiring in 2000
---------------------- ----------------------
Robert G. Brazier Robert S. Cline
James H. Carey Richard M. Rosenberg
Andrew B. Kim William Swindells
The shareholders, by an affirmative vote in excess of 79.9% of the
outstanding shares, approved the amendment of the Restated Certificate of
Incorporation of the Company to increase the number of authorized shares of
Common Stock from 60,000,000 to 120,000,000. 40,078,459 votes were cast
for the proposal, 5,259,962 against, with 135,845 abstentions.
The shareholders, by an affirmative vote in excess of 50.3% of the votes
cast at the meeting, approved the Airborne Freight Corporation 1998 Key
Employee Stock Option Plan. 19,680,692 votes were cast for the proposal,
19,200,755 against, with 179,240 abstentions and 6,413,579 broker nonvotes.
The Airborne Board of Directors on the same date, April 28, 1998, reelected
all existing executive officers, including Robert S. Cline as Chairman and
Chief Executive Officer, and Robert G. Brazier as President and Chief
Operating Officer.
The Board of Directors declared a quarterly cash dividend of $.04 per share
on the Common Stock of the Company payable on May 26, 1998 to shareholders
of record on May 12, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
EXHIBIT NO. 3 The Restated Certificate of Incorporation of the Company,
dated as of September 30, 1997:
Three Months Ended Nine Months Ended
------------------ ------------------
September 30 September 30
------------ ------------
1997 1996 1997 1996
---- ---- ---- ----
EARNINGS PER SHARE
Basic $2.10 $ .22 $4.13 $ .78
Diluted $1.87 $ .22 $3.67 $ .78
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the third quarter and the first nine
months of 1997 resulted in record operating income and net earnings which
were significantly higher than the comparable periods of 1996. Strong
growth in domestic shipments and a growth rate in domestic revenues that
exceeded the growth rate in shipments were positive factors impacting year
to date 1997 operating results. Additionally, the Company realized a
positive financial impact during the third quarter as a result of a strike
at United Parcel Service (UPS) during August 1997.
Net earnings available to common shareholders for the third quarter of 1997
were $46.6 million, or $2.05 per share on revenues of $789 million,
compared to $4.6 million, or $0.22 per share on revenues of $612 million,
for the third quarter of 1996. Net earnings for the first nine months of
1997 were $89.3 million, or $4.04 per share on revenues of $2.157 billion
compared to $16.5 million, or $0.78 per share on revenues of $1.832 billion
for the corresponding period in 1996.
Earnings per share on a fully diluted basis for the third quarter of 1997
and 1996 were $1.87 and $0.22, respectively, and for the first nine months
of 1997, were $3.64 compared to $0.78 for the corresponding period in 1996.
The following table sets forth selected shipmentApril 28, 1998.
EXHIBIT NO. 27 Financial Data Schedule11
SIGNATURES
----------
Pursuant to the requirements of the Securities and revenue data forExchange Act of 1934,
the periods indicated:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ % ----------- %
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
Shipments (in thousands):
Domestic
Overnight 45,675 36,522 25.1% 127,601 108,301 17.8%
Next Afternoon Service 14,026 8,796 N/M 39,907 16,894 N/M
Second Day Service 19,482 17,577 N/M 51,948 63,279 N/M
100 Lbs. & Over 96 73 31.5% 250 221 13.1%
------ ------ ------- -------
Total Domestic 79,279 62,968 25.9% 219,706 188,695 16.4%
------ ------ ------- -------
International
Express 1,351 1,124 20.2% 3,803 3,311 14.9%
Freight 118 127 (7.1)% 356 423 (15.8)%
------ ------ ------- -------
Total International 1,469 1,251 17.4% 4,159 3,734 11.4%
------ ------ ------- -------
Total Shipments 80,748 64,219 25.7% 223,865 192,429 16.3%
====== ====== ======= =======
Average Pounds per Shipment:
Domestic 4.71 4.43 6.3% 4.45 4.45 --
International 50.32 51.77 (2.8)% 51.33 55.78 (8.0)%
Average Revenue per Pound:
Domestic $1.82 $1.84 (1.1)% $1.89 $1.82 3.8%
International $1.34 $1.38 (2.9)% $1.36 $1.33 2.3%
Average Revenue per Shipment:
Domestic $8.67 $8.26 5.0% $8.46 $8.20 3.2%
International $68.79 $71.93 (4.4)% $70.99 $75.02 (5.4)%
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
Date: 5/14/98 /s/Roy C. Liljebeck
------- --------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/14/98 /s/Lanny H. Michael
------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
/TABLE
8
As the result of a strike at UPS during August, the Company's operating
results in the third quarter of 1997 were positively impacted by the
additional shipment volume handled. The Company estimates the incremental
revenues realized were $50 to $55 million, and that the impact in earnings
per share was in the range of $0.60 to $0.70. It must be emphasized that
these are estimates that can only be arrived at by assuming what level of
business the Company would have handled had there been no strike at UPS.
Domestic revenues in the first nine months of 1997 included $15.5 million
of fuel surcharge revenue realized in the first half of 1997. The fuel
surcharge was implemented on February 17, 1997 for most domestic business
and was repealed effective July 1, 1997. This fuel surcharge revenue
accounted for approximately $0.36 per primary share ($0.31 fully diluted)
in the first nine months of 1997.
The operating results and trends discussed below include the impacts
related to the strike and the fuel surcharge. Even without the net benefit
of these events, however, operating results for the third quarter and for
the first nine months of 1997 trended significantly higher than 1996.
Domestic revenue growth for the third quarter and first nine months 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 31.7% in the third quarter of
1997 and 19.9% for the first nine months of 1997 compared to the
corresponding periods in 1996. The average revenue per domestic shipment
increased 5.0% to $8.67 in the third quarter of 1997 compared to the third
quarter of 1996.
Overnight shipments accounted for over 58.1% of total domestic shipments in
the first nine months of 1997 compared to 57.4% for the first nine months
of 1996. The higher yielding overnight shipments increased 25.1% and 17.8%
in the third quarter of 1997 and in the first nine months 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 14.6% on a combined basis
in the first nine months of 1997 compared to 18.7% in the corresponding
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 nine months 1997 to 1996 not meaningful.
International shipments increased 17.4% and 11.4% in the third quarter and
first nine months of 1997, respectively, compared to the same periods in
1996. International revenues grew 12.3% in the third quarter of 1997 and
5.4% in the first nine months 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 third quarter and the first nine months of 1997 compared to 1996.
Operating expenses as a percentage of revenues were 92.1% for the first
nine months of 1997 compared to 97.1% in the first nine months of 1996 and
96.8% for all of 1996. Operating cost per shipment handled decreased 4.1%
to $8.87 for the first nine months 1997 compared to the first nine months
of 1996. The operating cost per shipment for the third quarter of 1997
decreased 5.9% to $8.73, compared to the third quarter of 1996 while
operating expense as a percentage of revenues decreased to 89.4%.
The Company experienced a 14.2% improvement in productivity for the third
quarter of 1997, compared to the third quarter of 1996, as measured by
shipments handled per paid employee hour while productivity improvement for
the first nine months of the year improved approximately 10.3% over the
corresponding period of 1996. Very strong productivity improvement and
continued emphasis on cost control, along with the added volume from the
9
UPS strike, 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 31.5% in
the first nine months of 1997 compared to 33.4% 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 nine months 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 nine months of 1996 by $14.7 million
compared to a $4.3 million benefit in the first nine months of 1997. The
Aviation Excise Tax moratorium in 1997 was effective through March 6, 1997,
subsequent to which the tax became effective once again.
Flight operations and maintenance expense as a percentage of revenues
during the first nine months of 1997 was 14.6%, compared to 15.6% in the
first nine months of 1996, and 14.1% in the third quarter of 1997 compared
to 15.9% in 1996. The average aviation fuel price for the first nine
months and third quarter of 1997 was $0.74 per gallon and $0.70 per gallon,
respectively, compared to $0.72 per gallon and $0.73 per gallon for the
comparable periods of 1996. Aviation fuel consumption increased to 125.1
million gallons in the first nine months of 1997, a 5.2% increase over the
first nine months of 1996.
General and administrative expense as a percentage of revenues during the
first nine months of 1997 was 8.1% compared to 7.4% in the first nine
months of 1996. This increase was primarily due to approximately $18.2
million of incremental accrued profit sharing costs in the first nine
months of 1997 compared to the corresponding period of 1996. The increase
is a result of the improved operating results in 1997.
The Company's effective tax rate was 39.5% in the first nine months of 1997
compared to 40.5% in the first nine months of 1996 and 40.3% for all of
1996. The Company anticipates the annual effective tax rate for 1997 will
be comparable to that experienced for the first nine months.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operations has increased significantly for the first nine
months of 1997 to $236 million, compared to $141 million in the first nine
months of 1996. This increased liquidity is primarily the result of the
significant increase in profitability in 1997.
Capital expenditures continue to be a primary factor affecting the
financial condition of the Company. The Company anticipates total capital
expenditures to approximate $215 million in 1997. During the first nine
months of 1997, total capital expenditures net of dispositions were $131
million. Cash provided by operations was the primary source for funding
capital expenditures.
In 1997, the Company's strong operating cashflow has become the major
source of liquidity, whereas, the Company's $250 million unsecured
revolving bank credit agreement has traditionally been used as the 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. Reliance on the bank facilities has decreased
commensurately, with a total of $71.2 million outstanding at September 30,
1997, compared to $188.5 million outstanding at December 31, 1996 under the
revolving bank credit and money market credit lines.
In August 1997, the Company called for the redemption of its 6-3/4%
convertible subordinated debentures due 2001, of which $114.6 million was
outstanding. Substantially all of the debenture holders elected conversion
to common stock rather than redemption.
10
As a result of this conversion, the Company's ratio of total long-term debt
to capital decreased significantly to 29.5% as of September 30, 1997,
compared to 52.6% at December 31, 1996.
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.
11
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports or Form 8-K.
(a) Exhibits
Exhibit No. 27 - Financial Data Schedule
12
SIGNATURES
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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: 11/13/97 /s/Roy C. Liljebeck
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Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 11/13/97 /s/Lanny H. Michael
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Lanny H. Michael
Senior Vice President,
Treasurer and Controller