15 (d)15(d) OFSeptemberJune 30, 20012002(206) 285-4600 YES NO o¨3,240,5263,234,526 treasury shares)SeptemberJune 30, 20012002 48,103,54548,396,921 shares
| Three Months Ended | Nine Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30 | September 30 | ||||||||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||||||||
| REVENUES: | |||||||||||||||
| Domestic | $ | 682,522 | $ | 705,977 | $ | 2,132,856 | $ | 2,147,530 | |||||||
| International | 90,266 | 98,552 | 275,678 | 280,490 | |||||||||||
| 772,788 | 804,529 | 2,408,534 | 2,428,020 | ||||||||||||
| OPERATING EXPENSES: | |||||||||||||||
| Transportation purchased | 254,080 | 262,718 | 787,204 | 765,345 | |||||||||||
| Station and ground operations | 255,688 | 263,768 | 796,070 | 776,387 | |||||||||||
| Flight operations and maintenance | 133,286 | 143,665 | 428,658 | 425,729 | |||||||||||
| General and administrative | 62,767 | 64,312 | 200,427 | 191,309 | |||||||||||
| Sales and marketing | 21,689 | 20,200 | 69,020 | 60,740 | |||||||||||
| Depreciation and amortization | 51,655 | 52,892 | 156,977 | 152,768 | |||||||||||
| Federal legislation compensation | (7,800 | ) | — | (7,800 | ) | — | |||||||||
| 771,365 | 807,555 | 2,430,556 | 2,372,278 | ||||||||||||
| EARNINGS(LOSS)FROM OPERATIONS | 1,423 | ) | (3,026 | ) | (22,022 | ) | 55,742 | ||||||||
| OTHER INCOME (EXPENSE): | |||||||||||||||
| Interest, net | (4,924 | ) | (6,544 | ) | (13,875 | ) | (16,635 | ) | |||||||
| Discount onsales of receivables | (2,006 | ) | — | (7,993 | ) | — | |||||||||
| Other | 8,778 | 406 | 11,355 | 3,111 | |||||||||||
| EARNINGS(LOSS)BEFORE INCOME TAXES | 3,271 | (9,164 | ) | (32,535 | ) | 42,218 | |||||||||
| INCOME TAX BENEFIT(EXPENSE) | 1,558 | (3,655 | ) | (10,892 | ) | 16,070 | |||||||||
| NET EARNINGS(LOSS) BEFORE CHANGE IN ACCOUNTING | 1,713 | $ | (5,509 | ) | (21,643 | ) | 26,148 | ||||||||
| CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING, NET OF TAX | — | — | — | 14,206 | |||||||||||
| NET EARNINGS(LOSS) | $ | 1,713 | $ | (5,509 | ) | $ | (21,643 | ) | $ | 40,354 | |||||
| NET EARNINGS (LOSS) PER SHARE: | |||||||||||||||
| BASIC | |||||||||||||||
| Before change in accounting | $ | 0.04 | $ | (0.11 | ) | $ | (0.45 | ) | $ | 0.54 | |||||
| Cumulative effect of change in accounting | — | — | — | $ | 0.29 | ||||||||||
| Net Earnings(Loss) | $ | 0.04 | $ | (0.11 | ) | $ | (0.45 | ) | $ | 0.83 | |||||
| DILUTED | |||||||||||||||
| Before change in accounting | $ | 0.04 | $ | (0.11 | ) | $ | (0.45 | ) | $ | 0.54 | |||||
| Cumulative effect of change in accounting | — | — | — | 0.29 | |||||||||||
| Net Earnings(Loss) | $ | 0.04 | $ | (0.11 | ) | $ | (0.45 | ) | $ | 0.83 | |||||
| DIVIDENDS PER SHARE | $ | 0.04 | $ | 0.04 | $ | 0.12 | $ | 0.12 | |||||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
| REVENUES: | ||||||||||||||||
| Domestic | $ | 719,913 | $ | 720,235 | $ | 1,431,980 | $ | 1,450,334 | ||||||||
| International | 90,538 | 91,990 | 166,991 | 185,412 | ||||||||||||
| 810,451 | 812,225 | 1,598,971 | 1,623,746 | |||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Transportation purchased | 267,368 | 266,085 | 516,399 | 533,124 | ||||||||||||
| Station and ground operations | 265,957 | 264,780 | 530,076 | 545,154 | ||||||||||||
| Flight operations and maintenance | 132,531 | 143,686 | 257,897 | 295,372 | ||||||||||||
| General and administrative | 65,237 | 66,821 | 128,651 | 132,888 | ||||||||||||
| Sales and marketing | 23,492 | 23,329 | 45,768 | 47,331 | ||||||||||||
| Depreciation and amortization | 46,731 | 52,684 | 95,852 | 105,322 | ||||||||||||
| 801,316 | 817,385 | 1,574,643 | 1,659,191 | |||||||||||||
| EARNINGS (LOSS) FROM OPERATIONS | 9,135 | (5,160 | ) | 24,328 | (23,445 | ) | ||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest, net | (7,485 | ) | (4,454 | ) | (14,356 | ) | (8,951 | ) | ||||||||
| Discounts on sales of receivables | (885 | ) | (2,229 | ) | (2,190 | ) | (5,986 | ) | ||||||||
| Other | 407 | 2,304 | 2,303 | 2,576 | ||||||||||||
| EARNINGS (LOSS) BEFORE INCOME TAXES | 1,172 | (9,539 | ) | 10,085 | (35,806 | ) | ||||||||||
| INCOME TAX (EXPENSE) BENEFIT | 715 | (3,178 | ) | 4,360 | (12,450 | ) | ||||||||||
| NET EARNINGS (LOSS) | $ | 457 | $ | (6,361 | ) | $ | 5,725 | $ | (23,356 | ) | ||||||
| NET EARNINGS (LOSS) PER SHARE: | ||||||||||||||||
| BASIC | $ | 0.01 | $ | (0.13 | ) | $ | 0.12 | $ | (0.48 | ) | ||||||
| DILUTED | $ | 0.01 | $ | (0.13 | ) | $ | 0.12 | $ | (0.48 | ) | ||||||
| DIVIDENDS PER SHARE | $ | 0.04 | $ | 0.04 | $ | 0.08 | $ | 0.08 | ||||||||
September 30 December 31 2001 2000 (Unaudited) ASSETS CURRENT ASSETS: Cash $ 139,107 $ 40,390 Trade accounts receivable, less allowance of $11,528 and $10,290 123,768 218,685 Spare parts and fuel inventory 41,487 43,231 Refundable income taxes 23,943 21,595 Deferred income tax assets 28,454 28,839 Prepaid expenses and other 41,956 20,809 TOTAL CURRENT ASSETS 398,715 373,549 PROPERTY AND EQUIPMENT, NET 1,269,380 1,324,345 EQUIPMENT DEPOSITS and OTHER ASSETS 42,904 48,025 TOTAL ASSETS $ 1,710,999 $ 1,745,919 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $ 128,207 $ 180,623 Salaries, wages and related taxes 77,647 71,179 Accrued expenses 135,930 83,518 Current portion of debt 6,963 477 TOTAL CURRENT LIABILITIES 348,747 335,797 LONG-TERM DEBT 318,506 322,230 DEFERRED INCOME TAX LIABILITIES 137,070 125,444 POSTRETIREMENT LIABILITIES 35,098 62,360 OTHER LIABILITIES 36,566 37,233 SHAREHOLDERS’ EQUITY: Preferred Stock, without par value - Authorized 5,200,000 shares, no shares issued Common stock, par value $1 per share - Authorized 120,000,000 shares Issued 51,363,241 and 51,279,651 shares 51,344 51,280 Additional paid-in capital 304,603 303,885 Retained earnings 540,284 567,700 Accumulated other comprehensive income (1,351 ) (136 ) 894,880 922,729 Treasury stock, 3,240,526 and 3,244,526 shares, at cost (59,868 ) (59,874 ) 835,012 862,855 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,710,999 $ 1,745,919 CURRENT ASSETS: Cash and cash equivalents $ 338,063 $ 201,500 Trade accounts receivable, less allowance of $10,849 and $11,509 224,322 126,040 Spare parts and fuel inventory 37,085 38,413 Refundable income taxes 517 27,161 Deferred income tax assets 30,929 30,572 Prepaid expenses and other 33,496 28,021 TOTAL CURRENT ASSETS 664,412 451,707 PROPERTY AND EQUIPMENT, NET 1,214,131 1,247,373 EQUIPMENT DEPOSITS and OTHER ASSETS 52,424 47,764 TOTAL ASSETS $ 1,930,967 $ 1,746,844 CURRENT LIABILITIES: Accounts payable $ 138,784 $ 141,873 Salaries, wages and related taxes 81,233 75,458 Accrued expenses 148,978 145,997 Current portion of debt 108,173 107,410 TOTAL CURRENT LIABILITIES 477,168 470,738 LONG-TERM DEBT 366,387 218,053 DEFERRED INCOME TAX LIABILITIES 144,717 143,526 POST RETIREMENT LIABILITIES 66,964 39,423 OTHER LIABILITIES 38,816 40,888 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Preferred Stock, without par value— Authorized 6,000,000 shares, no shares issued Common stock, par value $1 per share— Authorized 120,000,000 shares Issued 51,631,447 and 51,375,711 shares 51,631 51,376 Additional paid-in capital 308,553 304,984 Retained earnings 542,163 540,544 Accumulated other comprehensive income (5,574 ) (2,820 ) 896,773 894,084 Treasury stock, 3,234,526 and 3,240,526 shares, at cost (59,858 ) (59,868 ) 836,915 834,216 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,930,967 $ 1,746,844
Nine Months Ended September 30 2001 2000 OPERATING ACTIVITIES: Net Earnings(Loss) $ (21,643 ) $ 40,354 Adjustments to reconcile net earnings(loss) to net cash provided by operating activities: Cumulative effect of change in accounting — (14,206 ) Depreciation and amortization 156,977 152,768 Deferred income taxes 12,010 17,135 Postretirement obligations (2,515 ) 7,584 Other (527 ) 7,901 CASH PROVIDED BY OPERATIONS 144,302 211,536 Change in: Proceeds from receivable securitization facility 50,000 — Receivables 44,917 (14,337 ) Inventories and prepaid expenses (19,403 ) (6,625 ) Refundable income taxes (2,348 ) — Accounts payable (52,416 ) 13,209 Accrued expenses, salaries & taxes payable 34,132 10,074 NET CASH PROVIDED BY OPERATING ACTIVITIES 199,184 213,857 INVESTING ACTIVITIES: Additions to property and equipment (99,455 ) (302,390 ) Dispositions of property and equipment 1,113 4,037 Other 2,391 (7,051 ) NET CASH USED BY INVESTING ACTIVITIES (95,951 ) (305,404 ) FINANCING ACTIVITIES: Proceeds(repayments)from bank notes, net (103,000 ) 115,000 Principal payments on debt (902 ) (329 ) Issuance of debt 1,596 — Proceeds on sale leaseback transactions, net 102,775 — Repurchase of common stock — (20,662 ) Proceeds from common stock issuance 788 1,259 Dividends paid (5,773 ) (5,832 ) NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (4,516 ) 89,436 NET (DECREASE) INCREASE IN CASH 98,717 (2,111 ) CASH AT JANUARY 1 40,390 28,678 CASH AT SEPTEMBER 30 $ 139,107 $ 26,567 OPERATING ACTIVITIES: Net earnings (loss) $ 5,725 $ (23,356 ) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 95,852 105,322 Deferred income taxes 834 9,623 Postretirement obligations 23,537 3,427 Other (3,759 ) (2,299 ) CASH PROVIDED BY OPERATIONS 122,189 92,717 Change in: Receivable securitization facility (100,000 ) 50,000 Receivables 1,718 24,764 Inventories and prepaid expenses (4,147 ) (5,327 ) Refundable income taxes 26,644 (3,669 ) Accounts payable (3,089 ) (30,163 ) Accrued expenses, salaries and taxes payable 12,759 17,405 NET CASH PROVIDED BY OPERATING ACTIVITIES 56,074 145,727 INVESTING ACTIVITIES: Additions to property and equipment (57,694 ) (73,389 ) Proceeds from sale of securities 3,778 — Proceeds from sale of radio frequencies — 2,071 Other (6,995 ) 15 NET CASH USED BY INVESTING ACTIVITIES (60,611 ) (71,303 ) FINANCING ACTIVITIES: Payments on bank notes, net — (85,000 ) Issuance of convertible debt, net of issuance costs 145,125 — Principal payments on debt (3,753 ) (234 ) Exercise of stock options 3,834 782 Dividends paid (3,864 ) (3,848 ) Shareholder rights redemption (242 ) — NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 141,100 (88,300 ) NET INCREASE (DECREASE) IN CASH 136,563 (13,876 ) CASH AND CASH EQUIVALENTS AT JANUARY 1 201,500 40,390 CASH AND CASH EQUIVALENTS AT JUNE 30 $ 338,063 $ 26,514 SUPPLEMENTAL CASH FLOW INFORMATION: Non-cash financing activities: Capital leases entered into during the period $ 2,850 —
SeptemberJune 30, 20012002 (Unaudited)20012002 presentation.September 30 December 31 2001 2000 (In thousands) Senior debt: Senior notes $ 200,000 $ 200,000 Aircraft Leases 102,837 — Revenue bonds 13,200 13,200 Revolving bank credit — 75,000 Notes payable — 28,000 Other debt 9,432 6,507 325,469 322,707 Less current portion 6,963 477 $ 318,506 $ 322,230 Senior debt: Senior notes $ 200,000 $ 200,000 Convertible senior notes 150,000 — Aircraft loan 59,640 61,651 Capital lease obligations 44,525 43,070 Revenue bonds 13,200 13,200 Other debt 7,195 7,542 474,560 325,463 Less current portion (108,173 ) (107,410 ) $ 366,387 $ 218,053 Company hasproceeds of the sale are intended, in part, to fund the repayment of $100,000,000 of 8.875% senior notes due December 15, 2002 at their stated maturity. The Notes are convertible into shares of the Company’s common stock, at the option of the holder, at a conversion rate of 42.7599 shares per each $1,000 principal amount of Notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of $23.39 per share. At the current conversion price, a total of 6,413,985 shares are issuable upon full conversion of the notes.providingprovides for a total commitment of $275 million. In$275,000,000 and expires in June 2001,2004. The agreement provides that the agreement was amended to, among other requirements, provide certainCompany pledge a substantial majority of its assets as collateral to secure the commitment, reduce available borrowing capacity by the amount of outstanding letters of credit establish revised covenants and amend the expiration date to June 2004.maintain compliance with certain restrictive covenants. Capacity under the facility is dependent on a borrowing base determined by the amount of eligible collateral, pledged, with a maximum commitment of $275 million.$275,000,000. At SeptemberJune 30, 20012002, the Company had eligible collateral in the borrowing base to support $214,000,000 of the $275,000,000 commitment. The Company has the ability to increase the borrowing base by pledging additional eligible collateral. At June 30, 2002, available capacity under the agreement, net of outstanding letters of credit, was $110,000,000. At June 30, 2002, no borrowings were outstanding under the agreement and the Company was in compliance with restrictive covenants. Withcovenants including covenants requiring the current levelmaintenance of collateral pledged, available capacity underminimum levels of earnings before interest, taxes, depreciation and amortization (EBITDA), leverage and debt service coverage ratios and required levels of liquidity. The agreement also restricts the Company from declaring or paying dividends on its common stock during any calendar quarter in excess of $2,000,000 plus up to an additional
quarter ended June 30, 2001.
options and, when dilutive, the assumed conversion of the convertible senior notes.
| Three Months Ended | Nine Months Ended | |||||||
| September 30 | September 30 | |||||||
| 2001 | 2000 | 2001 | 2000 | |||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||
| Basic | 48,103,545 | 48,034,899 | 48,081,524 | 48,516,263 | ||||
| Diluted | 48,128,062 | 48,185,156 | 48,104,026 | 48,850,931 | ||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||
2002 | 2001 | 2002 | 2001 | |||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||
| Basic | 48,356,841 | 48,103,545 | 48,304,960 | 48,091,590 | ||||
| Diluted | 48,981,739 | 48,103,545 | 48,785,437 | 48,092,008 | ||||
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||||||
| SEGMENT REVENUES: | ||||||||||||||||
| Domestic | $ | 719,913 | $ | 720,235 | $ | 1,431,980 | $ | 1,450,334 | ||||||||
| International | 90,538 | 91,990 | 166,991 | 185,412 | ||||||||||||
| $ | 810,451 | $ | 812,225 | $ | 1,598,971 | $ | 1,635,746 | |||||||||
| SEGMENT EARNINGS (LOSS) FROM OPERATIONS: | ||||||||||||||||
| Domestic | $ | 9,496 | $ | (4,622 | ) | $ | 26,428 | $ | (21,150 | ) | ||||||
| International | (361 | ) | (538 | ) | (2,100 | ) | (2,295 | ) | ||||||||
| $ | 9,135 | $ | (5,160 | ) | $ | 24,328 | $ | (23,445 | ) | |||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30 | September 30 | ||||||||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||||||||
| SEGMENT REVENUES: | |||||||||||||||
| Domestic | $ | 682,522 | 705,997 | $ | 2,132,856 | $ | 2,147,530 | ||||||||
| International | 90,266 | 98,552 | 275,678 | 280,490 | |||||||||||
| $ | 772,788 | $ | 804,529 | $ | 2,408,534 | $ | 2,428,020 | ||||||||
| SEGMENT EARNINGS(Loss) FROM OPERATIONS: | |||||||||||||||
| Domestic | $ | 920 | $ | 55 | $ | (20,230 | ) | $ | 61,786 | ||||||
| International | 503 | (3,081 | ) | (1,792 | ) | (6,044 | ) | ||||||||
| $ | 1,423 | $ | (3,026 | ) | $ | (22,022 | ) | $ | 55,742 | ||||||
Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 | |||||||||||||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | Before Tax | Income Tax (Expense) or Benefit | Net of Tax | |||||||||||||||||||
2002 | ||||||||||||||||||||||||
| Unrealized securities gains arising during the period | $ | (487 | ) | $ | 188 | $ | (299 | ) | $ | 192 | $ | (74 | ) | $ | 118 | |||||||||
| Less: Reclassification adjustment for gains realized in net income | — | — | — | (1,656 | ) | 638 | (1,018 | ) | ||||||||||||||||
| Net unrealized securities losses | (487 | ) | 188 | (299 | ) | (1,464 | ) | 564 | (900 | ) | ||||||||||||||
| Foreign currency translation adjustments | 386 | (149 | ) | 237 | 130 | (50 | ) | 80 | ||||||||||||||||
| Unrealized loss on interest rate swap | (2,071 | ) | 797 | (1,274 | ) | (1,414 | ) | 544 | (870 | ) | ||||||||||||||
| Additional minimum pension liabilities | — | — | — | (1,729 | ) | 665 | (1,064 | ) | ||||||||||||||||
| Other comprehensive income | $ | (2,172 | ) | $ | 836 | $ | (1,336 | ) | $ | (4,477 | ) | $ | 1,723 | $ | (2,754 | ) | ||||||||
Three Months Ended June 30, 2001 | Six Months Ended June 30, 2001 | |||||||||||||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | Before Tax | Income Tax (Expense) or Benefit | Net of Tax | |||||||||||||||||||
2001 | ||||||||||||||||||||||||
| Unrealized securities gains arising during the period | $ | 312 | $ | (120 | ) | $ | 192 | $ | 168 | $ | (65 | ) | $ | 103 | ||||||||||
| Less: Reclassification adjustment for gains realized in net income | — | — | — | (32 | ) | 12 | (20 | ) | ||||||||||||||||
| Net unrealized securities gains | 312 | (120 | ) | 192 | 136 | (53 | ) | 83 | ||||||||||||||||
| Foreign currency translation adjustments | (109 | ) | 30 | (79 | ) | (310 | ) | 97 | (213 | ) | ||||||||||||||
| Other comprehensive income | $ | 203 | $ | (90 | ) | $ | 113 | $ | (174 | ) | $ | 44 | $ | (130 | ) | |||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, 2001 | September 30, 2001 | |||||||||||||||||||||
| Before Tax | Income Tax (Expense) or Benefit | Net of Tax | Before Tax | Income Tax (Expense) or Benefit | Net of Tax | |||||||||||||||||
| Unrealized securities losses arising during the period | $ | (1,724 | ) | $ | 664 | $ | (1,060 | ) | $ | (1,557 | ) | $ | 599 | $ | (958 | ) | ||||||
| Less: Reclassification adjustment for gains realized in net income | — | — | — | (32 | ) | 12 | (20 | ) | ||||||||||||||
| Net unrealized securities losses | (1,724 | ) | 664 | (1,060 | ) | (1,589 | ) | 611 | (978 | ) | ||||||||||||
| Foreign currency translation adjustments | (41 | ) | 16 | (25 | ) | (351 | ) | 114 | (237 | ) | ||||||||||||
| Other comprehensive income (loss) | $ | (1,765 | ) | $ | 680 | $ | (1,085 | ) | $ | (1,940 | ) | $ | 725 | $ | (1,215 | ) | ||||||
Three Months Ended Nine Months Ended September 30, 2000 September 30, 2000 Before
Tax Income Tax
(Expense)
or Benefit Net of
Tax Before
Tax Income Tax
(Expense)
or Benefit Net of
Tax Unrealized securities losses
arising during the period $ 593 $ (228 ) $ 365 $ 1,043 $ (401 ) $ 642 Less: Reclassification
adjustment for gains
realized in net income (67 ) 26 (41 ) (588 ) 227 (361 ) Net unrealized securities
losses 526 (202 ) 324 455 (174 ) 281 Foreign currency translation
adjustments (16 ) 6 (10 ) (227 ) 87 (140 ) Other comprehensive
income (loss) $ 510 $ (196 ) $ 314 $ 228 $ (87 ) $ 141
NOTE F—OTHER INCOME:
Other income includes the following transactionsexcluding goodwill amortization expense, would not have materially differed from amounts reported. Goodwill expense for the three and nine month period ended September 30, 2001 and 2000 (in thousands):
| Three Months Ended | Nine Months Ended | ||||||||||||
| September 30 | September 30 | ||||||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||||||
| OTHER INCOME: | |||||||||||||
| Gain on sales of radio frequencies | $ | 6,232 | $ | — | $ | 8,303 | $ | — | |||||
| Gain on sale of securities | 2,117 | — | 2,117 | 1,913 | |||||||||
| Other | 429 | 406 | 935 | 1,198 | |||||||||
| $ | 8,778 | $ | 406 | $ | 11,355 | $ | 3,111 | ||||||
NOTE G—CHANGE IN ACCOUNTING:
Effective January 1, 2000, the Company changed its method of accounting for major engine overhaul costs on DC-9 aircraft from the accrual method to the direct expense method where costs are expensed as incurred. Previously, these costs were accrued in advance of the next scheduled overhaul based upon engine usage and estimates of overhaul costs. The Company believes that this new method is preferable because it is more consistent with industry practice and appropriate given the relatively large size of its DC-9 fleet.
The cumulative effect of this change in accounting resulted in a non-cash credit of $14,206,000, net of taxes, or $.29 per share on a diluted basis being recognized in the quarter ending March 31, 2000. Excluding the cumulative effect, this change increased net earnings for the thirdsecond quarter and first nine monthshalf of 2000 by approximately $1.4 million, net of tax or $.03 per share,2001 was $33,000 and $4.2 million, net of tax or $.09 per share,$67,000, respectively.
NOTE H-NEW ACCOUNTING PRONOUNCEMENTS:
The
Three months ended June 30, 2002 | Six months ended June 30, 2002 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 794,778 | $ | — | $ | 15,673 | $ | — | $ | 810,451 | $ | 1,567,819 | $ | — | $ | 31,152 | $ | — | $ | 1,598,971 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Transportation purchased | 480,542 | — | (213,174 | ) | — | 267,368 | 949,614 | — | (433,215 | ) | — | 516,399 | ||||||||||||||||||||||||||||
Station and ground operations | 224,816 | — | 41,141 | — | 265,957 | 448,298 | — | 81,778 | — | 530,076 | ||||||||||||||||||||||||||||||
Flight operations and maintenance | (869 | ) | — | 133,989 | (589 | ) | 132,531 | (1,324 | ) | — | 260,424 | (1,203 | ) | 257,897 | ||||||||||||||||||||||||||
General and administrative | 46,503 | 518 | 18,175 | 41 | 65,237 | 91,292 | 789 | 36,491 | 79 | 128,651 | ||||||||||||||||||||||||||||||
| Sales and marketing | 23,261 | — | 231 | — | 23,492 | 45,337 | — | 431 | — | 45,768 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 10,926 | — | 35,723 | 82 | 46,731 | 22,739 | — | 72,948 | 165 | 98,852 | ||||||||||||||||||||||||||||||
| 785,179 | 518 | 16,085 | (466 | ) | 801,316 | 1,555,956 | 789 | 18,857 | (959 | ) | 1,574,643 | |||||||||||||||||||||||||||||
Earnings (loss) from operations | 9,599 | (518 | ) | (412 | ) | 466 | 9,135 | 11,863 | (789 | ) | 12,295 | 959 | 24,328 | |||||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||||||||||
| Dividend income | (5,885 | ) | 175 | (1,775 | ) | — | (7,485 | ) | (10,640 | ) | — | (3,716 | ) | — | (14,356 | ) | ||||||||||||||||||||||||
Discounts on sales of receivables | (1,001 | ) | — | (1 | ) | 117 | (885 | ) | (1,966 | ) | — | (1 | ) | (223 | ) | (2,190 | ) | |||||||||||||||||||||||
| Other | 407 | — | — | — | 407 | 2,303 | — | — | — | 2,303 | ||||||||||||||||||||||||||||||
Earnings (loss) before income taxes | 3,120 | (343 | ) | (2,188 | ) | 583 | 1,172 | 1,560 | (789 | ) | 8,578 | 736 | 10,085 | |||||||||||||||||||||||||||
| Income tax (expense) benefit | (1,078 | ) | 120 | 121 | 122 | (715 | ) | (912 | ) | 276 | (4,137 | ) | 413 | (4,360 | ) | |||||||||||||||||||||||||
| Net earnings (loss) | $ | 2,042 | $ | (223 | ) | $ | (2,067 | ) | $ | 705 | $ | 457 | $ | 648 | $ | (513 | ) | $ | 4,441 | $ | 1,149 | $ | 5,725 | |||||||||||||||||
Three months ended June 30, 2001 | Six months ended June 30, 2001 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
| Revenues | $ | 791,431 | $ | — | $ | 20,794 | $ | — | $ | 812,225 | $ | 1,597,615 | $ | — | $ | 38,131 | $ | — | $ | 1,635,746 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
| Transportation purchased | 507,005 | — | (240,920 | ) | — | 266,085 | 1,019,945 | — | (486,821 | ) | — | 533,124 | ||||||||||||||||||||||||||||
Station and ground operations | 224,109 | — | 40,671 | — | 264,780 | 460,986 | — | 84,168 | — | 545,154 | ||||||||||||||||||||||||||||||
Flight operations and maintenance | (162 | ) | — | 144,488 | (640 | ) | 143,686 | (162 | ) | — | 296,833 | (1,299 | ) | 295,372 | ||||||||||||||||||||||||||
| General and administrative | 52,736 | 228 | 13,818 | 39 | 66,821 | 100,781 | 447 | 31,581 | 79 | 132,888 | ||||||||||||||||||||||||||||||
| Sales and marketing | 22,995 | — | 334 | — | 23,329 | 46,639 | —�� | 692 | — | 47,331 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 12,458 | 150 | 39,992 | 84 | 52,684 | 24,530 | 150 | 80,477 | 165 | 105,322 | ||||||||||||||||||||||||||||||
| 819,141 | 378 | (1,617 | ) | (517 | ) | 817,385 | 1,652,719 | 597 | 6,930 | (1,055 | ) | 1,659,191 | ||||||||||||||||||||||||||||
Earnings (loss) from operations | (27,710 | ) | (378 | ) | 22,411 | 517 | (5,160 | ) | (55,104 | ) | (597 | ) | 31,201 | 1,055 | (23,445 | ) | ||||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||||||||||
| Interest, net | 1,020 | (585 | ) | (4,889 | ) | — | (4,454 | ) | 2,353 | 18,424 | (29,728 | ) | — | (8,951 | ) | |||||||||||||||||||||||||
Discounts on sales of receivables | (3,170 | ) | — | — | 941 | (2,229 | ) | (7,514 | ) | — | — | 1,527 | (5,987 | ) | ||||||||||||||||||||||||||
| Other | 2,304 | — | — | — | 2,304 | 2,577 | — | — | — | 2,577 | ||||||||||||||||||||||||||||||
Earnings (loss) before income taxes | (27,556 | ) | (963 | ) | 17,522 | 1,458 | (9,539 | ) | (57,688 | ) | 17,827 | 1,473 | 2,582 | (35,806 | ) | |||||||||||||||||||||||||
Income tax (expense) benefit | 9,696 | 337 | (6,886 | ) | 31 | 3,178 | 20,510 | 761 | (8,656 | ) | (165 | ) | 12,450 | |||||||||||||||||||||||||||
| Net earnings (loss) | $ | (17,860 | ) | $ | (626 | ) | $ | 10,636 | $ | 1,489 | $ | (6,361 | ) | $ | (37,178 | ) | $ | 18,588 | $ | (7,183 | ) | $ | 2,417 | $ | (23,356 | ) | ||||||||||||||
June 30, 2002 | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 336,947 | $ | — | $ | 106 | $ | 1,010 | $ | — | $ | 338,063 | ||||||||||||
| Trade accounts receivable, less allowance | 19,863 | — | 10,204 | 194,255 | — | 224,322 | ||||||||||||||||||
| Spare parts and fuel inventory | — | — | 34,326 | 2,759 | — | 37,085 | ||||||||||||||||||
| Refundable income taxes | 517 | — | — | — | — | 517 | ||||||||||||||||||
| Deferred income tax assets | 30,929 | — | — | — | — | 30,929 | ||||||||||||||||||
| Prepaid expenses and other | 19,191 | — | 13,805 | 500 | — | 33,496 | ||||||||||||||||||
| Total current assets | 407,447 | — | 58,441 | 198,524 | — | 664,412 | ||||||||||||||||||
| Property & equipment, net | 96,791 | — | 1,113,244 | 4,096 | — | 1,214,131 | ||||||||||||||||||
| Intercompany advances | 96,502 | 348,841 | (99,584 | ) | 23,677 | (369,436 | ) | — | ||||||||||||||||
| Equipment deposits and other assets | 32,302 | 110,948 | 9,275 | 10 | (100,111 | ) | 52,424 | |||||||||||||||||
| Total assets | $ | 633,042 | $ | 459,789 | $ | 1,081,376 | $ | 226,307 | $ | (469,547 | ) | $ | 1,930,967 | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Accounts payable | $ | 96,709 | $ | — | $ | 38,822 | $ | 3,488 | $ | (235 | ) | $ | 138,784 | |||||||||||
| Salaries, wages and related taxes | 48,840 | — | 32,394 | (1 | ) | — | 81,233 | |||||||||||||||||
| Accrued expenses | 139,858 | 2,325 | 6,496 | 299 | — | 148,978 | ||||||||||||||||||
| Current portion of debt | 101,378 | — | 6,795 | — | — | 108,173 | ||||||||||||||||||
| Total current liabilities | 386,785 | 2,325 | 84,507 | 3,786 | (235 | ) | 477,168 | |||||||||||||||||
| Long-term debt | 105,710 | 150,000 | 110,677 | — | — | 366,387 | ||||||||||||||||||
| Intercompany liabilities | — | — | 254,200 | — | (254,200 | ) | — | |||||||||||||||||
| Deferred income tax liabilities | (5,780 | ) | — | 149,965 | 532 | — | 144,717 | |||||||||||||||||
| Post retirement liabilities | 50,888 | — | 16,076 | — | — | 66,964 | ||||||||||||||||||
| Other liabilities | 38,816 | — | — | — | — | 38,816 | ||||||||||||||||||
| Shareholders’ equity: | ||||||||||||||||||||||||
| Common stock | 1 | 51,631 | (9 | ) | 120 | (112 | ) | 51,631 | ||||||||||||||||
| Additional paid-in capital | — | 308,553 | (753 | ) | 215,753 | (215,000 | ) | 308,553 | ||||||||||||||||
| Retained earnings net | 62,196 | 7,138 | 466,713 | 6,116 | — | 542,163 | ||||||||||||||||||
| Accumulated other comprehensive income | (5,574 | ) | — | — | — | — | (5,574 | ) | ||||||||||||||||
| Treasury stock | — | (59,858 | ) | — | — | — | (59,858 | ) | ||||||||||||||||
| Total shareholders’ equity | 56,623 | 307,464 | 465,951 | 221,989 | (215,112 | ) | 836,915 | |||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 633,042 | $ | 459,789 | $ | 1,081,376 | $ | 226,307 | $ | (469,547 | ) | $ | 1,930,967 | |||||||||||
Balance Sheet Information: | |||||||||||||||||||||||
December 31, 2001 | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | |||||||||||||||||
(in thousands) | |||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| Current Assets: | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 191,629 | $ | — | $ | 607 | $ | 9,264 | $ | — | $ | 201,500 | |||||||||||
| Trade accounts receivable, less allowance | 18,706 | — | 10,113 | 97,289 | (68 | ) | 126,040 | ||||||||||||||||
| Spare parts and fuel inventory | — | — | 36,272 | 2,141 | — | 38,413 | |||||||||||||||||
| Refundable income taxes | 27,161 | — | — | — | — | 27,161 | |||||||||||||||||
| Deferred income tax assets | 30,572 | — | — | — | — | 30,572 | |||||||||||||||||
| Prepaid expenses and other | 13,918 | — | 13,627 | 476 | — | 28,021 | |||||||||||||||||
| Total current assets | 281,986 | — | 60,619 | 109,170 | (68 | ) | 451,707 | ||||||||||||||||
| Property & equipment, net | 109,622 | — | 1,133,490 | 4,261 | — | 1,247,373 | |||||||||||||||||
| Intercompany advances | 157,681 | 302,279 | 12,949 | 12,884 | (485,793 | ) | — | ||||||||||||||||
| Equipment deposits and other assets | 31,078 | 5,963 | 16,224 | 10 | (5,511 | ) | 47,764 | ||||||||||||||||
| Total assets | $ | 580,367 | $ | 308,242 | $ | 1,223,282 | $ | 126,325 | $ | (491,372 | ) | $ | 1,746,844 | ||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||||||
| Current liabilities: | |||||||||||||||||||||||
| Accounts payable | $ | 84,867 | $ | — | $ | 53,146 | $ | 4,552 | $ | (692 | ) | $ | 141,873 | ||||||||||
| Salaries, wages and related taxes | 46,976 | — | 28,482 | — | — | 75,458 | |||||||||||||||||
| Accrued expenses | 139,132 | — | 6,261 | 604 | — | 145,997 | |||||||||||||||||
| Current portion of debt | 100,877 | — | 6,533 | — | — | 107,410 | |||||||||||||||||
| Total current liabilities | 371,852 | — | 94,422 | 5,156 | (692 | ) | 470,738 | ||||||||||||||||
| Long-term debt | 103,951 | — | 114,102 | — | — | 218,053 | |||||||||||||||||
| Intercompany liabilities | — | — | 370,168 | — | (370,168 | ) | — | ||||||||||||||||
| Deferred income tax liabilities | (6,967 | ) | — | 150,164 | 329 | — | 143,526 | ||||||||||||||||
| Post retirement liabilities | 11,905 | — | 27,518 | — | — | 39,423 | |||||||||||||||||
| Other liabilities | 40,888 | — | — | — | — | 40,888 | |||||||||||||||||
| Shareholders’ equity: | |||||||||||||||||||||||
| Common stock | 1 | 51,376 | (9 | ) | 120 | (112 | ) | 51,376 | |||||||||||||||
| Additional paid-in capital | 8 | 304,976 | 3,171 | 115,753 | (118,924 | ) | 304,984 | ||||||||||||||||
| Retained earnings net | 61,549 | 11,758 | 463,746 | 4,967 | (1,476 | ) | 540,544 | ||||||||||||||||
| Accumulated other comprehensive income | (2,820 | ) | — | — | — | — | (2,820 | ) | |||||||||||||||
| Treasury stock | — | (59,868 | ) | — | — | — | (59,868 | ) | |||||||||||||||
| Total shareholders’ equity | 58,738 | 308,242 | 466,908 | 120,840 | (120,512 | ) | 834,216 | ||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 580,367 | $ | 308,242 | $ | 1,223,282 | $ | 126,325 | $ | (491,372 | ) | $ | 1,746,844 | ||||||||||
Three months ended June 30, 2002 | Six months ended June 30, 2002 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | $ | 2,041 | $ | (223 | ) | $ | (2,065 | ) | $ | 704 | $ | 457 | $ | 647 | $ | (513 | ) | $ | 4,443 | $ | 1,148 | $ | 5,725 | |||||||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||||||||||
Non-cash operating activities | 12,358 | (99,934 | ) | 43,960 | 99,960 | 56,344 | 54,503 | (104,985 | ) | 67,194 | 99,752 | 116,464 | ||||||||||||||||||||||||||||
Change in current assets and liabilities | (60,826 | ) | 101,030 | (15,474 | ) | (100,577 | ) | (75,847 | ) | 103,273 | (43,962 | ) | (16,272 | ) | (109,154 | ) | (66,115 | ) | ||||||||||||||||||||||
Net cash provided (used) by operating activities | (46,427 | ) | 873 | 26,421 | 87 | (19,046 | ) | 158,423 | (149,460 | ) | 55,365 | (8,254 | ) | 56,074 | ||||||||||||||||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash used by investing activities | (7,687 | ) | — | (25,466 | ) | — | (33,153 | ) | (7,910 | ) | — | (52,701 | ) | — | (60,611 | ) | ||||||||||||||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash provided (used) by financing activities | (409 | ) | (873 | ) | (1,621 | ) | — | (2,903 | ) | (5,195 | ) | 149,460 | (3,165 | ) | — | 141,100 | ||||||||||||||||||||||||
Net increase (decrease) in cash | (54,523 | ) | — | (666 | ) | 87 | (55,102 | ) | 145,318 | — | (501 | ) | (8,254 | ) | 136,563 | |||||||||||||||||||||||||
Cash and cash equivalents at January 1 | 391,470 | — | 772 | 923 | 393,165 | 191,629 | — | 607 | 9,264 | 201,500 | ||||||||||||||||||||||||||||||
Cash and cash equivalents at June 30 | $ | 336,947 | $ | — | $ | 106 | $ | 1,010 | $ | 338,063 | $ | 336,947 | $ | — | $ | 106 | $ | 1,010 | $ | 338,063 | ||||||||||||||||||||
Three months ended June 30, 2001 | Six months ended June 30, 2001 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
| OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | $ | (17,860 | ) | $ | (627 | ) | $ | 10,637 | $ | 1,489 | $ | (6,361 | ) | $ | (37,178 | ) | $ | 18,587 | $ | (7,182 | ) | $ | 2,417 | $ | (23,356 | ) | ||||||||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||||||||||
Non-cash operating activities | 10,758 | (1,103 | ) | 55,478 | 54 | 65,187 | 12,154 | (1,259 | ) | 105,740 | (562 | ) | 96,073 | |||||||||||||||||||||||||||
Change in current assets and liabilities | (41,237 | ) | 64,270 | (24,299 | ) | (5,405 | ) | (6,671 | ) | 30,332 | 61,649 | (37,196 | ) | (1,775 | ) | 53,010 | ||||||||||||||||||||||||
Net cash provided (used) by operating activities | (48,339 | ) | 62,540 | 41,816 | (3,862 | ) | 52,155 | 5,308 | 78,977 | 61,362 | 80 | 145,727 | ||||||||||||||||||||||||||||
| INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash used by investing activities | (7,484 | ) | (151 | ) | (40,848 | ) | (5 | ) | (48,488 | ) | (10,911 | ) | (151 | ) | (60,183 | ) | (58 | ) | (71,303 | ) | ||||||||||||||||||||
| FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash provided (used) By financing activities | 18,465 | (62,389 | ) | (119 | ) | — | (44,043 | ) | (9,239 | ) | (78,826 | ) | (235 | ) | — | (88,300 | ) | |||||||||||||||||||||||
Net increase (decrease) in Cash | (37,358 | ) | — | 849 | (3,867 | ) | (40,376 | ) | (14,842 | ) | — | 944 | 22 | (13,876 | ) | |||||||||||||||||||||||||
Cash and cash equivalents at January 1 | 60,038 | — | 147 | 6,705 | 66,890 | 37,522 | — | 52 | 2,816 | 40,390 | ||||||||||||||||||||||||||||||
Cash and cash equivalents at June 30 | $ | 22,680 | $ | — | $ | 996 | $ | 2,838 | $ | 26,514 | $ | 22,680 | $ | — | $ | 996 | $ | 2,838 | $ | 26,514 | ||||||||||||||||||||
Three months ended June 30, 2002 | Six months ended June 30, 2002 | |||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Revenues | $ | — | $ | 810,451 | $ | — | $ | 810,451 | $ | — | $ | 1,598,971 | $ | — | $ | 1,598,971 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Transportation purchased | — | 267,368 | — | 267,368 | — | 516,399 | — | 516,399 | ||||||||||||||||||||||||
| Station and ground operations | — | 265,957 | — | 265,957 | — | 530,076 | — | 530,076 | ||||||||||||||||||||||||
| Flight operations and maintenance | — | 132,531 | — | 132,531 | — | 257,897 | — | 257,897 | ||||||||||||||||||||||||
| General and administrative | 518 | 64,719 | — | 65,237 | 789 | 127,862 | — | 128,651 | ||||||||||||||||||||||||
| Sales and marketing | — | 23,492 | — | 23,492 | — | 45,768 | — | 45,768 | ||||||||||||||||||||||||
| Depreciation and amortization | — | 46,731 | — | 46,731 | — | 95,852 | — | 95,852 | ||||||||||||||||||||||||
| 518 | 800,798 | — | 801,316 | 789 | 1,573,854 | — | 1,574,643 | |||||||||||||||||||||||||
| Earnings (loss) from operations | (518 | ) | 9,653 | — | 9,135 | (789 | ) | 25,117 | — | 24,328 | ||||||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest, net | 175 | (7,660 | ) | — | (7,485 | ) | — | (14,356 | ) | — | (14,356 | ) | ||||||||||||||||||||
| Discounts on sales of receivables | — | (1,002 | ) | 117 | (885 | ) | — | (1,967 | ) | (223 | ) | (2,190 | ) | |||||||||||||||||||
| Other | — | 407 | — | 407 | — | 2,303 | — | 2,303 | ||||||||||||||||||||||||
| Earnings (loss) before income taxes | (343 | ) | 1,398 | 117 | 1,172 | (789 | ) | 11,097 | (223 | ) | 10,085 | |||||||||||||||||||||
| Income tax (expense) benefit | 120 | (794 | ) | (41 | ) | (715 | ) | 276 | (4,714 | ) | 78 | (4,360 | ) | |||||||||||||||||||
| Net earnings (loss) | $ | (223 | ) | $ | 604 | $ | 76 | $ | 457 | $ | (513 | ) | $ | 6,383 | $ | (145 | ) | $ | 5,725 | |||||||||||||
Three months ended June 30, 2001 | Six months ended June 30, 2001 | |||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
| Revenues | $ | — | $ | 812,225 | $ | — | $ | 812,225 | $ | — | $ | 1,635,746 | $ | — | $ | 1,635,746 | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Transportation purchased | — | 266,085 | — | 266,085 | — | 533,124 | — | 533,124 | ||||||||||||||||||||||||
| Station and ground operations | — | 264,780 | — | 264,780 | — | 545,154 | — | 545,154 | ||||||||||||||||||||||||
| Flight operations and maintenance | — | 143,686 | — | 143,686 | — | 295,372 | — | 295,372 | ||||||||||||||||||||||||
| General and administrative | 228 | 66,593 | — | 66,821 | 447 | 132,441 | — | 132,888 | ||||||||||||||||||||||||
| Sales and marketing | — | 23,329 | — | 23,329 | — | 47,331 | — | 47,331 | ||||||||||||||||||||||||
| Depreciation and amortization | 150 | 52,534 | — | 52,684 | 150 | 105,172 | — | 105,322 | ||||||||||||||||||||||||
| 378 | 817,007 | — | 817,385 | 597 | 1,658,594 | — | 1,659,191 | |||||||||||||||||||||||||
| Loss from operations | (378 | ) | (4,782 | ) | — | (5,160 | ) | (597 | ) | (22,848 | ) | — | (23,445 | ) | ||||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||||||||||
| Interest, net | (585 | ) | (3,869 | ) | — | (4,454 | ) | 18,424 | (27,375 | ) | — | (8,951 | ) | |||||||||||||||||||
| Discounts on sales of receivables | — | (3,170 | ) | 941 | (2,229 | ) | — | (7,514 | ) | 1,527 | (5,987 | ) | ||||||||||||||||||||
| Other | — | 2,304 | — | 2,304 | — | 2,577 | — | 2,577 | ||||||||||||||||||||||||
| Earnings (loss) before income taxes | (963 | ) | (9,517 | ) | 941 | (9,539 | ) | 17,827 | (55,160 | ) | 1,527 | (35,806 | ) | |||||||||||||||||||
| Income tax (expense) benefit | 337 | 3,171 | (330 | ) | 3,178 | 761 | 12,224 | (535 | ) | 12,450 | ||||||||||||||||||||||
| Net earnings (loss) | $ | (626 | ) | $ | (6,346 | ) | $ | 611 | $ | (6,361 | ) | $ | 18,588 | $ | (42,936 | ) | $ | 992 | $ | (23,356 | ) | |||||||||||
June 30, 2002 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||
(in thousands) | |||||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 336,982 | $ | 1,081 | $ | — | $ | 338,063 | |||||||||
| Trade accounts receivable, less allowance | — | 30,126 | 194,196 | — | 224,322 | ||||||||||||||
| Spare parts and fuel inventory | — | 37,085 | — | — | 37,085 | ||||||||||||||
| Refundable income taxes | — | 517 | — | — | 517 | ||||||||||||||
| Deferred income tax assets | — | 30,929 | — | — | 30,929 | ||||||||||||||
| Prepaid expenses and other | — | 33,173 | 323 | — | 33,496 | ||||||||||||||
| Total current assets | — | 468,812 | 195,600 | — | 664,412 | ||||||||||||||
| Property and equipment, net | — | 1,214,131 | — | — | 1,214,131 | ||||||||||||||
| Intercompany advances | 348,841 | (355 | ) | 20,950 | (369,436 | ) | — | ||||||||||||
| Equipment deposits and other assets | 110,948 | 41,587 | — | (100,111 | ) | 52,424 | |||||||||||||
| Total assets | $ | 459,789 | $ | 1,724,175 | $ | 216,550 | $ | (469,547 | ) | $ | 1,930,967 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||
| Accounts payable | $ | — | $ | 139,019 | $ | — | $ | (235 | ) | $ | 138,784 | ||||||||
| Salaries, wages and related taxes | — | 81,233 | — | — | 81,233 | ||||||||||||||
| Accrued expenses | 2,325 | 146,343 | 310 | — | 148,978 | ||||||||||||||
| Current portion of debt | — | 108,173 | — | — | 108,173 | ||||||||||||||
| Total current liabilities | 2,325 | 474,768 | 310 | (235 | ) | 477,168 | |||||||||||||
| Long-term debt | 150,000 | 216,387 | — | — | 366,387 | ||||||||||||||
| Intercompany liabilities | — | 254,200 | — | (254,200 | ) | — | |||||||||||||
| Deferred income tax liabilities | — | 144,717 | — | — | 144,717 | ||||||||||||||
| Post retirement liabilities | — | 66,964 | — | — | 66,964 | ||||||||||||||
| Other liabilities | — | 38,816 | — | — | 38,816 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||||
| Common stock | 51,631 | 102 | 10 | (112 | ) | 51,631 | |||||||||||||
| Additional paid-in capital | 308,553 | — | 215,000 | (215,000 | ) | 308,553 | |||||||||||||
| Retained earnings | 7,138 | 533,795 | 1,230 | — | 542,163 | ||||||||||||||
| Accumulated other comprehensive income | — | (5,574 | ) | — | — | (5,574 | ) | ||||||||||||
| Treasury stock | (59,858 | ) | — | — | — | (59,858 | ) | ||||||||||||
| Total shareholders’ equity | 307,464 | 528,323 | 216,240 | (215,112 | ) | 836,915 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 459,789 | $ | 1,724,175 | $ | 216,550 | $ | (469,547 | ) | $ | 1,930,967 | ||||||||
Balance Sheet Information: | |||||||||||||||||||
December 31, 2001 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||
(in thousands) | |||||||||||||||||||
| ASSETS | |||||||||||||||||||
| Current Assets: | |||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 191,664 | $ | 9,836 | $ | — | $ | 201,500 | |||||||||
| Accounts receivable | — | 28,763 | 97,277 | — | 126,040 | ||||||||||||||
| Spare parts and fuel inventory | — | 38,413 | — | — | 38,413 | ||||||||||||||
| Refundable income taxes | — | 27,161 | — | — | 27,161 | ||||||||||||||
| Deferred income tax assets | — | 30,572 | — | — | 30,572 | ||||||||||||||
| Prepaid expenses and other | — | 27,619 | 402 | — | 28,021 | ||||||||||||||
| Total current assets | — | 344,192 | 107,515 | — | 451,707 | ||||||||||||||
| Property and equipment, net | — | 1,247,373 | — | — | 1,247,373 | ||||||||||||||
| Intercompany advances | 302,279 | 452 | 9,487 | (312,218 | ) | — | |||||||||||||
| Equipment deposits and other assets | 5,963 | 41,912 | — | (111 | ) | 47,764 | |||||||||||||
| Total assets | $ | 308,242 | $ | 1,633,929 | $ | 117,002 | $ | (312,329 | ) | $ | 1,746,844 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
| Current Liabilities: | |||||||||||||||||||
| Accounts payable | $ | — | $ | 142,497 | $ | — | $ | (624 | ) | $ | 141,873 | ||||||||
| Salaries, wages and related taxes | — | 75,458 | — | — | 75,458 | ||||||||||||||
| Accrued expenses | — | 145,380 | 617 | — | 145,997 | ||||||||||||||
| Current portion of debt | — | 107,410 | — | — | 107,410 | ||||||||||||||
| Total current liabilities | — | 470,745 | 617 | (624 | ) | 470,738 | |||||||||||||
| Long-term debt | — | 218,053 | — | — | 218,053 | ||||||||||||||
| Intercompany liabilities | — | 196,593 | — | (196,593 | ) | — | |||||||||||||
| Deferred income tax liabilities | — | 143,526 | — | — | 143,526 | ||||||||||||||
| Post retirement liabilities | — | 39,423 | — | — | 39,423 | ||||||||||||||
| Other liabilities | — | 40,888 | — | — | 40,888 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||||
| Common stock | 51,376 | 102 | 10 | (112 | ) | 51,376 | |||||||||||||
| Additional paid-in capital | 304,976 | 8 | 115,000 | (115,000 | ) | 304,984 | |||||||||||||
| Retained earnings | 11,758 | 527,411 | 1,375 | — | 540,544 | ||||||||||||||
| Accumulated other comprehensive income | — | (2,820 | ) | — | — | (2,820 | ) | ||||||||||||
| Treasury stock | (59,868 | ) | — | — | — | (59,868 | ) | ||||||||||||
| Total shareholders’ equity | 308,242 | 524,701 | 116,385 | (115,112 | ) | 834,216 | |||||||||||||
| Total liabilities and shareholders’ equity | $ | 308,242 | $ | 1,633,929 | $ | 117,002 | $ | (312,329 | ) | $ | 1,746,844 | ||||||||
Statement of Cash Flows Information: | |||||||||||||||||||||||||||||||||
Three months ended June 30, 2002 | Six months ended June 30, 2002 | ||||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | ||||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||
| OPERATING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net earnings (loss) | $ | (223 | ) | $ | 604 | $ | 76 | $ | 457 | $ | (513 | ) | $ | 6,383 | $ | (145 | ) | $ | 5,725 | ||||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||||||||||||||||||||
| Non-cash operating activities | (99,934 | ) | 56,237 | 100,041 | 56,344 | (104,985 | ) | 121,527 | 99,922 | 116,464 | |||||||||||||||||||||||
| Change in current assets and liabilities | 101,030 | (76,181 | ) | (100,696 | ) | (75,847 | ) | (43,962 | ) | 86,379 | (108,532 | ) | (66,115 | ) | |||||||||||||||||||
| Net cash provided (used) by operating activities | 873 | (19,340 | ) | (579 | ) | (19,046 | ) | (149,460 | ) | 214,289 | (8,755 | ) | 56,074 | ||||||||||||||||||||
| INVESTING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net cash used by investing activities | — | (33,153 | ) | — | (33,153 | ) | — | (60,611 | ) | — | (60,611 | ) | |||||||||||||||||||||
| FINANCING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net cash provided (used) by financing activities | (873 | ) | (2,030 | ) | — | (2,903 | ) | 149,460 | (8,360 | ) | — | 141,100 | |||||||||||||||||||||
| Net increase (decrease) in cash | — | (54,523 | ) | (579 | ) | (55,102 | ) | — | 145,318 | (8,755 | ) | 136,563 | |||||||||||||||||||||
| Cash and cash equivalents at January 1 | — | 391,505 | 1,660 | 393,165 | — | 191,664 | 9,836 | 201,500 | |||||||||||||||||||||||||
| Cash and cash equivalents at June 30 | $ | — | $ | 336,982 | $ | 1,081 | $ | 338,063 | $ | — | $ | 336,982 | $ | 1,081 | $ | 338,063 | |||||||||||||||||
Three months ended June 30, 2001 | Six months ended June 30, 2001 | ||||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | ||||||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||
| OPERATING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net earnings (loss) | $ | (627 | ) | $ | (6,346 | ) | $ | 612 | $ | (6,361 | ) | $ | 18,587 | $ | (42,936 | ) | $ | 993 | $ | (23,356 | ) | ||||||||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||||||||||||||||||||
| Non-cash operating activities | (1,104 | ) | 63,891 | 329 | 63,116 | (1,260 | ) | 116,798 | 535 | 116,073 | |||||||||||||||||||||||
| Change in current assets and liabilities | 64,270 | (66,983 | ) | (3,958 | ) | (6,671 | ) | 61,649 | (9,620 | ) | 981 | 53,010 | |||||||||||||||||||||
| Net cash provided (used) by operating activities | 62,539 | (9,438 | ) | (3,017 | ) | 50,084 | 78,976 | 64,242 | 2,509 | 145,727 | |||||||||||||||||||||||
| INVESTING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net cash used by investing activities | (150 | ) | (46,267 | ) | — | (46,417 | ) | (150 | ) | (71,153 | ) | — | (71,303 | ) | |||||||||||||||||||
| FINANCING ACTIVITIES: | |||||||||||||||||||||||||||||||||
| Net cash provided (used) by financing activities | (62,389 | ) | 18,346 | — | (44,043 | ) | (78,826 | ) | (9,474 | ) | — | (88,300 | ) | ||||||||||||||||||||
| Net increase (decrease) in cash | — | (37,359 | ) | (3,017 | ) | (40,376 | ) | — | (16,385 | ) | 2,509 | (13,876 | ) | ||||||||||||||||||||
| Cash and cash equivalents at January 1 | — | 60,095 | 6,795 | 66,890 | — | 39,121 | 1,269 | 40,390 | |||||||||||||||||||||||||
| Cash and cash equivalents at June 30 | $ | — | $ | 22,736 | $ | 3,778 | $ | 26,514 | $ | — | $ | 22,736 | $ | 3,778 | $ | 26,514 | |||||||||||||||||
RESULTS OF OPERATIONS:
The Company
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||
2002 | 2001 | Change | 2002 | 2001 | Change | |||||||||
| Shipments (in thousands): | ||||||||||||||
| Domestic | ||||||||||||||
| Overnight | 39,806 | 44,139 | (9.8 | %) | 79,690 | 89,757 | (11.2 | %) | ||||||
| Next Afternoon Service | 12,999 | 13,208 | (1.6 | %) | 26,184 | 26,636 | (1.7 | %) | ||||||
| Second Day Service | 17,421 | 18,805 | (7.4 | %) | 35,726 | 37,745 | (5.3 | %) | ||||||
| Ground Delivery Service | 8,824 | 329 | NM | 14,614 | 329 | NM | ||||||||
| Airborne@home | 4,991 | 5,525 | (9.7 | %) | 10,857 | 10,800 | 0.5 | % | ||||||
| 100 Lbs. and Over | 55 | 67 | (17.9 | %) | 106 | 127 | (16.5 | %) | ||||||
| Total Domestic | 84,096 | 82,073 | 2.5 | % | 167,177 | 165,394 | 1.1 | % | ||||||
| International | ||||||||||||||
| Express | 1,431 | 1,549 | (7.6 | %) | 2,761 | 3,149 | (12.3 | %) | ||||||
| Freight | 93 | 102 | (8.8 | %) | 180 | 204 | (11.8 | %) | ||||||
| Total International | 1,524 | 1,651 | (7.7 | %) | 2,941 | 3,353 | (12.3 | %) | ||||||
| Total Shipments | 85,620 | 83,724 | 2.3 | % | 170,118 | 168,747 | 0.8 | % | ||||||
| Average Pounds per Shipment: | ||||||||||||||||||
| Domestic | 4.72 | 4.14 | 14.0 | % | 4.58 | 4.14 | 10.6 | % | ||||||||||
| International | 59.19 | 53.32 | 11.0 | % | 58.35 | 52.61 | 9.0 | % | ||||||||||
| Average Revenue per Pound: | ||||||||||||||||||
| Domestic | $ | 1.77 | $ | 2.07 | (14.5 | %) | $ | 1.83 | $ | 2.07 | (11.6 | %) | ||||||
| International | $ | 0.98 | $ | 1.03 | (4.9 | %) | $ | 0.97 | $ | 1.04 | (6.7 | %) | ||||||
| Average Revenue per Shipment | ||||||||||||||||||
| Domestic | $ | 8.51 | $ | 8.69 | (2.1 | %) | $ | 8.52 | $ | 8.71 | (2.1 | %) | ||||||
| International | $ | 59.41 | $ | 55.72 | 6.6 | % | $ | 56.78 | $ | 55.30 | 2.7 | % |
The thirdthe second quarter of 2001 and $.98 for the first half of 2001. While fuel prices decreased from comparable periods in 2001, prices increased in the second quarter of 2002 from first quarter of 2002 when the price per gallon was $.71. The relatively high cost of fuel over the past several years has hampered our efforts to enter into fuel hedging contracts at acceptable prices. While we may enter into fuel hedge contracts in the future, no fuel contracts were entered into during 2001 or the first half of 2002. Aviation fuel consumption decreased 5.0% in the second quarter to 38.5 million gallons and decreased 8.6% for the first six months of 2002 in comparison to 2001. The decrease in consumption was primarily due to our efforts beginning in the second quarter of 2001 to reduce and combine certain flight segments to reduce costs. Also, the placement of three 767 aircraft in service since the second quarter of 2001 allowed less fuel efficient DC-8 aircraft to be moved to shorter lane segments or backup status or removed from service. Lower levels of heavy maintenance expenses were incurred in the second quarter and first half of 2002 than in the same periods in 2001. Aircraft maintenance costs were 6.0% and 5.9% as a percentage of revenues in the second quarter and first half of 2002 compared to 6.4% in both the second quarter and first half of 2001. Maintenance costs in the second quarter of 2002 increased over first quarter of 2002 levels due primarily to scheduled 767 maintenance activities.
The results for the third quarter2002 compares to a tax benefit rate of this year include pre-tax losses of approximately $13 million associated with lost business as a result of the September 11th terrorist attacks.The two day closure of the Company’s air network by order of the Federal government following the attacks resulted33.3% and 34.8% in lost revenue and additional costs.The Company was able to partially adjust its network and continue business operations through the temporary expansion of its ground linehaul, hub and sort operations.During the week of the attacks shipment volumes declined 27% compared to year earlier levels. In the weeks following the attacks shipment volumes improved although fourth quarter volumes through early November continued to be approximately 3%on average below volumes of the comparable periodperiods of 2000.2001. The effective tax rate for 2002, particularly in the second quarter, was impacted by relatively low earnings and by nondeductible expenses.
$15.0 million.The Companya $7.8compensation of $13.0 million credit for compensationin 2001 provided to us under the Air Transportation Safety and System Stabilization Act ("Act"(“Act”). The Act authorized by Congress shortly after the attacks, will provideprovided eligible cargo carriers compensation to eligible air carriers for certain direct losses associated with the closure of the national air system for a two-day period following the period beginningterrorist attacks of September 11th and for incremental losses as a result of these attacks and ending onthrough December 31, 2001. The Company anticipates being eligible for additional compensation in the 4th quarter.Operating resultsamounts have been negatively impactedrecorded based on our interpretation of the Act and related rules. In April 2002, the Department of Transportation (“DOT”) issued final rules governing the process and content of final filings that support carriers’ compensation claims. We completed and filed our final filing along with required audit schedules in May 2002 and have had preliminary discussions with applicable government agencies regarding these filings. While we believe we have complied with the provisions of the Act, these agencies have raised certain exceptions concerning treatment of several compensation items. We are currently evaluating our options concerning these exceptions. The final amount of proceeds we will realize is subject to resolution of the exceptions and completion of further review and audit procedures by the DOT or other applicable government agencies. We cannot be assured of the ultimate outcome of these reviews, but it is possible that a declining economy, which appears to be experiencing further slowing since the events of September 11th. The Company has experienced shipment volume declines in its higher yielding domestic products and a shift in volume mix towards lighter weight lower yielding deferred products. These factors have hampered revenue growth. Despite the negative revenue growth, earnings from operations improved $6.6 million over the second quarter of 2001 and $4.4 million over the third quarter 2000. The improved results are due primarily to cost reduction actions the Company has taken.9The following table sets forth selected shipment and revenue data for the periods indicated: Three Months Ended Nine Months Ended September 30 September 30 2001 2000 Change 2001 2000 Change Shipments (in thousands): Domestic Overnight 40,389 45,540 (11.3 %) 130,148 139,694 (6.8 %) Next Afternoon Service 12,327 13,430 (8.2 %) 38,963 41,044 (5.1 %) Second Day Service 21,983 19,466 12.9 % 70,524 58,398 20.8 % Ground Delivery Service 1,517 - N/A 1,848 - N/A 100 Lbs. And Over 57 72 (20.8 %) 184 214 (14.0 %) Total Domestic 76,273 78,508 (2.8 %) 241,667 239,350 1.0 % International Express 1,375 1,506 (8.7 %) 4,524 4,584 (1.3 %) Freight 95 102 (6.8 %) 299 297 0.7 % Total International 1,470 1,608 (8.6 %) 4,823 4,881 (1.2 %) Total Shipments 77,743 80,116 (3.0 %) 246,490 244,231 0.9 % Average Pounds per Shipment: Domestic 4.24 4.27 (0.7 %) 4.17 4.27 (2.3 %) International 60.55 55.69 8.7 % 55.03 51.01 7.9 % Average Revenue per Pound: Domestic $ 2.04 $ 2.07 (1.4 %) $ 2.06 $ 2.07 (0.5 %) International $ 0.99 $ 1.09 (9.2 %) $ 1.02 $ 1.11 (8.1 %) Average Revenue per Shipment Domestic $ 8.82 $ 8.91 (1.0 %) $ 8.74 $ 8.93 (2.1 %) International $ 61.41 $ 61.29 0.2 % $ 57.16 $ 57.47 (0.5 %) Domestic revenues decreased 3.3% and .7% in the third quarter and first nine months of 2001, respectively, in comparison to the same periods in 2000. Average domestic revenue per shipment declined 1.0% to $8.82 inamount of compensation previously recognized could occur. We estimate the third quarter and 2.1% to $8.74 for the first nine monthsrange of 2001. The yield decreases are due to declines in higher yielding overnight express shipments coupled with slightly lower average shipment weights in all product categories. Domestic revenues have been aided by a fuel surcharge on revenue of 3% that was originally implemented in February 2000 and was raised to 4% beginning October 2000. In the third quarter and for the first nine months of 2001 fuel surcharge revenues were $22.4compensation ultimately realized will be between $11.0 million and $70.7 million, respectively. This compares to fuel surcharge revenues of$19.5 million and $51.9 million being recognized in the third quarter and first nine months of 2000. In January 2001 the Company announced a new pricing structure for its domestic services that included a rate increase, a shift to zone-based pricing and a non-scheduled pickup fee. These actions were targeted to improve yields and increase revenues. However, the lack of shipment growth and the shift by domestic customers to lower yielding, less time sensitive deferred services has diluted the impact.Domestic shipments decreased 2.8% in the third quarter and increased 1.0% in the first nine months of 2001 compared to the same periods of 2000. Outlookfirst nine months of 2001 had one less operating day than 2000. Higher yielding overnight shipments accounted for 53.0% of total domestic shipments in the third quarter compared to 58.0% in the third quarter of 2000. Overnight shipments declined 11.3% in the third quarter and 6.8% for the first nine months of 2001. Total shipments for the quarter and year to date periods include the Company’s airborne@home product, which was introduced in late 1999 to service the e-commerce and business to residential consumer markets. These shipments, included in the Second Day Service category for reporting purposes, totaled 4.7 million in the third quarter and 15.5 million in the first nine months of 2001 compared to 1.8 million and 3.5 million shipments in the comparable periods in 2000.In April 2001 the Company expanded its service portfolio by introducing a new product, Ground Delivery Service (GDS). The new product leverages the Company’s sort and linehaul infrastructure and is being marketed to a target customer base. The Company believes GDS is an important initiative that is targeted to establish growth both from the deferred ground segment where it has not previously participated, and from the ability to leverage GDS with the cross marketing of higher yielding air express shipments. GDS totaled 1.5 million shipments in the third quarter and 1.8 million for the first nine months of 2001. The Company is targeting GDS volumes of between 50,000 and 60,000 shipments per day in the fourth quarter of 2001.10International revenues decreased 8.4% in the third quarter and 1.7% for the first nine months of 2001 compared to a year ago. Total international shipments decreased 8.6% in the third quarter of 2001 compared to 2000 and were 1.2% lower in the first nine months of 2001 compared to 2000.International revenues and shipments in the third quarter were negatively impacted by the terrorist attacks which not only suspended domestic flights but closed U.S. borders and suspended flight schedules that disrupted international operations for approximately two weeks. The slow economic environment and a typhoon in the Far East also hampered shipment volumes. Despite these events the international segments contribution to earnings for the third quarter was a profit of $.5 million compared to a loss of $3.1 million in 2000. The segment loss was $1.8 million in the first nine months of 2001 compared to $6.0 million in the comparable period of 2000. This improved segment performance was due primarily to improvement in margins on the international heavy weight freight product.Operating expenses were 99.8% and 100.9% of revenues in the third quarter and first nine months of 2001, respectively, compared to 100.4% and 97.7% for the corresponding periods in 2000. Operating cost per shipment decreased 1.4% to $9.92 in the third quarter compared to $10.07 in the third quarter of 2000. Operating cost per shipment for the first nine months of 2001 increased 1.5% to $9.86 compared to the same period in 2000. Operating cost per shipment information and operating costs expressed as a percentage of revenues for the third quarter were negatively impacted by the loss of business due to the events of September 11th. However, all categories of operating costs, except for sales and marketing category, decreased in the third quarter compared to the second quarter of 2001 as a result of the continued cost reduction initiatives.The Company has been aggressively managing costs through a number of cost cutting measures to assist in improving operating results. The Company has reduced and combined flight segments, reduced labor hours, and cut discretionary expenses to achieve cost efficiencies. Specifically, labor hours have been reduced which resulted in a 3.9% improvement in productivity, as measured by shipments handled per paid employee hour, during the third quarter, over levels incurred during the same period of 2000. Hours paid during the third quarter of 2001 were approximately 3.3% and 5.8% less than those paid during the second and first quarters of 2001, respectively. Productivity for the first nine months of 2001 showed an improvement of 3.2% compared to the first nine months of 2000.The Company continues to manage productivity at levels sufficient to maintain a high level of overall customer service.Transportation purchased as a percentage of revenues was 32.9% in the third quarter of 2001 compared to 32.7% a year ago. This category of expense was 32.7% of revenues for the first nine months of 2001 compared to 31.5% in 2000. The increase in costs as a percentage of revenues was primarily due to increased farmed out pickup and delivery, surface linehaul costs and delivery costs paid to the U.S. Postal Service for delivery of shipments. These increases were partially offset by lower international commercial airline and offshore agent related costs, in part due to lower shipment volumes.Station and ground expense was 33.1% of revenues in the third quarter compared to 32.8% a year ago. Station and ground expense was 33.1% of revenues in the first nine months of 2001 versus 32.0% for the same period in 2000. Total costs in this category decreased $6.8 million from the level incurred in the second quarter of 2001 and $22.2 million from the first quarter of 2001. Reductions in labor hours incurred for pickup and delivery, sort and other field operations were the primary factors for the decline in expense in comparison to the second and first quarter of 2001 levels.Flight operations and maintenance expense as a percentage of revenues during the third quarter of 2001 decreased to 17.2% as compared to 17.9% in the same period of 2000 and 17.7% in the 2nd quarter of 2001. For the first nine months of 2001 flight operations costs were 18.1% of revenues compared to 17.4% in the comparable period of 2000. The average aviation fuel price for the third quarter and first nine months of 2001 was $.91 and $.95 per gallon, respectively, compared to $1.03 and $.96 per gallon, respectively for the comparable periods in 2000. Aviation fuel consumption in the third quarter decreased 15.2% to 37.8 million gallons compared to 44.6 million gallons in the third quarter of 2000. Consumption in the second and first quarters of 2001 was 40.5 million and 43.6 million gallons, respectively.For the first nine months of 2001, aviation fuel consumption of 122.0 million11gallons was 10.2% less than consumption for the comparable period in 2000. The decrease in consumption both sequentially and year over year is due, in part, to management efforts to reduce and combine certain flight segments to control costs beginning in the second quarter of 2001. Additionally, fuel consumption was lower due to the two day grounding of aircraft in September. Also, the Company has placed five additional 767 aircraft in service since the third quarter of 2000 thereby allowing less fuel-efficient DC-8 aircraft to be moved to shorter lane segments, backup status or to be removed from service. Maintenance costs decreased during the third quarter compared to a year ago but increased during the first nine months of 2001 as a result of having additional 767 aircraft in service compared to the same periods of last year. The Company had 118 aircraft in service (19 Boeing 767s, 25 DC-8’s and 74 DC-9’s) at the end of the third quarter compared to 117 aircraft at the end of the third quarter of 2000.General and administrative expense was 8.1% and 8.3% of revenues for the third quarter and first nine months of 2001, respectively. This compares to 8.0% and 7.9% of revenues for the third quarter and first nine months of 2000, respectively. Inclusive in this cost category of expense is a one-time charge of $2.9 million, recorded in the second quarter of 2001, for severance and restructuring costs associated with the announced reduction in force effective June 1st. The Company has aggressively reduced costs in this category of expense in 2001 and continues to employ strong cost controls over labor and discretionary costs.Sales and marketing costs were 2.8% of revenues in the third quarter and 2.5% in the first nine months of 2001 compared to 2.5% in the comparable periods of 2000. Increased sales personnel and compensation costs as well as expanded marketing efforts to attract new business have resulted in higher levels of expenditures in this category.Depreciation and amortization expense constituted 6.7% of revenues in the third quarter and 6.5% in the first nine months of 2001. This compares to 6.6% of revenues for the third quarter and 6.3% in the first nine months of 2000. Depreciation expense in the third quarter of 2001 decreased slightly from the amounts recorded a year ago due to lower levels of capital expenditures in 2001 coupled with certain aircraft becoming fully depreciated. These declines offset the depreciation effects of placing additional 767 aircraft in service since the end of the third quarter of last year.Interest expense in the third quarter and first nine months of 2001 was lower than in 2000 due, in part, to lower average borrowings outstanding. Additionally, interest capitalized was $2.0 million in the first nine months of 2001 compared to $5.0 million in the like period of 2000. The lower level of average borrowings was a result of the off balance sheet refinancing of $200 million of long-term debt under an accounts receivable securitization facility that was implemented in December 2000. Debt levels were increased in August 2001 when the Company completed two sale-leaseback transactions for five 767 aircraft, accounted for as capitalized leases, which provided proceeds of $102.8 million.Discounts associated with recording the obligation to fund the purchaser’s costs under the Company’s accounts receivable securitization facility were $2.0 million in the third quarter of 2001 and $8.0 million for the year to date period. The Company considers this expense to be an interest type of financing cost. Because of the sales recognition treatment associated with this type of financing, the cost is recorded separate from interest expense.Included in other income were non-recurring gains associated from the sales of FCC licensed radio frequencies totaling $6.2 million in the third quarter of 2001 and $8.3 million for the first nine months of 2001. The Company is in the process of converting from voice to digital communication technology to support its pickup and delivery operations. The Company anticipates recording an additional $1.0 million in gains in the fourth quarter of 2001 that will substantially complete the sale of these frequencies for the foreseeable future. Additionally, a non-recurring gain of $2.1 million was recorded and included in other income during the third quarter of 2001 from the sale of shares of Equant N.V.These shares were acquired through the Company’s participation in SITA, a cooperative of major airline companies, which primarily provides data communication services to the air transport industry. The Company had no cost basis in these shares. In the second quarter of 2000, a $1.9 million non-recurring gain was recorded on the sale of securities received in connection with the demutualization of Metropolitan Life. The Company, as policyholder, received stock securities of Metropolitan Life when the insurance company demutualized.12The Company’s effective tax benefit rate of 33.5% for the first nine months of 2001 compared to an effective tax expense rate of 38.1% recorded in the first nine months of 2000. The effective tax expense rate was 47.6% for the third quarter of 2001 compared to a tax benefit rate of 39.9% in the third quarter of 2000. The lower tax benefit rate recorded for the first nine months of 2001 as compared to the tax expense rate incurred in 2000 is a function of the provision impact of non-deductible expenses and state taxes. The effective tax rate for 2001 is difficult to determine due to the provision impact and levels of nondeductible expenses and state taxes in relation to earnings.The strength of the U.S. and global economies will have an impact on theour operating results of operations for the balance of 2001 and into 2002 and beyond. TheAlthough some areas of the economy appear to be showing signs of strength, we are not seeing that translate into improvement in our core domestic air express volumes. Accordingly, core express volumes could be lower in the second half of 2002 compared to the same period of 2001.lackestimates of visibility regarding economic growth has causedbetween 180,000 and 190,000 shipments per day in the Companythird quarter of 2002. We expect our airborne@home product to expect continued pressure on shipmentachieve volumes of between 85,000 and revenue growth, particularly95,000 shipments per day in its higher yielding overnight express product. While the Company is continuingthird quarter of 2002. Both product lines should experience seasonal increases in this year’s fourth quarter. Growth in these products will result in incremental expenses primarily related to truck linehaul and, in the case of airborne@home shipments, additional delivery costs paid to the U.S. Postal Service.itas evidenced by our recent realignment of international operations and reduction of additional overhead in our domestic stations. As previously mentioned, those actions provided a $.9 million cost savings in the second quarter of 2002 with additional quarterly savings of between $2.0 and $2.5 million to be realized beginning in the third quarter of 2002. We anticipate labor productivity improvement in the second half of 2002 in comparison to the like period in 2001. Wage pressures and additional hours to service expected growth will offset some of favorable cost savings produced by the productivity gains and accordingly we are not anticipating reductions in wage costs in relation to the levels incurred in the second quarter.difficultin the range of $20.0 to $25.0 million for the year in comparison to 2001.reductionschanges to the surcharge as warranted. Aircraft maintenance expenses are anticipated to trend to levels approximating the amounts incurred in the second quarter of 2002.magnitude made over the past two quarters. The Company has taken actions to substantially reduce its cost structure, so that it is positioned to benefit from an economic rebound and resulting volume growth when that occurs.year.
Cash
Capital expenditures continue to be a primary factor affecting the financial condition of the Company. During the nine monthshalf of 2001 total capital expenditures net(exclusive of dispositions were $98.3 million comparedrepurchases and sales from or to $298.4 million during the corresponding period of 2000. Capital spending has been reduced significantlyour receivables securitization facility). The improvement in 2001 compared to 2000 due to management efforts to maintain spending at levels that better match the lower level of operating performance and shipment volume growth. The Company currently anticipates 2001 capital expenditures to be approximately $130 million, down from the previous target of $170 million.
The Company’s operating cash flow is a major sourceprimarily due to improved operating performance.
The Company alsoDecember 31, 2001.
In July 2001, the Company arranged a TRAC (Terminal Rental Adjustment Clause) Lease facility for prospective vehicle acquisitions of uppart, to $20 million in 2001. Historically, the Company has purchased its vehicles. With the TRAC Lease, Airborne has the option to purchase the delivery vehicles at the end of the lease term. As of September 30, 2001 the Company had placed $3.4pay off $100 million of vehicle acquisitions under this arrangement.
In August 2001,senior notes that mature in December 2002.
The Company’s ratio of long-term debt to total capitalization (exclusive of the receivable securitization) was 24.7% at September 30, 20012002 compared to 24.6% at December 31, 2000the first half level of $58 million to achieve the targeted investment level of between $150 and 30.1% at September 30, 2000.
$160 million. Working capital will also be impacted due to the planned funding of approximately $48 million of previously accrued pension obligations in the third quarter.
FORWARD LOOKING STATEMENTS:
Statements contained herein and in other parts of this report, which are not historical facts, are considered forward-looking statements (as such term is definedour net deferred tax asset in the Private Securities Litigation Reform Actfuture, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
EXHIBIT NO. 10 Material ContractsExhibits and Reports on Form 8-K.10(a)Employment Agreement dated April 24, 2001 between the Company and Mr. Robert T. Christensen. Substantially identical agreements exist between the Company and most of its officers.EXHIBIT NO. 10 Material Contracts 10(b)10 (a) Employment Agreement dated April 24, 2001 between the Company and Mr. Lanny H. Michael, Senior Vice President, Chief Financial Officer. Substantially identical agreements exist between the Company and eight otherManagement Incentive Compensation Plan (MICP) 2002EXHIBIT NO. 12 Statements Regarding Computation of its executive officers.1412 (a) Ratio of Earnings to Fixed Charges EXHIBIT NO. 99 99 (a) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99 (b) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
AIRBORNE, INC. | |||||
(Registrant) | |||||
| Date: | 8/13/02 | /s/ CARL D. DONAWAY | |||
| Date: | 8/13/02 | /s/ | |||
Lanny H. Michael Executive Vice President and Chief Financial Officer | ||||
| Date: | 8/13/02 | /s/ ROBERT T. CHRISTENSEN | ||
Robert T. Christensen Chief Accounting Officer | ||||