EXHIBIT NO. 99.1
INDEPENDENT AUDITORS’ REPORT
Board of Directors
Airborne, Inc. and Subsidiaries
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Airborne, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note A to the financial statements, the Company changed its method of accounting for major engine overhaul costs on DC-9 aircraft effective January 1, 2000.
/s/ DELOITTE & TOUCHE LLP | ||||||||
Deloitte & Touche LLP |
February 22, 2002 (May 9, 2002 as to Notes Q and R)
Seattle, Washington
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31 | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(In thousands except per share data) | ||||||||||||
REVENUES: | ||||||||||||
Domestic | $ | 2,850,798 | $ | 2,895,818 | $ | 2,772,782 | ||||||
International | 360,291 | 380,132 | 366,342 | |||||||||
3,211,089 | 3,275,950 | 3,139,124 | ||||||||||
OPERATING EXPENSES: | ||||||||||||
Transportation purchased | 1,046,954 | 1,042,541 | 965,722 | |||||||||
Station and ground operations | 1,067,764 | 1,055,142 | 975,669 | |||||||||
Flight operations and maintenance | 557,412 | 588,582 | 513,337 | |||||||||
General and administrative | 265,545 | 258,149 | 240,089 | |||||||||
Sales and marketing | 90,390 | 82,512 | 77,196 | |||||||||
Depreciation and amortization | 208,355 | 206,406 | 209,390 | |||||||||
Federal legislation compensation | (13,000 | ) | — | — | ||||||||
3,223,420 | 3,233,332 | 2,981,403 | ||||||||||
EARNINGS (LOSS) FROM OPERATIONS | (12,331 | ) | 42,618 | 157,721 | ||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest, net | (19,868 | ) | (23,425 | ) | (17,262 | ) | ||||||
Discount on sales of receivables | (9,293 | ) | (96 | ) | — | |||||||
Other | 12,588 | 4,129 | 6,929 | |||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES | (28,904 | ) | 23,226 | 147,388 | ||||||||
INCOME TAX BENEFIT (EXPENSE) | 9,446 | (8,940 | ) | (56,187 | ) | |||||||
NET EARNINGS (LOSS) BEFORE CHANGE IN ACCOUNTING | (19,458 | ) | 14,286 | 91,201 | ||||||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING | — | 14,206 | — | |||||||||
NET EARNINGS (LOSS) | $ | (19,458 | ) | $ | 28,492 | $ | 91,201 | |||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||
BASIC— | ||||||||||||
Before change in accounting | $ | (.40 | ) | $ | .30 | $ | 1.88 | |||||
Cumulative effect of change in accounting | — | .29 | — | |||||||||
Earnings (loss) per basic share | $ | (.40 | ) | $ | .59 | $ | 1.88 | |||||
DILUTED— | ||||||||||||
Before change in accounting | $ | (.40 | ) | $ | .30 | $ | 1.85 | |||||
Cumulative effect of change in accounting | — | .29 | — | |||||||||
Earnings (loss) per diluted share | $ | (.40 | ) | $ | .59 | $ | 1.85 | |||||
DIVIDENDS PER SHARE | $ | .16 | $ | .16 | $ | .16 | ||||||
See notes to consolidated financial statements.
2
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31 | ||||||||
2001 | 2000 | |||||||
(In thousands) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 201,500 | $ | 40,390 | ||||
Accounts receivable, less allowance of $11,509 and $10,290 | 126,040 | 218,685 | ||||||
Spare parts and fuel inventory | 38,413 | 43,231 | ||||||
Refundable income taxes | 27,161 | 21,595 | ||||||
Deferred income tax assets | 30,572 | 28,839 | ||||||
Prepaid expenses and other | 28,021 | 20,809 | ||||||
TOTAL CURRENT ASSETS | 451,707 | 373,549 | ||||||
PROPERTY AND EQUIPMENT, NET | 1,247,373 | 1,324,345 | ||||||
EQUIPMENT DEPOSITS AND OTHER ASSETS | 47,764 | 48,025 | ||||||
TOTAL ASSETS | $ | 1,746,844 | $ | 1,745,919 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 141,873 | $ | 180,623 | ||||
Salaries, wages and related taxes | 75,458 | 71,179 | ||||||
Accrued expenses | 145,997 | 83,518 | ||||||
Current portion of debt | 107,410 | 477 | ||||||
TOTAL CURRENT LIABILITIES | 470,738 | 335,797 | ||||||
LONG-TERM DEBT | 218,053 | 322,230 | ||||||
DEFERRED INCOME TAX LIABILITIES | 143,526 | 125,444 | ||||||
POST RETIREMENT LIABILITIES | 39,423 | 62,360 | ||||||
OTHER LIABILITIES | 40,888 | 37,233 | ||||||
COMMITMENTS AND CONTINGENCIES (Note H) | ||||||||
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 51,375,711 and 51,279,651 | 51,376 | 51,280 | ||||||
Additional paid-in capital | 304,984 | 303,885 | ||||||
Retained earnings | 540,544 | 567,700 | ||||||
Accumulated other comprehensive income | (2,820 | ) | (136 | ) | ||||
894,084 | 922,729 | |||||||
Treasury stock, 3,240,526 and 3,244,526 shares, at cost | (59,868 | ) | (59,874 | ) | ||||
834,216 | 862,855 | |||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,746,844 | $ | 1,745,919 | ||||
See notes to consolidated financial statements.
3
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(In thousands) | ||||||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net earnings (loss) | $ | (19,458 | ) | $ | 28,492 | $ | 91,201 | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 208,355 | 206,406 | 188,955 | |||||||||
Deferred income taxes | 16,348 | 20,679 | 6,889 | |||||||||
Postretirement obligations | 24,054 | 15,808 | 15,197 | |||||||||
Cumulative effect of change in accounting | — | (14,206 | ) | — | ||||||||
Provision for aircraft engine overhauls | — | — | 20,435 | |||||||||
Other | (7,571 | ) | 5,833 | 529 | ||||||||
CASH PROVIDED BY OPERATIONS | 221,728 | 263,012 | 323,206 | |||||||||
Change in: | ||||||||||||
Proceeds from receivable securitization facility | 50,000 | 150,000 | — | |||||||||
Receivables | 42,645 | (29,641 | ) | (15,866 | ) | |||||||
Inventories and prepaid expenses | (2,394 | ) | 4,679 | (3,296 | ) | |||||||
Refundable income taxes | (5,566 | ) | (19,916 | ) | (1,679 | ) | ||||||
Accounts payable | (38,750 | ) | 38,536 | (10,913 | ) | |||||||
Accrued expenses, salaries and taxes payable | 19,767 | 7,384 | (32,534 | ) | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 287,430 | 414,054 | 258,918 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||
Additions to property and equipment | (127,109 | ) | (372,575 | ) | (294,319 | ) | ||||||
Disposition of property and equipment | 1,369 | 4,713 | 1,693 | |||||||||
Proceeds from sale of securities | 2,117 | 1,913 | 4,603 | |||||||||
Proceeds from sale of radio frequencies | 9,295 | — | — | |||||||||
Expenditures for engine overhauls | — | — | (18,735 | ) | ||||||||
Other | (4,240 | ) | (16,794 | ) | (5,453 | ) | ||||||
NET CASH USED BY INVESTING ACTIVITIES | (118,568 | ) | (382,743 | ) | (312,211 | ) | ||||||
FINANCING ACTIVITIES: | ||||||||||||
Proceeds (payments) on bank notes, net | (103,000 | ) | 8,000 | 66,000 | ||||||||
Issuance of aircraft loan | 61,975 | — | — | |||||||||
Proceeds from sale-leaseback of aircraft | 40,800 | — | — | |||||||||
Principal payments on debt | (2,627 | ) | (442 | ) | (410 | ) | ||||||
Issuance of debt | 1,597 | — | — | |||||||||
Exercise of stock options | 1,201 | 1,259 | 5,480 | |||||||||
Dividends paid | (7,698 | ) | (7,754 | ) | (7,778 | ) | ||||||
Repurchase of common stock | — | (20,662 | ) | — | ||||||||
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | (7,752 | ) | (19,599 | ) | 63,292 | |||||||
NET INCREASE IN CASH | 161,110 | 11,712 | 9,999 | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 40,390 | 28,678 | 18,679 | |||||||||
CASH AND CASH EQUIVALENTS AT END OF YEAR | $ | 201,500 | $ | 40,390 | $ | 28,678 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the year— | ||||||||||||
Interest, net of amount capitalized | $ | 21,091 | $ | 24,066 | $ | 17,429 | ||||||
Income taxes paid(refunded) | (22,307 | ) | 10,604 | 53,628 | ||||||||
Non-cash financing activities— | ||||||||||||
Capital lease transactions | 3,361 | — | — | |||||||||
Contribution of treasury stock to profit sharing plans | — | 4,367 | — |
See notes to consolidated financial statements.
4
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | Total | |||||||||||||||||
(In thousands) | ||||||||||||||||||||||
BALANCE AT JANUARY 1, 1999 | $ | 50,819 | $ | 293,629 | $ | 463,539 | $ | 766 | $ | (39,601 | ) | $ | 769,152 | |||||||||
Comprehensive income: | ||||||||||||||||||||||
Net earnings | 91,201 | 91,201 | ||||||||||||||||||||
Other comprehensive income, net of tax— | ||||||||||||||||||||||
Unrealized securities gains | 29 | 29 | ||||||||||||||||||||
Foreign currency translation adjustments | 123 | 123 | ||||||||||||||||||||
Total comprehensive income | — | — | 91,201 | 152 | — | 91,353 | ||||||||||||||||
Common stock dividends paid | (7,778 | ) | (7,778 | ) | ||||||||||||||||||
Exercise of stock options | 357 | 5,113 | 10 | 5,480 | ||||||||||||||||||
BALANCE AT DECEMBER 31, 1999 | $ | 51,176 | $ | 298,742 | $ | 546,962 | $ | 918 | $ | (39,591 | ) | $ | 858,207 | |||||||||
Comprehensive income: | ||||||||||||||||||||||
Net earnings | 28,492 | 28,492 | ||||||||||||||||||||
Other comprehensive income, net of tax— | ||||||||||||||||||||||
Unrealized securities losses | (769 | ) | (769 | ) | ||||||||||||||||||
Foreign currency translation adjustments | (285 | ) | (285 | ) | ||||||||||||||||||
Total comprehensive income | — | — | 28,492 | (1,054 | ) | — | 27,438 | |||||||||||||||
Common stock dividends paid | (7,754 | ) | (7,754 | ) | ||||||||||||||||||
Repurchase of common stock | (20,662 | ) | (20,662 | ) | ||||||||||||||||||
Exercise of stock options | 104 | 1,155 | 1,259 | |||||||||||||||||||
Contribution of treasury stock to profit sharing plans | 3,988 | 379 | 4,367 | |||||||||||||||||||
BALANCE AT DECEMBER 31, 2000 | $ | 51,280 | $ | 303,885 | $ | 567,700 | $ | (136 | ) | $ | (59,874 | ) | $ | 862,855 | ||||||||
Comprehensive income: | ||||||||||||||||||||||
Net loss | (19,458 | ) | (19,458 | ) | ||||||||||||||||||
Other comprehensive income, net of tax— | ||||||||||||||||||||||
Unrealized securities losses | (379 | ) | (379 | ) | ||||||||||||||||||
Foreign currency translation adjustments | (384 | ) | (384 | ) | ||||||||||||||||||
Unrealized Interest rate swap gains | 626 | 626 | ||||||||||||||||||||
Additional minimum pension liabilities | (2,547 | ) | (2,547 | ) | ||||||||||||||||||
Total comprehensive income | — | — | (19,458 | ) | (2,684 | ) | — | (22,142 | ) | |||||||||||||
Common stock dividends paid | (7,698 | ) | (7,698 | ) | ||||||||||||||||||
Exercise of stock options | 96 | 1,099 | 6 | 1,201 | ||||||||||||||||||
BALANCE AT DECEMBER 31, 2001 | $ | 51,376 | $ | 304,984 | $ | 540,544 | $ | (2,820 | ) | $ | (59,868 | ) | $ | 834,216 | ||||||||
See notes to consolidated financial statements.
5
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 2001
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization
Effective December 2000, the Company reorganized its corporate structure through the creation of a new holding company, Airborne, Inc. (the “Company”). Pursuant to a reorganization agreement, Airborne Express, Inc., (formerly Airborne Freight Corporation), ABX Air, Inc., and Sky Courier, Inc. (formerly Airborne Forwarding Corporation) became wholly-owned subsidiaries of Airborne, Inc. Holders of outstanding Airborne Freight Corporation common shares, $1.00 par value, automatically became holders of Airborne, Inc. common shares at the same par value.
Nature of Operations
The Company’s revenues are primarily derived from domestic and international transportation of shipments. The Company provides door-to-door express and deferred delivery of small packages and documents throughout the United States and to most foreign countries. The Company also acts as an international and domestic freight forwarder for shipments of any size. Most domestic shipments are transported on the Company’s own airline and a fleet of ground transportation vehicles through its Company-owned airport and central sorting facilities, or one of ten regional hubs. International shipments are transported utilizing a combination of the Company’s domestic network, commercial airline lift capacity, and a network of offshore Company offices and independent agents.
As of December 31, 2001, the Company had approximately 10,000 employees (44% of total employees), including approximately 800 pilots, employed under collective bargaining agreements with various locals of the International Brotherhood of Teamsters and Warehousemen. The pilots are covered by an agreement that became amendable on July 31, 2001. Most labor agreements covering the Company’s ground personnel expire in either 2003 or 2004. Although the Company has not experienced any significant disruptions from labor disputes in the past, there can be no assurance that disputes will not arise in the future.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and a majority-owned aircraft finance subsidiary. Intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Estimates and assumptions are used to record allowances for bad debts, self-insurance reserves, spare-parts inventory, impairments of property and equipment, income taxes and contingencies and litigation. Changes in these estimates and assumptions may have a material impact on the financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. As of December 31, 2001, $127,968,000 of cash and cash equivalents included on the consolidated balance sheets were held in the form of short term commercial paper investments or money market funds. There were no cash equivalents as of December 31, 2000.
6
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company has a cash management system under which a cash overdraft exists for uncleared checks in the Company’s primary disbursement accounts. Cash and cash equivalents shown on the consolidated balance sheet includes balances in other accounts prior to being transferred to the primary disbursement accounts. Uncleared checks of $25,531,000 and $51,738,000 are included in accounts payable at December 31, 2001 and 2000, respectively.
Spare Parts and Fuel Inventory
Spare parts are stated at average cost and fuel inventory is stated at cost on a first-in, first-out basis.
Property and Equipment
Property and equipment is stated at cost. The cost and accumulated depreciation of property and equipment disposed of are removed from the accounts with any related gain or loss reflected in earnings from operations.
For financial reporting purposes, depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s useful life or lease term as follows:
Flight equipment | 5 to 18 years | |
Buildings, runways, and leasehold improvements | 5 to 40 years | |
Package handling and ground support equipment | 3 to 10 years | |
Vehicles and other equipment | 3 to 8 years |
DC-8 and DC-9 aircraft generally carry residual values of 10% and 15% of asset cost, respectively. All other property and equipment have no assigned residual values.
Residual values on aircraft that are removed from service are adjusted to fair value in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of”. When an aircraft is removed from service and considered impaired, as has been the case with certain DC-8 aircraft removed in 2001 and 2000, the assets residual value is adjusted to its fair value, which is the equivalent of an estimated parts value. Fair value adjustment charges of $5,008,000 in 2001 and $3,956,000 in 2000 were included in depreciation and amortization expense.
Major engine overhauls as well as ordinary engine maintenance and repairs for DC-8 and 767 aircraft are performed by third-party service providers under long-term contracts. In July 2001, a third party service provider began performing major engine overhauls on the Company’s DC-9 aircraft. Service costs under the contracts are based upon hourly rates for engine usage and are charged to expense in the period utilization occurs. From January 2000 to June 2001 DC-9 engine overhauls costs were expensed as incurred. Prior to 2000, as discussed in “Change in Accounting” below, the Company provided accruals for costs in advance of the next scheduled overhaul. The provision for engine overhauls was included in depreciation and amortization expense in 1999.
Capitalized Interest
Interest incurred during the construction period of certain facilities and on aircraft purchase and modification costs is capitalized until the date the asset is placed in service as an additional cost of the asset. Capitalized interest was $2,377,000, $6,770,000 and $3,969,000 for 2001, 2000 and 1999, respectively.
7
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Taxes
The Company computes income taxes using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.
The Company believes that it is more likely than not that certain deferred tax assets will be realized from future income. Accordingly, no valuation allowance has been provided as of December 31, 2001.
Fuel Contracts
The Company has, in the past, utilized fuel contract hedges with financial institutions to limit its exposure to volatility in jet fuel prices. Under terms of the contracts, the Company either made or received payments if the market price of heating oil, as determined by an index of the monthly NYMEX Heating Oil futures contracts, was lower than or exceeded certain prices agreed to between the Company and the financial institutions. Prior to the implementation of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” settlements were made in cash and recorded in the period of settlement as either an increase or decrease to fuel expense.
The Company had no fuel contract hedges outstanding at December 31, 2001 and 2000. There were no settlement payments made on fuel contract hedges during 2001 or 2000. Settlement payments of $1,886,000 were made during 1999. The Company may enter into fuel contract hedges in future periods depending on pricing and market conditions.
Comprehensive Income
Comprehensive income includes net income and other comprehensive income which includes changes in equity arising during the period from holding available for sale marketable securities, from foreign currency translation adjustments and interest rate swaps and from recording additional minimum pension liabilities.
Revenue Recognition
Revenues are recognized when shipments are delivered to the customer. For shipments in transit, direct costs are deferred and recognized upon delivery.
Foreign Currency Instruments and Interest Rate Swap Agreements
Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, which was amended by SFAS No. 138. This pronouncement, as amended, requires that each derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value, and that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The pronouncement also establishes criteria for a derivative to qualify as a hedge for accounting purposes. Changes in fair value of derivatives designated as hedges of forecasted transactions will be deferred and recorded as a component of accumulated other comprehensive income until the hedged forecasted transaction occurs and is recognized in earnings. In addition, all derivatives used in hedge relationships must be designated, reassessed and documented pursuant to provisions of SFAS No. 133.
The Company utilizes forward foreign exchange contracts to manage the risk associated with currency fluctuations on certain receivables and payables denominated in Japanese yen. The contracts are for terms
8
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
consistent with the settlement of underlying transactions, which are generally three months or less. Changes in the contract values on these cash flow hedges and the changes in fair values of the underlying hedged receivable or payable are recognized currently in earnings. The Company had $1,014,000 and $2,308,000 in notional forward contracts outstanding with unrealized losses recorded of $52,000 and $77,000 as of December 31, 2001 and 2000, respectively.
The Company entered into an interest rate swap agreement in 2001 to manage its exposure to interest rate movements by effectively converting debt incurred on certain aircraft financings from variable to fixed rates. Maturity dates, interest rate reset dates, and notional amounts of the interest rate swap match those of the underlying debt. The differential between the variable and fixed rates to be paid or received is accrued as interest rates change and recorded as an adjustment to interest expense. The notional principal amount of the interest rate swap was $58,923,000 as of December 31, 2001.
The fair value of the interest rate swap agreement and the amount of hedging gains deferred on the interest rate swap was $1,019,000 at December 31, 2001. Changes in fair value of the interest rate swap is reported, net of related income taxes, in accumulated other comprehensive income. This amount is reclassified into interest expense as a yield adjustment in the same period in which the related interest on the aircraft financings affects earnings. Because the critical terms of the interest rate swap and the underlying obligation are the same, there was no ineffectiveness recorded in the consolidated statements of operations. Incremental interest expense incurred as a result of the interest rate swap was $166,000 in 2001. Based on the current expectations for interest rates, we expect approximately $1,400,000 to be reclassified to interest expense during 2002.
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 in 2000 of $14,206,000 net of taxes, or $.29 per diluted share. Excluding the cumulative effect, this change increased net earnings for 2000 by approximately $3,687,000, net of tax or $.08 per diluted share. If the accounting change had been retroactively applied, net earnings and earnings per diluted share would have been $94,828,000 or $1.92 per diluted share for 1999 compared to reported amounts of $91,201,000 or $1.85 per share.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS No. 142, which is effective January 1, 2002, requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires a transitional goodwill impairment test six months from the date of adoption. The Company does not believe that the adoption of SFAS Nos. 141 or 142 will have a significant impact on the financial position or results of operations.
9
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Additionally, the associated asset retirement costs will be capitalized as part of the carrying amount of the long-lived asset. The Company does not believe that the adoption of SFAS No. 143, which is effective for companies with fiscal years beginning after June 15, 2002, will have a significant impact on the financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of”, and portions of APB No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. SFAS No. 144 requires the use of one accounting model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the definition of discontinued operations. The Company does not believe that the adoption of SFAS No. 144, which is effective for companies with fiscal years beginning after December 15, 2001, will have a significant impact on the financial position or results of operations.
Reclassifications
Certain amounts for prior years have been reclassified in the consolidated financial statements to conform to the classification used in 2001.
NOTE B—FAIR VALUE INFORMATION
The carrying amounts and related fair values of the Company’s financial instruments are as follows (in thousands):
December 31 | ||||||||||||||||
2001 | 2000 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Marketable securities | $ | 15,441 | $ | 15,441 | $ | 18,747 | $ | 18,747 | ||||||||
Long-term debt | 282,393 | 278,001 | 322,707 | 306,078 | ||||||||||||
Derivatives: | ||||||||||||||||
Interest rate swap | 1,019 | 1,019 | — | — | ||||||||||||
Foreign exchange contracts | (52 | ) | (52 | ) | (77 | ) | (77 | ) |
Marketable securities consist primarily of commingled investment funds that may be used for funding non-qualified pension plan obligations. These securities are considered available-for-sale securities for financial reporting purposes and are classified with equipment deposits and other assets on the consolidated balance sheets. Fair value for these investments is based on quoted market prices for the securities underlying the investment funds or the same securities. Unrealized losses on these securities, which are included in other comprehensive income, were $616,000 and $1,248,000 for 2001 and 2000, respectively. Unrealized gains on these securities were $47,000 for 1999. Realized gains recognized in 2001, 2000 and 1999 were $197,000, $1,117,000 and $1,268,000, respectively.
Discussion regarding the fair value of the Company’s long-term debt and interest rate swap is disclosed in the respective notes to the consolidated financial statements. Fair value of the Company’ interest rate swap is
10
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
based on the current LIBOR interest rate swap yield curve. Fair value for the Company’s forward foreign exchange contracts is based on the estimated amount at which the contracts could be settled based upon forward market exchange rates. Carrying amounts for cash, trade accounts receivable and current liabilities approximate fair value.
NOTE C—ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
December 31 | ||||||||
2001 | 2000 | |||||||
Retained interest in securitized accounts receivable: | ||||||||
Securitized trade accounts receivable | $ | 306,497 | $ | 340,838 | ||||
Less: Proceeds from sale of undivided interest in receivables | (200,000 | ) | (150,000 | ) | ||||
Less: Allowance for doubtful accounts | (9,220 | ) | (8,610 | ) | ||||
Retained interest in securitized accounts receivable, net | 97,277 | 182,228 | ||||||
Other accounts receivable: | ||||||||
Other trade accounts receivable | 31,052 | 38,137 | ||||||
Less: Allowance for doubtful accounts | (2,289 | ) | (1,680 | ) | ||||
Other trade accounts receivable, net | 28,763 | 36,457 | ||||||
Accounts receivable on consolidated balance sheets | $ | 126,040 | $ | 218,685 | ||||
The Company entered into an agreement with a financial institution in December 2000 to finance the sale, on a continuous basis, of an undivided interest in all eligible U.S. trade accounts receivables through an accounts receivable securitization facility. This financing agreement is accounted for as a sale of assets under the provisions of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”.
To facilitate the sales, the Company formed Airborne Credit, Inc. (“ACI”), a wholly-owned, special purpose, bankruptcy remote subsidiary consolidated by the Company. The Company transfers substantially all of its U.S. trade account receivables to ACI, whose sole purpose, in turn, is to sell an undivided interest in receivables to an unrelated third party and receive proceeds of up to $250,000,000. The facility is for a three year term expiring June 2004. The Company retains the servicing of the receivables transferred to ACI. At December 31, 2001, the Company had eligible receivables to support a maximum of $232,500,000 in sales proceeds.
To the extent that customers default on the receivables, losses will first reduce the Company’s retained interest in the receivables prior to reducing the interests sold through the facility. Any increase in actual defaults above the recorded amount of allowance for doubtful accounts would decrease the value of the Company’s retained interest.
Upon the sale of the undivided interest in the receivables, the Company incurs a liability to fund the purchaser’s costs of financing the proceeds. This liability is recorded at the time of sale and is estimated based on projected financing costs over the projected life of the receivable interests sold. Discounts associated with the sale of receivables, primarily related to recording the obligation to fund the purchaser’s costs, were $9,293,000 and $96,000 for 2001 and 2000, respectively, and are shown as discounts on sales of receivables in the consolidated statements of operations. The Company does not believe any difference between the projected and actual financing costs would have a material effect on the financial condition or results of operations.
11
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE D—PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31 | ||||||||
2001 | 2000 | |||||||
Flight equipment | $ | 1,850,304 | $ | 1,871,137 | ||||
Land, buildings and leasehold improvements | 266,758 | 269,723 | ||||||
Package handling and ground support equipment | 217,507 | 200,796 | ||||||
Vehicles and other equipment | 320,030 | 288,172 | ||||||
2,654,599 | 2,629,828 | |||||||
Accumulated depreciation and amortization | (1,407,226 | ) | (1,305,483 | ) | ||||
Total property and equipment | $ | 1,247,373 | $ | 1,324,345 | ||||
NOTE E—ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31 | ||||||
2001 | 2000 | |||||
Retirement plans | $ | 53,991 | $ | 7,000 | ||
Insurance | 47,432 | 40,556 | ||||
Unearned revenues | 20,274 | 17,176 | ||||
Property and other taxes | 12,318 | 9,725 | ||||
Interest | 2,636 | 2,738 | ||||
Other | 9,346 | 6,323 | ||||
Total accrued expenses | $ | 145,997 | $ | 83,518 | ||
NOTE F—INCOME TAXES
Deferred income tax assets and liabilities consist of the following (in thousands):
December 31 | ||||||||
2001 | 2000 | |||||||
Insurance | $ | 14,155 | $ | 12,733 | ||||
Employee benefits | 13,206 | 13,715 | ||||||
Bad debts, sales reserves and other | 3,211 | 2,391 | ||||||
Current net deferred income tax assets | 30,572 | 28,839 | ||||||
Depreciation | 157,493 | 146,677 | ||||||
Employee benefits | (13,715 | ) | (18,331 | ) | ||||
Insurance | (13,377 | ) | (12,874 | ) | ||||
Internally developed systems | 6,680 | 3,671 | ||||||
Other | 6,445 | 6,301 | ||||||
Noncurrent net deferred income tax liabilities | 143,526 | 125,444 | ||||||
Net deferred income tax liabilities | $ | 112,954 | $ | 96,605 | ||||
12
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income tax expense (benefit) consists of the following (in thousands):
Year Ended December 31 | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
Current: | ||||||||||||
Federal | $ | (23,742 | ) | $ | (11,785 | ) | $ | 44,215 | ||||
State | (2,000 | ) | (210 | ) | 4,920 | |||||||
Foreign | (53 | ) | 256 | 163 | ||||||||
(25,795 | ) | (11,739 | ) | 49,298 | ||||||||
Deferred: | ||||||||||||
Depreciation | 10,816 | 23,702 | 13,845 | |||||||||
Employee benefits | 5,125 | (1,684 | ) | (7,230 | ) | |||||||
Capitalized systems development | 3,010 | 3,671 | — | |||||||||
Alternative Minimum Tax credit | 639 | (639 | ) | — | ||||||||
Insurance accruals | (1,925 | ) | (4,352 | ) | (1,794 | ) | ||||||
Aircraft engine overhaul accrual | — | 6,163 | (637 | ) | ||||||||
Cumulative effect of change in accounting principle | — | (8,707 | ) | — | ||||||||
Other | (1,316 | ) | 2,525 | 2,705 | ||||||||
16,349 | 20,679 | 6,889 | ||||||||||
Total income tax expense (benefit) | $ | (9,446 | ) | $ | 8,940 | $ | 56,187 | |||||
The income tax expense (benefit) rate on (loss) earnings from continuing operations differed from the Federal statutory rate as follows:
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Taxes computed at statutory rate of 35% | (35.0 | %) | 35.0 | % | 35.0 | % | |||
State and foreign income taxes, net of Federal benefit | (2.5 | %) | 3.0 | % | 2.2 | % | |||
Tax effect of nondeductible expenses | 5.0 | % | 6.7 | % | 1.1 | % | |||
Tax credits | — | (3.5 | %) | — | |||||
Other | (0.2 | %) | (2.7 | %) | (0.2 | %) | |||
(32.7 | %) | 38.5 | % | 38.1 | % | ||||
13
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE G—LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31 | ||||||||
2001 | 2000 | |||||||
Revolving credit notes payable to banks | $ | — | $ | 75,000 | ||||
Money market lines of credit | — | 28,000 | ||||||
Senior notes, 8.875%, due December, 2002 | 100,000 | 100,000 | ||||||
Senior notes, 7.35%, due September, 2005 | 100,000 | 100,000 | ||||||
Aircraft loan | 61,651 | — | ||||||
Capital lease obligations | 43,070 | — | ||||||
Refunding revenue bonds, effective rate of 1.60% as of Dec. 31, 2001, due June 2011 | 13,200 | 13,200 | ||||||
Other | 7,542 | 6,507 | ||||||
325,463 | 322,707 | |||||||
Less current portion | (107,410 | ) | (477 | ) | ||||
Total long-term debt | $ | 218,053 | $ | 322,230 | ||||
The Company has a revolving bank credit agreement providing for a total commitment of $275,000,000. In June 2001, the agreement was amended to, among other things, provide 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. Capacity under the facility is dependent on a borrowing base determined by the amount of eligible collateral, with a maximum commitment of $275,000,000. The Company has eligible collateral in the borrowing base to support $133,700,000 of the $275,000,000 commitment and has the ability to increase the borrowing base by pledging additional eligible collateral. With the current level of eligible collateral, available capacity under the agreement, net of outstanding letters of credit, was $34,000,000. At December 31, 2001 no borrowings were outstanding under the agreement and the Company was in compliance with restrictive covenants including covenants requiring the maintenance of minimum 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 or its common stock in excess of $2,000,000 during any calendar quarter. The Company’s $200,000,000 of outstanding senior notes were also collateralized at the time the revolving credit agreement was amended.
In August 2001, the Company entered into an aircraft loan financing collateralized by three 767 aircraft which provided net proceeds of $61,975,000. The loan is scheduled to fully amortize in 2017 and carries a variable interest rate of LIBOR plus 2.5% (4.69% at December 31, 2001). The three aircraft were sold to a majority-owned and consolidated subsidiary, which raised $60,000,000 in financing and $2,800,000 in third party equity financing. The net carrying value of the three aircraft was $78,835,000 at December 31, 2001. As discussed in Note A, the Company has entered into an interest rate swap agreement effectively converting the loan from a variable to fixed rate.
The Company’s tax-exempt airport facilities refunding bonds carry no sinking fund requirements and bear interest at weekly adjustable rates. The average interest rate on these borrowings was 4.2% during 2001. Payment of principal and interest is secured by an irrevocable bank letter of credit that is collateralized by a mortgage on certain airport properties which had a net carrying value of $46,343,000 at December 31, 2001.
14
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The scheduled annual principal payments on long-term debt, exclusive of capital lease obligations are $104,884,000, $5,274,000, $5,677,000, $106,129,000 and $6,485,000 for 2002 through 2006, respectively.
NOTE H—COMMITMENTS AND CONTINGENCIES
Leases
The Company is obligated under various long-term capital and operating lease agreements for certain aircraft and equipment and for a substantial portion of its facilities. These leases expire at various dates through 2017.
Rental commitments under long-term capital and operating leases at December 31, are as follows (in thousands):
Capital Leases | Operating Leases | ||||||
2002 | $ | 6,089 | $ | 83,052 | |||
2003 | 6,059 | 77,168 | |||||
2004 | 6,059 | 59,510 | |||||
2005 | 6,059 | 45,190 | |||||
2006 | 5,972 | 35,323 | |||||
2007 and beyond | 39,925 | 81,458 | |||||
Total minimum lease payments | $ | 70,163 | $ | 381,701 | |||
Amount representing interest | (27,093 | ) | |||||
Obligations under capital leases | 43,070 | ||||||
Obligations due within one year | (2,526 | ) | |||||
Long-term obligations under capital leases | $ | 40,544 | |||||
Property and equipment includes $44,250,000 and accumulated depreciation and amortization includes $1,229,000 applicable to capital leases as of December 31, 2001.
Rental expense under operating leases for 2001, 2000 and 1999 was $92,969,000, $95,559,000 and $98,416,000, respectively.
Commitments
The Company has entered into firm agreements to purchase ten used Boeing 767s and certain freighter conversion kits at various dates through 2004. At December 31, 2001, cash deposits of $748,000 had been made toward the purchase of the conversion kits. Additional deposits and payments for the aircraft and kit acquisitions will approximate $60,055,000, $76,000,000 and $55,000,000 for 2002 through 2004, respectively. There are currently no aircraft related commitments extending beyond 2004.
Contingencies
In the normal course of business, the Company has various legal claims and other contingent matters outstanding. Management believes that any ultimate liability arising from these actions would not have a material adverse effect on the Company’s financial condition or results of operations as of and for the year ended December 31, 2001.
15
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE I—PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Company sponsors defined benefit and defined contribution pension plans and postretirement healthcare plans. These plans are generally provided to employees who are not covered by multi-employer plans to which the Company contributes under terms of various collective bargaining agreements.
Information regarding the Company’s qualified defined benefit pension plans and postretirement healthcare plans is as follows (in thousands):
Pension Plans | Postretirement Healthcare Plans | |||||||||||||||
Year Ended December 31 | 2001 | 2000 | 2001 | 2000 | ||||||||||||
Reconciliation of benefit obligation: | ||||||||||||||||
Obligation as of January 1 | $ | 220,605 | $ | 111,902 | $ | 11,125 | $ | 8,374 | ||||||||
Service cost | 22,616 | 17,309 | 898 | 948 | ||||||||||||
Interest cost | 17,353 | 13,379 | 917 | 700 | ||||||||||||
Benefits paid | (2,611 | ) | (1,495 | ) | (481 | ) | (293 | ) | ||||||||
Actuarial loss | 20,196 | 26,755 | 1,763 | 1,286 | ||||||||||||
Plan amendments | — | 52,755 | — | 110 | ||||||||||||
Obligation as of December 31 | $ | 278,159 | $ | 220,605 | $ | 14,222 | $ | 11,125 | ||||||||
Reconciliation of fair value of plan assets: | ||||||||||||||||
Plan assets as of January 1 | $ | 102,567 | $ | 94,511 | $ | — | $ | — | ||||||||
Actual return on plan assets | (5,130 | ) | (1,353 | ) | — | — | ||||||||||
Employer contributions | 19,770 | 10,904 | 481 | 293 | ||||||||||||
Benefits paid | (2,611 | ) | (1,495 | ) | (481 | ) | (293 | ) | ||||||||
Plan assets as of December 31 | $ | 114,596 | $ | 102,567 | $ | — | $ | — | ||||||||
Funded status: | ||||||||||||||||
Funded status as of December 31 | $ | (163,563 | ) | $ | (118,038 | ) | $ | (14,222 | ) | $ | (11,125 | ) | ||||
Unrecognized prior service cost (income) | 41,914 | 46,522 | (318 | ) | (438 | ) | ||||||||||
Unrecognized net actuarial loss | 60,272 | 28,691 | 2,765 | 1,279 | ||||||||||||
Accrued benefit liabilities | $ | (61,377 | ) | $ | (42,825 | ) | $ | (11,775 | ) | $ | (10,284 | ) | ||||
Accrued expenses on the consolidated balance sheets include accrued qualified defined benefit pension plan liabilities of $53,991,000 and $7,000,000 as of December 31, 2001 and 2000, respectively. Long-term postretirement liabilities include postretirement healthcare and remaining qualified defined benefit pension plan liabilities of $19,160,000 and $46,109,000 as of December 31, 2001 and 2000, respectively.
Net periodic benefit cost consists of the following components (in thousands):
Pension Plans | Postretirement Healthcare Plans | ||||||||||||||||||||||
Year Ended December 31 | 2001 | 2000 | 1999 | 2001 | 2000 | 1999 | |||||||||||||||||
Service cost | $ | 22,616 | $ | 17,309 | $ | 11,218 | $ | 898 | $ | 948 | $ | 935 | |||||||||||
Interest cost | 17,353 | 13,379 | 7,578 | 917 | 700 | 540 | |||||||||||||||||
Expected return on plan assets | (8,752 | ) | (7,926 | ) | (6,390 | ) | — | — | — | ||||||||||||||
Net amortization and deferral | 7,107 | 4,828 | 1,115 | 157 | (101 | ) | (73 | ) | |||||||||||||||
Net periodic benefit cost | $ | 38,324 | $ | 27,590 | $ | 13,521 | $ | 1,972 | $ | 1,547 | $ | 1,402 | |||||||||||
16
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Assumptions used in determining pension and postretirement healthcare obligations were as follows:
Pension Plans | Postretirement Healthcare Plans | |||||||||||
2001 | 2000 | 1999 | 2001 | 2000 | 1999 | |||||||
Discount rate | 7.25% | 7.25% | 7.75% | 7.25% | 7.25% | 7.75% | ||||||
Expected return on plan assets | 8.00% | 8.00% | 8.00% | — | — | — | ||||||
Rate of compensation increase (pilots) | 6.50% | 6.50% | 6.50% | — | — | — | ||||||
Rate of compensation increase (non-pilots) | 5.00% | 5.00% | 5.00% | — | — | — |
Effective January 1, 2000, the Company amended its qualified retirement plans that cover substantially all employees not covered under collective bargaining agreements. Retirement income has historically been provided to employees through the coordination of benefits accumulated and funded through a defined benefit plan and a defined contribution profit sharing plan. Generally, benefit levels calculated under defined benefit plan formulas are offset by amounts contributed and earned in an employee’s profit sharing account. The amendments adopted in 2000 provided for an increase in retirement income levels provided under the defined benefit plan through formula changes that increased the percentage applied to an employee’s salary to determine the level of retirement benefit and removed provisions that limited the maximum years of allowable service credit. These changes are effective for past and future years of accumulated service with the Company. Additionally, the Company amended its defined contribution profit sharing plan to discontinue future mandatory contributions to employee’s accounts. Previous contributions and earnings accumulated under the profit sharing plan prior to the amendments as well as future account earnings will continue to be coordinated with benefits accrued under the defined benefit plan.
The effect of the amendments is to increase pension expense and projected benefit obligations provided under the defined benefit plans and discontinue contributions to the profit sharing plan, other than for the Company’s pilots. The Company’s funding policy provides for annual contributions to pension trusts at least equal to amounts required by ERISA.
The Company’s qualified defined benefit pension plans had aggregate accumulated benefit obligations of $151,960,000 and $106,863,000 as of December 31, 2001 and 2000, respectively. Plan assets were $114,596,000 and $102,567,000 as of December 31, 2001 and 2000, respectively. All qualified defined benefit plans had plan assets in excess of accumulated benefit obligations as of December 31, 1999.
The Company also sponsors several non-qualified defined benefit pension plans. The accumulated benefit obligation of these plans was $20,444,000 and $18,379,000 as of December 31, 2001 and 2000, respectively. Postretirement liabilities include accruals relating to these plans of $14,504,000 and $16,039,000 as of December 31, 2001 and 2000, respectively. The Company has invested in certain commingled investment funds that may be used for funding non-qualified pension plan obligations.
The Company also recorded additional minimum liabilities associated with its non-qualified defined benefit pension plans. Additional minimum liabilities of $5,942,000 are included in postretirement liabilities and an intangible asset of $1,800,000 is included in other assets as of December 31, 2001. Other comprehensive income and accumulated other comprehensive income includes a charge of $4,142,000 for the year ended December 31, 2001. No additional minimum liabilities were recorded as of December 31, 2000.
The assumed healthcare cost trend rate used in measuring postretirement healthcare benefit costs was 8.5% for 2001, decreasing each year to a 5.5% annual growth rate in 2004 and to 5.0% in 2005. A 1% increase or decrease in the assumed healthcare cost trend rate for each year would not have a material effect on the
17
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
accumulated postretirement benefit obligation or cost as of or for the year ended December 31, 2001. Postretirement healthcare plan obligations have not been funded.
The Company maintains defined contribution capital accumulation and profit sharing plans. Capital accumulation plans (401K) are funded by both voluntary employee salary deferrals of up to 20% of annual compensation and by employer matching contributions on employee salary deferrals of up to 6% of annual compensation. In connection with the amendments to the Company’s qualified defined benefit retirement plans, except for the pilots, accruals for contributions to the profit sharing plans were discontinued beginning in 2000. Prior to 2000, a basic formula had been followed for contributions of 7% of earnings before taxes up to a specific profit level plus 14% of earnings in excess of that level. The profit sharing plans hold 1,138,020 shares of the Company’s common stock at December 31, 2001, representing 2% of outstanding shares. Expense for these plans is as follows (in thousands):
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Capital accumulation plans | $ | 7,919 | $ | 7,970 | $ | 8,009 | |||
Profit sharing plans | — | 380 | 10,747 | ||||||
Defined contribution plans | $ | 7,919 | $ | 8,350 | $ | 18,756 | |||
The Company contributes to multi-employer defined benefit pension plans and health and welfare plans for substantially all employees covered under collective bargaining agreements. Expense for these plans is as follows (in thousands):
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Multi-employer defined benefit pension plans | $ | 46,454 | $ | 45,668 | $ | 41,062 | |||
Multi-employer health and welfare plans | 51,215 | 49,113 | 44,415 | ||||||
Multi-employer plans | $ | 97,669 | $ | 94,781 | $ | 85,477 | |||
NOTE J—STOCK OPTIONS
The Company has three shareholder approved stock option plans. Two of these plans, approved by the shareholders in 1994 and 1998 (the “1994 Plan” and “1998 Plan”), reserve shares of the Company’s common stock for issuance to officers and key employees. Options granted under the 1994 Plan vest over a three year period. Options granted under the 1998 Plan include options which vest over a four year period and performance options issued to the Company’s executive officers which vest upon attainment of specified market price targets of the Company’s common stock. A third plan, the 2000 Directors’ Stock Option Plan, provides for annual grants to the Company’s non-employee directors of 2,000 shares that vest fully on the date of grant. Options granted under these three plans are issued at the fair market value of the Company’s stock on the date of grant. A total of 7,707,250 shares may be granted under these plans. There were 3,549,050 shares available for future grants as of December 31, 2001.
18
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the Company’s stock option activity and related information is as follows:
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Outstanding at beginning of year | 3,332,317 | 2,819,847 | 2,516,417 | ||||||
Granted | 731,000 | 746,200 | 738,410 | ||||||
Exercised | (101,447 | ) | (116,485 | ) | (411,100 | ) | |||
Canceled | (222,935 | ) | (117,245 | ) | (23,880 | ) | |||
Outstanding at end of year | 3,738,935 | 3,332,317 | 2,819,847 | ||||||
Exercisable at end of year | 2,216,602 | 1,977,390 | 1,428,574 | ||||||
Weighted average option price information is as follows:
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Outstanding at beginning of year | $ | 24.44 | $ | 25.35 | $ | 19.38 | |||
Granted | 12.00 | 18.94 | 38.13 | ||||||
Exercised | 11.60 | 10.74 | 11.21 | ||||||
Canceled | 23.68 | 25.07 | 35.30 | ||||||
Outstanding at end of year | 22.40 | 24.44 | 25.35 | ||||||
Exercisable at end of year | 23.63 | 21.65 | 17.31 |
Information related to the number of options outstanding, weighted average price per share and remaining life of significant option groups outstanding at December 31, 2001 is as follows:
Outstanding | Exercisable | |||||||||||||
Price Range | Number | Average Price | Life in Years | Number | Average Price | Life in Years | ||||||||
$11.13-$12.00 | 966,065 | $ | 11.86 | 7.37 | 273,965 | $ | 11.50 | 3.01 | ||||||
$13.00-$18.94 | 1,446,656 | 16.44 | 5.89 | 1,035,763 | 15.45 | 5.02 | ||||||||
$31.06-$38.13 | 1,326,214 | 36.57 | 6.55 | 906,874 | 36.63 | 6.51 |
The Company has elected to follow APB Opinion No. 25 in accounting for its stock option plans. No compensation expense was recorded in 2001, 2000 or 1999. Had expense been measured under the fair value provisions of SFAS No. 123, the Company’s net earnings (loss) and earnings (loss) per diluted share for 2001, 2000 and 1999 would have been reduced to the pro forma amounts as follows (in thousands except per share data):
Year Ended December 31 | ||||||||||
2001 | 2000 | 1999 | ||||||||
Net Earnings (Loss): | ||||||||||
As reported | $ | (19,458 | ) | $ | 28,492 | $ | 91,201 | |||
Pro forma | (24,884 | ) | 23,124 | 85,510 | ||||||
Net Earnings (Loss) Per Basic Share: | ||||||||||
As reported | $ | (.40 | ) | $ | .59 | $ | 1.88 | |||
Pro forma | (.52 | ) | .48 | 1.76 | ||||||
Net Earnings (Loss) Per Diluted Share: | ||||||||||
As reported | $ | (.40 | ) | $ | .59 | $ | 1.85 | |||
Pro forma | (.52 | ) | .48 | 1.74 |
19
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average fair value for options granted in 2001, 2000 and 1999 computed utilizing the Black-Scholes option-pricing model, was $6.05, $10.61 and $17.21, respectively. Significant assumptions used in the estimation of fair value and compensation expense are as follows:
Year Ended December 31 | |||||||||
2001 | 2000 | 1999 | |||||||
Weighted expected life (years) | 9.7 | 9.6 | 6.2 | ||||||
Weighted risk-free interest rate | 5.2 | % | 6.6 | % | 4.8 | % | |||
Weighted volatility | 42.0 | % | 41.0 | % | 41.0 | % | |||
Dividend yield | 1.3 | % | 0.9 | % | 0.4 | % |
NOTE K—EARNINGS PER SHARE
Net earnings from continuing operations and average shares used in basic and diluted earnings per share calculations were as follows (in thousands except per share data):
Year Ended December 31 | ||||||||||
2001 | 2000 | 1999 | ||||||||
NET EARNINGS (LOSS): | ||||||||||
Net earnings (loss) from continuing operations before cumulative effect of change in accounting principle | $ | (19,458 | ) | $ | 14,286 | $ | 91,201 | |||
SHARES: | ||||||||||
Basic weighted average shares outstanding | 48,105 | 48,396 | 48,596 | |||||||
Stock options | — | 251 | 673 | |||||||
Diluted weighted average shares outstanding | 48,105 | 48,647 | 49,269 | |||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||
Basic | $ | (.40 | ) | $ | .30 | $ | 1.88 | |||
Diluted | (.40 | ) | .30 | 1.85 | ||||||
The above calculations of earnings per diluted share for 2001, 2000 and 1999 exclude 3,797,000, 2,131,000 and 1,361,000, respectively, of common shares issuable under stock option plans because the options’ exercise price was greater than the average market price of the common shares.
NOTE L—SEGMENT INFORMATION
The Company has organized its business into domestic and international operating segments. The domestic segment derives its revenues from the door-to-door delivery of small packages and documents throughout the United States, Canada and Puerto Rico. Domestic operations are supported principally by Company operated aircraft and facilities. The international segment derives its revenues from express door-to-door delivery and a variety of freight services. International revenues are recognized on shipments where the origin and/or destination is outside of locations supported by the domestic segment. The Company uses a variable cost approach in delivering international services through use of existing commercial airline capacity in connection with its domestic network and independent express and freight agents in locations not currently served by Company-owned foreign operations.
20
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a summary of key segment information (in thousands):
Domestic | International | Total | ||||||||||
2001 | ||||||||||||
Revenues | $ | 2,858,721 | $ | 352,368 | $ | 3,211,089 | ||||||
Depreciation and amortization | 206,808 | 1,547 | 208,355 | |||||||||
Segment loss from operations | (9,224 | ) | (3,107 | ) | (12,331 | ) | ||||||
Segment assets | 1,668,736 | 78,108 | 1,746,844 | |||||||||
Expenditures for property and equipment | 126,138 | 971 | 127,109 | |||||||||
2000 | ||||||||||||
Revenues | $ | 2,895,818 | $ | 380,132 | $ | 3,275,950 | ||||||
Depreciation and amortization | 204,913 | 1,493 | 206,406 | |||||||||
Segment earnings (loss) from operations | 49,915 | (7,297 | ) | 42,618 | ||||||||
Segment assets | 1,661,075 | 84,844 | 1,745,919 | |||||||||
Expenditures for property and equipment | 370,317 | 2,258 | 372,575 | |||||||||
1999 | ||||||||||||
Revenues | $ | 2,772,782 | $ | 366,342 | $ | 3,139,124 | ||||||
Depreciation and amortization | 207,902 | 1,488 | 209,390 | |||||||||
Segment earnings from operations | 156,637 | 1,084 | 157,721 | |||||||||
Segment assets | 1,569,367 | 73,883 | 1,643,250 | |||||||||
Expenditures for property and equipment | 292,130 | 2,189 | 294,319 |
International operations are supported in the United States by pickup and delivery, customer service and airline capabilities provided by the domestic segment. Management allocates these costs, generally on a per shipment basis, to the international segment.
Management considers interest expense, other income and income taxes as corporate items and, accordingly, does not allocate these amounts to the operating segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
A substantial portion of international revenue is associated with shipments originating within the United States ($184,516,000 in 2001, $211,835,000 in 2000 and $234,087,000 in 1999). Long lived assets located within the United States and associated with the international segment were $5,188,000, $6,382,000 and $6,792,000 as of December 31, 2001, 2000 and 1999, respectively.
NOTE M—FEDERAL LEGISLATION COMPENSATION
In the aftermath of the terrorist attacks of September 11, Congress passed the Air Transportation Safety and System Stabilization Act (“Act”), an emergency economic assistance package designed to help air carriers mitigate losses resulting from the two-day closure of the national air system. The Act provided $5 billion in compensation to eligible passenger and cargo air carriers for certain direct losses incurred due to the air system closure and incremental losses incurred through December 31, 2001. Cargo air carriers were allocated $500,000,000 of the total compensation provided by the Act, with individual carriers eligible to receive amounts to the extent of the lesser of actual losses or a formula allocation based upon revenue ton-miles flown. The Company, as an eligible air carrier under the Act, recognized compensation of $13,000,000 in 2001 and included this amount under a separate caption in the statement of operations as an offset to operating expenses. Proceeds received under the Act totaled $8,800,000 as of December 31, 2001. The Company anticipates receiving an
21
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
additional $4,200,000 of proceeds in 2002 for the remaining amount of compensation that was recognized in 2001. Estimated net losses associated with the events of September 11 were approximately $19 million. The losses were primarily due to reduced revenues resulting from the two-day air system closure and subsequent extended slowdown of shipping activity.
NOTE N—OTHER INCOME
The Company recorded gains of $9,295,000 in 2001 from the sales of FCC licensed radio frequencies. The gains are included in other income on the consolidated statements of operations. The Company is in the process of converting from voice to digital pickup and delivery communications technology that has allowed it to sell these frequencies. Gains from the sale of remaining frequencies in the future are not anticipated to be significant.
The Company is a participating member of SITA, a cooperative of major airline companies, which primarily provides data communication services to the air transport industry. Through this membership the Company held depository certificates in The SITA Foundation (“Foundation”) whose principal asset was an equity interest in Equant, N.V. (“Equant”), an international data network services company. The Company sold its interest in Equant in two transactions completed in July 2001 and December 1999.The Company recognized gains of $2,117,000 in 2001 and $4,600,000 in 1999 on these sales that were included in other income on the consolidated statements of operations.
A gain of $1,912,000 was recorded in 2000 from the sale of common shares of Metropolitan Life Insurance Company (“Metropolitan”). As a policyholder for certain employee benefit programs, these shares were allocated to the Company and sold in connection with the demutualization of Metropolitan. The gain was recorded in other income on the consolidated statements of operations in 2000.
22
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE O—OTHER COMPREHENSIVE INCOME
Other comprehensive income includes the following transactions and tax effects for the years ended December 31, 2001, 2000 and 1999, respectively (in thousands):
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | ||||||||||
2001 | ||||||||||||
Unrealized securities losses arising during the period | $ | (584 | ) | $ | 225 | $ | (359 | ) | ||||
Less: Reclassification adjustment for gains realized in net income | (32 | ) | 12 | (20 | ) | |||||||
Net unrealized securities losses | (616 | ) | 237 | (379 | ) | |||||||
Foreign currency translation adjustments | (588 | ) | 204 | (384 | ) | |||||||
Unrealized gain on interest rate swap | 1,019 | (393 | ) | 626 | ||||||||
Additional minimum pension liabilities | (4,142 | ) | 1,595 | (2,547 | ) | |||||||
Other comprehensive income (loss) | $ | (4,327 | ) | $ | 1,643 | $ | (2,684 | ) | ||||
2000 | ||||||||||||
Unrealized securities losses arising during the period | $ | (132 | ) | $ | 50 | $ | (82 | ) | ||||
Less: Reclassification adjustment for gains realized in net income | (1,117 | ) | 430 | (687 | ) | |||||||
Net unrealized securities losses | (1,249 | ) | 480 | (769 | ) | |||||||
Foreign currency translation adjustments | (465 | ) | 180 | (285 | ) | |||||||
Other comprehensive income (loss) | $ | (1,714 | ) | $ | 660 | $ | (1,054 | ) | ||||
1999 | ||||||||||||
Unrealized securities gains arising during the period | $ | 1,315 | $ | (506 | ) | $ | 809 | |||||
Less: Reclassification adjustment for gains realized in net income | (1,268 | ) | 488 | (780 | ) | |||||||
Net unrealized securities gains | 47 | (18 | ) | 29 | ||||||||
Foreign currency translation adjustments | 200 | (77 | ) | 123 | ||||||||
Other comprehensive income (loss) | $ | 247 | $ | (95 | ) | $ | 152 | |||||
23
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE P—QUARTERLY RESULTS (Unaudited)
The following is a summary of quarterly results of operations (in thousands except per share data):
2001 | 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | ||||||||||||
Revenues | $ | 823,521 | $ | 812,225 | $ | 772,788 | $ | 802,555 | ||||||||
Earnings (loss) from operations | (18,285 | ) | (5,160 | ) | (1,423 | ) | 9,691 | |||||||||
Net earnings (loss) | (16,995 | ) | (6,361 | ) | 1,713 | 2,185 | ||||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | (.35 | ) | $ | (.13 | ) | $ | .04 | $ | .05 | ||||||
Diluted | $ | (.35 | ) | $ | (.13 | ) | $ | .04 | $ | .05 | ||||||
2000 | ||||||||||||||||
Revenues | $ | 812,464 | $ | 811,027 | $ | 804,529 | $ | 847,930 | ||||||||
Earnings (loss) from operations | 33,425 | 25,343 | (3,026 | ) | (13,124 | ) | ||||||||||
Earnings (loss) before change in accounting | 17,899 | 13,758 | (5,509 | ) | (11,862 | ) | ||||||||||
Cumulative effect of change in accounting | 14,206 | — | — | — | ||||||||||||
Net earnings (loss) | 32,105 | 13,758 | (5,509 | ) | (11,862 | ) | ||||||||||
Earnings (loss) per share | ||||||||||||||||
Basic: | ||||||||||||||||
Before change in accounting | $ | .37 | $ | .28 | $ | (.11 | ) | $ | (.25 | ) | ||||||
Cumulative effect of change in accounting | .29 | — | — | — | ||||||||||||
Earnings (loss) per basic share | $ | .66 | $ | .28 | $ | (.11 | ) | $ | (.25 | ) | ||||||
Diluted: | ||||||||||||||||
Before change in accounting | $ | .36 | $ | .28 | $ | (.11 | ) | $ | (.25 | ) | ||||||
Cumulative effect of change in accounting | .29 | — | — | — | ||||||||||||
Earnings (loss) per diluted share | $ | .65 | $ | .28 | $ | (.11 | ) | $ | (.25 | ) | ||||||
1999 | ||||||||||||||||
Revenues | $ | 769,348 | $ | 779,000 | $ | 785,308 | $ | 805,468 | ||||||||
Earnings from operations | 44,827 | 47,834 | 38,811 | 26,249 | ||||||||||||
Net earnings | 25,244 | 27,022 | 21,604 | 17,331 | ||||||||||||
Earnings per share: | ||||||||||||||||
Basic | $ | .52 | $ | .56 | $ | .44 | $ | .36 | ||||||||
Diluted | $ | .51 | $ | .55 | $ | .44 | $ | .35 |
NOTE Q—SUPPLEMENTAL GUARANTOR INFORMATION
In connection with the issuance of $200,000,000 of Senior Notes (Notes) by Airborne Express, Inc. (AEI), certain subsidiaries (collectively, “Guarantors”) of the Company have fully and unconditionally guaranteed, on a joint and several basis, the obligations to pay principal, premium, if any, and interest with respect to the Notes. The Guarantors are ABX Air Inc. (“ABX”) and Sky Courier, Inc. (“SKY”), which are wholly-owned subsidiaries of the Company, and Airborne FTZ Inc. (“FTZ”) and Wilmington Air Park Inc. (“WAP”), which are wholly-owned subsidiaries of ABX.
ABX is a certificated air carrier that owns and operates the domestic express cargo services for which AEI is the sole customer. ABX also offers air charter services on a limited basis to third-party customers. FTZ owns certain aircraft parts inventories that it sells primarily to ABX but also has limited sales to third-party customers. FTZ is also the holder of a foreign trade zone certificate at Wilmington airport property. WAP is the owner of the Wilmington airport property, which includes the Company’s main sort facility, aircraft maintenance facilities, runways and related airport facilities and airline administrative and training facilities. ABX is the only occupant and customer of WAP. SKY provides expedited courier services and regional logistics warehousing primarily to third-party customers.
24
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenues and net earnings recorded by ABX, FTZ, and WAP are controlled by the Company and are based on various discretionary factors. Investment balances and revenues between Guarantors have been eliminated for purposes of presenting financial information below. Intercompany advances and liabilities represent net amounts due between the various entities. The Company provides its subsidiaries with a majority of the cash necessary to fund operating and capital expenditure requirements.
The following are consolidating condensed balance sheets of the Company as of December 31, 2001 and 2000 and the related consolidating condensed statements of operations and cash flows for each of the three years ended December 31, 2001:
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 | |||||||||||
Accounts receivable | 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 and 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 | ||||||||||||||||
Postretirement liabilities | 11,905 | — | 27,518 | — | — | 39,423 | |||||||||||||||||
Other liabilities | 40,888 | — | — | — | — | 40,888 | |||||||||||||||||
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 | 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 | ||||||||||
25
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balance Sheet Information:
December 31, 2000 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 37,523 | $ | — | $ | 52 | $ | 2,815 | $ | — | $ | 40,390 | ||||||||||||
Accounts receivable | 20,248 | — | 16,164 | 182,273 | — | 218,685 | ||||||||||||||||||
Spare parts and fuel inventory | — | — | 40,885 | 2,346 | — | 43,231 | ||||||||||||||||||
Refundable income taxes | 21,595 | — | — | — | — | 21,595 | ||||||||||||||||||
Deferred income tax assets | 28,839 | — | — | — | — | 28,839 | ||||||||||||||||||
Prepaid expenses and other | 5,408 | — | 14,948 | 453 | — | 20,809 | ||||||||||||||||||
Total current assets | 113,613 | — | 72,049 | 187,887 | — | 373,549 | ||||||||||||||||||
Property and equipment, net | 124,896 | — | 1,195,122 | 4,327 | — | 1,324,345 | ||||||||||||||||||
Intercompany advances | 408,403 | 364,303 | (3,532 | ) | (68,309 | ) | (700,865 | ) | — | |||||||||||||||
Equipment deposits and other assets | 28,831 | 5,988 | 13,207 | 10 | (11 | ) | 48,025 | |||||||||||||||||
Total assets | $ | 675,743 | $ | 370,291 | $ | 1,276,846 | $ | 123,915 | $ | (700,876 | ) | $ | 1,745,919 | |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 114,198 | $ | — | $ | 61,142 | $ | 5,392 | $ | (109 | ) | $ | 180,623 | |||||||||||
Salaries, wages and related taxes | 44,796 | — | 26,383 | — | — | 71,179 | ||||||||||||||||||
Accrued expenses | 75,689 | — | 7,752 | 77 | — | 83,518 | ||||||||||||||||||
Current portion of debt | — | — | 477 | — | — | 477 | ||||||||||||||||||
Total current liabilities | 234,683 | — | 95,754 | 5,469 | (109 | ) | 335,797 | |||||||||||||||||
Long-term debt | 228,000 | 75,000 | 19,230 | — | — | 322,230 | ||||||||||||||||||
Intercompany liabilities | — | — | 585,756 | — | (585,756 | ) | — | |||||||||||||||||
Deferred income tax liabilities | 13,112 | — | 112,124 | 208 | — | 125,444 | ||||||||||||||||||
Postretirement liabilities | 42,438 | — | 19,922 | — | — | 62,360 | ||||||||||||||||||
Other liabilities | 37,233 | — | — | — | — | 37,233 | ||||||||||||||||||
Common stock | — | 51,280 | (109 | ) | 120 | (11 | ) | 51,280 | ||||||||||||||||
Additional paid in capital | — | 303,885 | (754 | ) | 115,754 | (115,000 | ) | 303,885 | ||||||||||||||||
Retained earnings | 120,413 | — | 444,923 | 2,364 | — | 567,700 | ||||||||||||||||||
Accumulated other comprehensive income | (136 | ) | — | — | — | — | (136 | ) | ||||||||||||||||
Treasury stock | — | (59,874 | ) | — | — | — | (59,874 | ) | ||||||||||||||||
Total shareholders’ equity | 120,277 | 295,291 | 444,060 | 118,238 | (115,011 | ) | 862,855 | |||||||||||||||||
Total liabilities and shareholders’ equity | $ | 675,743 | $ | 370,291 | $ | 1,276,846 | $ | 123,915 | $ | (700,876 | ) | $ | 1,745,919 | |||||||||||
26
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Operations Information:
Year ended December 31, 2001 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Revenues | $ | 3,135,276 | $ | — | $ | 1,177,949 | $ | 33 | $ | (1,102,169 | ) | $ | 3,211,089 | |||||||||||
Operating expenses: | ||||||||||||||||||||||||
Transportation purchased | 1,969,341 | — | 179,707 | — | (1,102,094 | ) | 1,046,954 | |||||||||||||||||
Station and ground operations | 911,096 | — | 156,668 | — | — | 1,067,764 | ||||||||||||||||||
Flight operations and maintenance | (851 | ) | — | 560,757 | (2,419 | ) | (75 | ) | 557,412 | |||||||||||||||
General and administrative | 193,732 | 668 | 70,981 | 164 | — | 265,545 | ||||||||||||||||||
Sales and marketing | 89,170 | — | 1,220 | — | — | 90,390 | ||||||||||||||||||
Depreciation and amortization | 49,569 | 163 | 158,299 | 324 | — | 208,355 | ||||||||||||||||||
Federal legislation compensation | (13,000 | ) | — | — | — | — | (13,000 | ) | ||||||||||||||||
3,199,057 | 831 | 1,127,632 | (1,931 | ) | (1,102,169 | ) | 3,223,420 | |||||||||||||||||
Earnings (loss) from operations | (63,781 | ) | (831 | ) | 50,317 | 1,964 | — | (12,331 | ) | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest, net | 2,534 | — | (22,402 | ) | — | — | (19,868 | ) | ||||||||||||||||
Discounts on sales of receivables | (11,375 | ) | — | — | 2,082 | — | (9,293 | ) | ||||||||||||||||
Other | 12,588 | 20,000 | — | — | (20,000 | ) | 12,588 | |||||||||||||||||
Earnings (loss) before income taxes | (60,034 | ) | 19,169 | 27,915 | 4,046 | (20,000 | ) | (28,904 | ) | |||||||||||||||
Income tax benefit (expense) | 21,153 | 287 | (10,568 | ) | (1,426 | ) | — | 9,446 | ||||||||||||||||
Net earnings (loss) | $ | (38,881 | ) | $ | 19,456 | $ | 17,347 | $ | 2,620 | $ | (20,000 | ) | $ | (19,458 | ) | |||||||||
27
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Operations Information:
Year ended December 31, 2000 | Airborne Express, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Revenues | $ | 3,198,442 | $ | 1,187,164 | $ | 246 | $ | (1,109,902 | ) | $ | 3,275,950 | |||||||||
Operating expenses: | ||||||||||||||||||||
Transportation purchased | 1,966,993 | 185,293 | — | (1,109,745 | ) | 1,042,541 | ||||||||||||||
Station and ground operations | 906,583 | 148,559 | — | — | 1,055,142 | |||||||||||||||
Flight operations and maintenance | 1,025 | 590,455 | (2,741 | ) | (157 | ) | 588,582 | |||||||||||||
General and administrative | 195,926 | 62,066 | 157 | — | 258,149 | |||||||||||||||
Sales and marketing | 81,287 | 1,225 | — | — | 82,512 | |||||||||||||||
Depreciation and amortization | 52,638 | 153,485 | 283 | — | 206,406 | |||||||||||||||
3,204,452 | 1,141,083 | (2,301 | ) | (1,109,902 | ) | 3,233,332 | ||||||||||||||
Earnings (loss) from operations | (6,010 | ) | 46,081 | 2,547 | — | 42,618 | ||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest, net | (10,876 | ) | (12,549 | ) | — | — | (23,425 | ) | ||||||||||||
Other | 3,984 | — | 49 | — | 4,033 | |||||||||||||||
Earnings (loss) before income taxes | (12,902 | ) | 33,532 | 2,596 | — | 23,226 | ||||||||||||||
Income tax benefit (expense) | 4,208 | (12,238 | ) | (910 | ) | — | (8,940 | ) | ||||||||||||
Net earnings (loss) before change in accounting | (8,694 | ) | 21,294 | 1,686 | — | 14,286 | ||||||||||||||
Cumulative effect of change in accounting | — | 14,206 | — | — | 14,206 | |||||||||||||||
Net earnings (loss) | $ | (8,694 | ) | $ | 35,500 | $ | 1,686 | $ | — | $ | 28,492 | |||||||||
Year ended December 31, 1999 | Airborne Express, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Revenues | $ | 3,072,947 | $ | 1,171,003 | $ | 163 | $ | (1,104,989 | ) | $ | 3,139,124 | |||||||||
Operating expenses: | ||||||||||||||||||||
Transportation purchased | 1,891,610 | 178,934 | — | (1,104,822 | ) | 965,722 | ||||||||||||||
Station and ground operations | 836,758 | 138,911 | — | — | 975,669 | |||||||||||||||
Flight operations and maintenance | 3,102 | 513,213 | (2,811 | ) | (167 | ) | 513,337 | |||||||||||||
General and administrative | 187,605 | 52,348 | 136 | — | 240,089 | |||||||||||||||
Sales and marketing | 75,890 | 1,306 | — | — | 77,196 | |||||||||||||||
Depreciation and amortization | 52,950 | 156,284 | 156 | — | 209,390 | |||||||||||||||
3,047,915 | 1,040,996 | (2,519 | ) | (1,104,989 | ) | 2,981,403 | ||||||||||||||
Earnings from operations | 25,032 | 130,007 | 2,682 | — | 157,721 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest, net | (8,323 | ) | (8,939 | ) | — | — | (17,262 | ) | ||||||||||||
Other | 6,929 | — | — | — | 6,929 | |||||||||||||||
Earnings before income taxes | 23,638 | 121,068 | 2,682 | — | 147,388 | |||||||||||||||
Income tax expense | (12,077 | ) | (43,170 | ) | (940 | ) | — | (56,187 | ) | |||||||||||
Net earnings | $ | 11,561 | $ | 77,898 | $ | 1,742 | $ | — | $ | 91,201 | ||||||||||
28
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Cash Flows Information:
Year ended December 31, 2001 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||||||
Net earnings (loss) | $ | (38,881 | ) | $ | 19,456 | $ | 17,347 | $ | 2,620 | $ | (20,000 | ) | $ | (19,458 | ) | |||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 49,569 | 163 | 158,299 | 324 | — | 208,355 | ||||||||||||||||||
Deferred income taxes | 25,487 | (7,985 | ) | (1,671 | ) | 517 | — | 16,348 | ||||||||||||||||
Postretirement obligations | 24,054 | — | — | — | — | 24,054 | ||||||||||||||||||
Dividend to parent | (20,000 | ) | — | — | — | 20,000 | — | |||||||||||||||||
Other | (18,057 | ) | 1,049 | 9,437 | — | — | (7,571 | ) | ||||||||||||||||
Cash provided by operations | 22,172 | 12,683 | 183,412 | 3,461 | — | 221,728 | ||||||||||||||||||
Change in: | ||||||||||||||||||||||||
Proceeds from receivable securitization facility | 50,000 | — | — | — | — | 50,000 | ||||||||||||||||||
Receivables | (48,390 | ) | — | 6,051 | 84,984 | — | 42,645 | |||||||||||||||||
Inventories and prepaid expenses | (8,512 | ) | — | 5,934 | 184 | — | (2,394 | ) | ||||||||||||||||
Refundable income taxes | (5,566 | ) | — | — | — | — | (5,566 | ) | ||||||||||||||||
Accounts payable | (29,913 | ) | — | (7,995 | ) | (842 | ) | — | (38,750 | ) | ||||||||||||||
Accrued expenses, salaries and taxes payable | 18,632 | — | 609 | 526 | — | 19,767 | ||||||||||||||||||
Intercompany transactions | 211,655 | 62,311 | (192,360 | ) | (81,606 | ) | — | — | ||||||||||||||||
Net cash provided (used) by operating activities | 210,078 | 74,994 | (4,349 | ) | 6,707 | — | 287,430 | |||||||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||||||
Additions to property and equipment | (30,752 | ) | — | (96,099 | ) | (258 | ) | — | (127,109 | ) | ||||||||||||||
Disposition of property and equipment | 1,295 | — | 74 | — | — | 1,369 | ||||||||||||||||||
Proceeds from sale of securities | 2,117 | — | — | — | — | 2,117 | ||||||||||||||||||
Proceeds from sale of radio frequencies | 9,295 | — | — | — | — | 9,295 | ||||||||||||||||||
Other | (2,870 | ) | — | (1,370 | ) | — | — | (4,240 | ) | |||||||||||||||
Net cash used by investing activities | (20,915 | ) | — | (97,395 | ) | (258 | ) | — | (118,568 | ) | ||||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||||||
Proceeds (payments) on bank notes, net | (27,524 | ) | (75,000 | ) | (476 | ) | — | — | (103,000 | ) | ||||||||||||||
Issuance of aircraft loan | — | — | 61,975 | — | — | 61,975 | ||||||||||||||||||
Proceeds from sale-leaseback of aircraft | — | — | 40,800 | — | — | 40,800 | ||||||||||||||||||
Principal payments on debt | (2,627 | ) | — | — | — | — | (2,627 | ) | ||||||||||||||||
Issuance of debt | 1,597 | — | — | — | — | 1,597 | ||||||||||||||||||
Proceeds from common stock issuance | 1,201 | — | — | — | — | 1,201 | ||||||||||||||||||
Dividends paid | (7,698 | ) | — | — | — | — | (7,698 | ) | ||||||||||||||||
Repurchase of common stock | (6 | ) | 6 | — | — | — | — | |||||||||||||||||
Net cash provided (used) by financing | (35,057 | ) | (74,994 | ) | 102,299 | — | — | (7,752 | ) | |||||||||||||||
Net increase in cash | 154,106 | — | 555 | 6,449 | — | 161,110 | ||||||||||||||||||
Cash and cash equivalents at beginning of year | 37,523 | — | 52 | 2,815 | — | 40,390 | ||||||||||||||||||
Cash and cash equivalents at end of year | $ | 191,629 | $ | — | $ | 607 | $ | 9,264 | $ | — | $ | 201,500 | ||||||||||||
29
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Cash Flows Information:
Year ended December 31, 2000 | Airborne Express, Inc. | Guarantors | Non-guarantors | Consolidated | ||||||||||||
(in thousands) | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings (loss) | $ | (8,694 | ) | $ | 35,500 | $ | 1,686 | $ | 28,492 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 52,638 | 153,485 | 283 | 206,406 | ||||||||||||
Deferred income taxes | 11,444 | 9,235 | — | 20,679 | ||||||||||||
Postretirement obligations | 8,326 | 7,482 | — | 15,808 | ||||||||||||
Cumulative effect of change in accounting | — | (14,206 | ) | — | (14,206 | ) | ||||||||||
Other | 5,833 | — | — | 5,833 | ||||||||||||
Cash provided by operations | 69,547 | 191,496 | 1,969 | 263,012 | ||||||||||||
Change in: | ||||||||||||||||
Proceeds from receivable securitization facility | — | — | 150,000 | 150,000 | ||||||||||||
Receivables | 121,808 | (2,940 | ) | (148,509 | ) | (29,641 | ) | |||||||||
Inventories and prepaid expenses | 1,873 | 3,577 | (771 | ) | 4,679 | |||||||||||
Refundable income taxes | (19,916 | ) | — | — | (19,916 | ) | ||||||||||
Accounts payable | 14,710 | 19,948 | 3,878 | 38,536 | ||||||||||||
Accrued expenses, salaries and taxes payable | 10,273 | (2,963 | ) | 74 | 7,384 | |||||||||||
Intercompany transactions | (154,197 | ) | 154,379 | (182 | ) | — | ||||||||||
Net cash provided by operating activities | 44,098 | 363,497 | 6,459 | 414,054 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Additions to property and equipment | (31,786 | ) | (337,204 | ) | (3,585 | ) | (372,575 | ) | ||||||||
Disposition of property and equipment | 27,396 | (22,683 | ) | — | 4,713 | |||||||||||
Proceeds from sale of securities | 1,913 | — | — | 1,913 | ||||||||||||
Other | (13,579 | ) | (3,215 | ) | — | (16,794 | ) | |||||||||
Net cash used by investing activities | (16,056 | ) | (363,102 | ) | (3,585 | ) | (382,743 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds on bank notes, net | 8,000 | — | — | 8,000 | ||||||||||||
Principal payments on debt | — | (442 | ) | — | (442 | ) | ||||||||||
Proceeds from common stock issuance | 1,259 | — | — | 1,259 | ||||||||||||
Dividends paid | (7,754 | ) | — | — | (7,754 | ) | ||||||||||
Repurchase of common stock | (20,662 | ) | — | — | (20,662 | ) | ||||||||||
Net cash used by financing | (19,157 | ) | (442 | ) | — | (19,599 | ) | |||||||||
Net increase (decrease) in cash | 8,885 | (47 | ) | 2,874 | 11,712 | |||||||||||
Cash and cash equivalents at beginning of year | 28,638 | 99 | (59 | ) | 28,678 | |||||||||||
Cash and cash equivalents at end of year | $ | 37,523 | $ | 52 | $ | 2,815 | $ | 40,390 | ||||||||
30
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Cash Flows Information:
Year ended December 31, 1999 | Airborne Express, Inc. | Guarantors | Non-guarantors | Consolidated | ||||||||||||
(in thousands) | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings | $ | 11,561 | $ | 77,898 | $ | 1,742 | $ | 91,201 | ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 52,950 | 135,849 | 156 | 188,955 | ||||||||||||
Deferred income taxes | (3,240 | ) | 10,113 | 16 | 6,889 | |||||||||||
Postretirement obligations | 14,509 | 688 | — | 15,197 | ||||||||||||
Provision for aircraft engine overhauls | — | 20,435 | — | 20,435 | ||||||||||||
Other | 529 | — | — | 529 | ||||||||||||
Cash provided by operations | 76,309 | 244,983 | 1,914 | 323,206 | ||||||||||||
Change in: | ||||||||||||||||
Receivables | (13,490 | ) | (2,386 | ) | 10 | (15,866 | ) | |||||||||
Inventories and prepaid expenses | 1,063 | (3,773 | ) | (586 | ) | (3,296 | ) | |||||||||
Refundable income taxes | (1,679 | ) | — | — | (1,679 | ) | ||||||||||
Accounts payable | (3,091 | ) | (7,888 | ) | 66 | (10,913 | ) | |||||||||
Accrued expenses, salaries and taxes payable | (22,715 | ) | (9,845 | ) | 26 | (32,534 | ) | |||||||||
Intercompany transactions | (74,208 | ) | 75,647 | (1,439 | ) | — | ||||||||||
Net cash (used) provided by operating activities | (37,811 | ) | 296,738 | (9 | ) | 258,918 | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Additions to property and equipment | (49,582 | ) | (244,714 | ) | (23 | ) | (294,319 | ) | ||||||||
Disposition of property and equipment | 33,218 | (31,525 | ) | — | 1,693 | |||||||||||
Gain on sale of securities | 4,603 | — | — | 4,603 | ||||||||||||
Expenditures for engine overhauls | — | (18,735 | ) | — | (18,735 | ) | ||||||||||
Other | (4,072 | ) | (1,381 | ) | — | (5,453 | ) | |||||||||
Net cash used by investing activities | (15,833 | ) | (296,355 | ) | (23 | ) | (312,211 | ) | ||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds on bank notes, net | 66,000 | — | — | 66,000 | ||||||||||||
Principal payments on debt | — | (410 | ) | — | (410 | ) | ||||||||||
Proceeds from common stock issuance | 5,480 | — | — | 5,480 | ||||||||||||
Dividends paid | (7,778 | ) | — | — | (7,778 | ) | ||||||||||
Net cash provided (used) by financing | 63,702 | (410 | ) | — | 63,292 | |||||||||||
Net increase (decrease) in cash | 10,058 | (27 | ) | (32 | ) | 9,999 | ||||||||||
Cash and cash equivalents at beginning of year | 18,580 | 126 | (27 | ) | 18,679 | |||||||||||
Cash and cash equivalents at end of year | $ | 28,638 | $ | 99 | $ | (59 | ) | $ | 28,678 | |||||||
31
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE R—SUBSEQUENT EVENT
On March 25, 2002 the Company issued $150 million of 5.75% Convertible Senior Notes due April 1, 2007 (“Notes”). In connection with the issuance of these Notes, certain subsidiaries of the Company (collectively, “Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations to pay principal, premium, if any, and interest with respect to the Notes. The Guarantors are AEI, ABX, SKY, WAP, FTZ, Aviation Fuel, Inc. (“AFI”) and Sound Suppression, Inc. (“SSI”). AEI provides domestic and international delivery services in addition to performing customer service, sales and marketing activities. AFI purchases and sells aviation and other fuels. SSI retrofits company aircraft with hush kits to meet noise regulations. A description of the operating activities of the other Guarantors and their relationship to the Company is contained in Note Q.
The following are consolidating condensed balance sheets of the Company as of December 31, 2001 and 2000 and the related consolidating condensed statements of operations and cash flows for each of the two years ended December 31, 2001. A description regarding the basis of presenting these statements is contained in Note Q. Because the reorganization in which Airborne, Inc. became a holding company did not occur until 2000, consolidating condensed statements of operations and cash flows for the year ended 1999 have been omitted since the sum of the activities of the Guarantors is the same as the Company reported on a consolidated basis for this period.
Balance Sheet Information:
December 31, 2001 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||
(in thousands) | |||||||||||||||||||
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 and income taxes payable | — | 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 | ||||||||||||||
Postretirement liabilities | — | 39,423 | — | — | 39,423 | ||||||||||||||
Other liabilities | — | 40,888 | — | — | 40,888 | ||||||||||||||
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 | ||||||||
32
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balance Sheet Information:
December 31, 2000 | Airborne, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 39,121 | $ | 1,269 | $ | — | $ | 40,390 | ||||||||||
Accounts receivable | — | 36,455 | 182,230 | — | 218,685 | |||||||||||||||
Spare parts and fuel inventory | — | 43,231 | — | — | 43,231 | |||||||||||||||
Refundable income taxes | — | 21,595 | — | — | 21,595 | |||||||||||||||
Deferred income tax assets | — | 28,839 | — | — | 28,839 | |||||||||||||||
Prepaid expenses and other | — | 20,451 | 358 | — | 20,809 | |||||||||||||||
Total current assets | — | 189,692 | 183,857 | — | 373,549 | |||||||||||||||
Property and equipment, net | — | 1,324,345 | — | — | 1,324,345 | |||||||||||||||
Intercompany advances | 364,303 | 17 | (68,730 | ) | (295,590 | ) | — | |||||||||||||
Equipment deposits and other assets | 5,988 | 42,148 | — | (111 | ) | 48,025 | ||||||||||||||
Total assets | $ | 370,291 | $ | 1,556,202 | $ | 115,127 | $ | (295,701 | ) | $ | 1,745,919 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||
Accounts payable | $ | — | $ | 180,754 | — | $ | (131 | ) | $ | 180,623 | ||||||||||
Salaries, wages and related taxes | — | 71,179 | — | — | 71,179 | |||||||||||||||
Accrued expenses and income taxes payable | — | 83,433 | 85 | — | 83,518 | |||||||||||||||
Current portion of debt | — | 477 | — | — | 477 | |||||||||||||||
Total current liabilities | — | 335,843 | 85 | (131 | ) | 335,797 | ||||||||||||||
Long-term debt | 75,000 | 247,230 | — | — | 322,230 | |||||||||||||||
Intercompany liabilities | — | 180,458 | — | (180,458 | ) | — | ||||||||||||||
Deferred income tax liabilities | — | 125,444 | 208 | — | 125,444 | |||||||||||||||
Postretirement liabilities | — | 62,360 | — | — | 62,360 | |||||||||||||||
Other liabilities | — | 37,233 | — | — | 37,233 | |||||||||||||||
Common stock | 51,280 | (102 | ) | 10 | (112 | ) | 51,280 | |||||||||||||
Additional paid in capital | 303,885 | — | 115,000 | (115,000 | ) | 303,885 | ||||||||||||||
Retained earnings | — | 567,668 | 32 | — | 567,700 | |||||||||||||||
Accumulated other comprehensive income | — | (136 | ) | — | — | (136 | ) | |||||||||||||
Treasury stock | (59,874 | ) | — | — | — | �� | (59,874 | ) | ||||||||||||
Total shareholders’ equity | 295,291 | 567,634 | 115,042 | (115,112 | ) | 862,855 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 370,291 | $ | 1,556,202 | $ | 115,127 | $ | (295,701 | ) | $ | 1,745,919 | |||||||||
33
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Operations Information:
Year ended December 31, 2001 | Airborne, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||||
(in thousands) | ||||||||||||||||||||
Revenues | $ | — | $ | 3,211,089 | $ | — | $ | — | $ | 3,211,089 | ||||||||||
Operating expenses: | ||||||||||||||||||||
Transportation purchased | — | 1,046,954 | — | — | 1,046,954 | |||||||||||||||
Station and ground operations | — | 1,067,764 | — | — | 1,067,764 | |||||||||||||||
Flight operations and maintenance | — | 557,412 | — | — | 557,412 | |||||||||||||||
General and administrative | 668 | 264,877 | — | — | 265,545 | |||||||||||||||
Sales and marketing | — | 90,390 | — | — | 90,390 | |||||||||||||||
Depreciation and amortization | 163 | 208,192 | — | — | 208,355 | |||||||||||||||
Federal legislation compensation | — | (13,000 | ) | — | — | (13,000 | ) | |||||||||||||
831 | 3,222,589 | — | — | 3,223,420 | ||||||||||||||||
Earnings from operations | (831 | ) | (11,500 | ) | — | — | (12,331 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest, net | — | (19,868 | ) | — | — | (19,868 | ) | |||||||||||||
Discounts on sales of receivables | — | (11,375 | ) | 2,082 | — | (9,293 | ) | |||||||||||||
Other | 20,000 | 12,588 | — | (20,000 | ) | 12,588 | ||||||||||||||
Earnings before income taxes | 19,169 | (30,155 | ) | 2,082 | (20,000 | ) | (28,904 | ) | ||||||||||||
Income taxes | 287 | 9,898 | (739 | ) | — | 9,446 | ||||||||||||||
Net earnings | $ | 19,456 | $ | (20,257 | ) | $ | 1,343 | $ | (20,000 | ) | $ | (19,458 | ) | |||||||
34
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Operations Information:
Year ended December 31, 2000 | Airborne, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||||
Revenues | $ | — | $ | 3,275,950 | $ | — | $ | — | $ | 3,275,950 | ||||||||
Operating expenses: | ||||||||||||||||||
Transportation purchased | — | 1,042,541 | — | — | 1,042,541 | |||||||||||||
Station and ground operations | — | 1,055,142 | — | — | 1,055,142 | |||||||||||||
Flight operations and maintenance | — | 558,582 | — | — | 588,582 | |||||||||||||
General and administrative | — | 258,148 | — | — | 258,149 | |||||||||||||
Sales and marketing | — | 82,512 | — | — | 82,512 | |||||||||||||
Depreciation and amortization | — | 206,406 | — | — | 206,406 | |||||||||||||
— | 3,233,332 | — | — | 3,233,332 | ||||||||||||||
Earnings from operations | — | 42,618 | — | — | 42,618 | |||||||||||||
Other income (expense): | ||||||||||||||||||
Interest, net | — | (23,425 | ) | — | — | (23,425 | ) | |||||||||||
Discounts on sales of receivables | — | (145 | ) | 49 | — | (96 | ) | |||||||||||
Other | — | 4,129 | — | — | 4,129 | |||||||||||||
Earnings before income taxes | — | 23,177 | 49 | — | 23,226 | |||||||||||||
Income taxes | — | (8,923 | ) | (17 | ) | — | (8,940 | ) | ||||||||||
Net earnings before change in accounting | — | 14,254 | 32 | — | 14,286 | |||||||||||||
Cumulative effect of change in accounting | — | 14,206 | — | — | 14,206 | |||||||||||||
Net earnings | $ | — | $ | 28,460 | $ | 32 | $ | — | $ | 28,492 | ||||||||
35
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Cash Flows Information:
Year ended December 31, 2001 | Airborne, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | ||||||||||||||
(in thousands) | |||||||||||||||||||
OPERATING ACTIVITIES: | |||||||||||||||||||
Net earnings (loss) | $ | 19,456 | $ | (20,257 | ) | $ | 1,343 | (20,000 | ) | $ | (19,458 | ) | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||||||
Depreciation and amortization | 163 | 208,192 | — | — | 208,355 | ||||||||||||||
Deferred income taxes | (7,985 | ) | 23,611 | 722 | 16,348 | ||||||||||||||
Postretirement obligations | — | 24,054 | — | 24,054 | |||||||||||||||
Dividend to parent | — | (20,000 | ) | — | 20,000 | — | |||||||||||||
Other | 1,049 | (8,620 | ) | — | (7,571 | ) | |||||||||||||
Cash provided by operations | 12,683 | 206,980 | 2,065 | — | 221,728 | ||||||||||||||
Change in: | |||||||||||||||||||
Proceeds from receivable securitization facility | — | 50,000 | — | — | 50,000 | ||||||||||||||
Receivables | — | (42,306 | ) | 84,951 | — | 42,645 | |||||||||||||
Inventories and prepaid expenses | — | (2,350 | ) | (44 | ) | — | (2,394 | ) | |||||||||||
Refundable income taxes | — | (5,566 | ) | — | — | (5,566 | ) | ||||||||||||
Accounts payable | — | (38,750 | ) | — | — | (38,750 | ) | ||||||||||||
Accrued expenses, salaries and taxes payable | — | 19,234 | 533 | — | 19,767 | ||||||||||||||
Intercompany transactions | 62,311 | 16,628 | (78,939 | ) | — | — | |||||||||||||
Net cash provided (used) by operating activities | 74,994 | 203,870 | 8,566 | (20,000 | ) | 287,430 | |||||||||||||
INVESTING ACTIVITIES: | |||||||||||||||||||
Additions to property and equipment | — | (127,109 | ) | — | — | (127,109 | ) | ||||||||||||
Disposition of property and equipment | — | 1,369 | — | — | 1.369 | ||||||||||||||
Proceeds from sale of securities | — | 2,117 | — | — | 2,117 | ||||||||||||||
Proceeds from sale of radio frequencies | — | 9,295 | — | — | 9,295 | ||||||||||||||
Other | — | (4,240 | ) | — | — | (4,240 | ) | ||||||||||||
Net cash used by investing activities | — | (118,568 | ) | — | — | (118,568 | ) | ||||||||||||
FINANCING ACTIVITIES: | |||||||||||||||||||
Proceeds on bank notes, net | (75,000 | ) | (28,000 | ) | — | — | (103,000 | ) | |||||||||||
Issuance of aircraft loan | — | 61,975 | — | — | 61,975 | ||||||||||||||
Proceeds from sale-leaseback of aircraft | — | 40,800 | — | — | 40,800 | ||||||||||||||
Principal payments on debt | — | (2,627 | ) | — | — | (2,627 | ) | ||||||||||||
Issuance of debt | — | 1,597 | — | — | 1,597 | ||||||||||||||
Exercise of stock options | — | 1,201 | — | — | 1,201 | ||||||||||||||
Dividends paid | — | (7,698 | ) | — | — | (7,698 | ) | ||||||||||||
Repurchase of common stock | 6 | (6 | ) | — | — | — | |||||||||||||
Net cash provided (used) by financing | (74,994 | ) | 67,242 | — | — | (7,752 | ) | ||||||||||||
Net increase (decrease) in cash | — | 152,544 | 8,566 | — | 161,110 | ||||||||||||||
Cash and cash equivalents at beginning of year | — | 39,121 | 1,269 | — | 40,390 | ||||||||||||||
Cash and cash equivalents at end of year | — | 191,665 | 9,835 | — | 201,500 | ||||||||||||||
36
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Statement of Cash Flows Information:
Year ended December 31, 2000 | Airborne, Inc. | Guarantors | Non-guarantors | Elimination | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||
Net earnings | $ | — | $ | 28,460 | $ | 32 | — | $ | 28,492 | |||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||||||||||||||||||
Depreciation and amortization | — | 206,406 | — | — | 206,406 | |||||||||||||
Deferred income taxes | — | 20,662 | 17 | — | 20,679 | |||||||||||||
Postretirement obligations | — | 15,808 | — | — | 15,808 | |||||||||||||
Cumulative effect of change in accounting | — | (14,206 | ) | — | — | (14,206 | ) | |||||||||||
Other | 349,177 | (458,354 | ) | 115,010 | — | 5,833 | ||||||||||||
Cash provided (used) by operations | 349,177 | (201,224 | ) | 115,059 | — | 263,012 | ||||||||||||
Change in: | ||||||||||||||||||
Proceeds from receivable securitization facility | — | 150,000 | — | — | 150,000 | |||||||||||||
Receivables | — | 152,587 | (182,228 | ) | — | (29,641 | ) | |||||||||||
Inventories and prepaid expenses | — | 5,037 | (358 | ) | — | 4,679 | ||||||||||||
Refundable income taxes | — | (19,916 | ) | — | — | (19,916 | ) | |||||||||||
Accounts payable | — | 38,536 | — | — | 38,536 | |||||||||||||
Accrued expenses, salaries and taxes payable | — | 7,299 | 85 | — | 7,384 | |||||||||||||
Intercompany transactions | (364,303 | ) | 295,590 | 68,713 | — | — | ||||||||||||
Net cash provided (used) by operating activities | (15,127 | ) | 427,910 | 1,271 | — | 414,054 | ||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||
Additions to property and equipment | — | (372,575 | ) | — | — | (372,575 | ) | |||||||||||
Disposition of property and equipment | — | 4,713 | — | — | 4,713 | |||||||||||||
Proceeds from sale of securities | — | 1,913 | — | — | 1,913 | |||||||||||||
Other | — | (16,794 | ) | — | — | (16,794 | ) | |||||||||||
Net cash used by investing activities | — | (382,743 | ) | — | — | (382,743 | ) | |||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||
Proceeds on bank notes, net | — | 8,000 | — | — | 8,000 | |||||||||||||
Issuance of debt | 75,000 | (75,000 | ) | — | — | — | ||||||||||||
Principal payments on debt | — | (442 | ) | — | — | (442 | ) | |||||||||||
Exercise of stock options | — | 1,259 | — | — | 1,259 | |||||||||||||
Dividends paid | — | (7,754 | ) | — | — | (7,754 | ) | |||||||||||
Repurchase of common stock | (59,874 | ) | 39,212 | — | — | (20,662 | ) | |||||||||||
Net cash provided (used) by financing | 15,126 | (34,725 | ) | — | — | (19,599 | ) | |||||||||||
Net increase in cash | — | 10,441 | 1,271 | — | 11,712 | |||||||||||||
Cash and cash equivalents at beginning of year | — | 28,678 | — | — | 28,678 | |||||||||||||
Cash and cash equivalents at end of year | $ | — | $ | 39,119 | $ | 1,271 | — | $ | 40,390 | |||||||||
37