SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31,June 30, 2003
Commission File Number 1-6512
AIRBORNE, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| |
|
(State of incorporation or organization) 91-2065027 (IRS Employer Identification No.) |
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
(Address of Principal Executive Office)
Registrant’s telephone number, including area code: (206) 285-4600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: x No: ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: x No: ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share | ||
Outstanding (net of 3,228,526 treasury shares) as of |
|
FORWARD LOOKING STATEMENTS
Statements contained in this quarterly report on Form 10-Q whichthat are not historical facts are considered forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements are based on expectations, estimates and projections as of the date of this filing, and involve risks and uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in the forward-looking statements for any number of reasons, including those described in this report or in “Risk Factors” contained in our Annual Report on Form 10-K, as amended,10-K/A for the year ended December 31, 2002.2002 or in “Risk Factors” contained in the Form S-4 (333-105137), as amended of ABX Air, Inc., filed with the Securities and Exchange Commission on July 11, 2003.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
REVENUES: | ||||||||||||||||||||||||
Domestic | $ | 744,395 |
| $ | 714,139 |
| $ | 743,421 | $ | 721,385 | $ | 1,487,816 | $ | 1,435,524 | ||||||||||
International |
| 80,475 |
|
| 76,453 |
| 83,659 | 90,538 | 164,134 | 166,991 | ||||||||||||||
| 824,870 |
|
| 790,592 |
| 827,080 | 811,923 | 1,651,950 | 1,602,515 | |||||||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||
Transportation purchased |
| 265,536 |
|
| 249,031 |
| 265,954 | 267,368 | 531,490 | 516,399 | ||||||||||||||
Station and ground operations |
| 279,488 |
|
| 264,119 |
| 275,918 | 265,957 | 555,406 | 530,076 | ||||||||||||||
Flight operations and maintenance |
| 142,143 |
|
| 125,366 |
| 133,059 | 132,531 | 275,202 | 257,897 | ||||||||||||||
General and administrative |
| 72,992 |
|
| 65,486 |
| 73,648 | 66,709 | 146,640 | 132,195 | ||||||||||||||
Sales and marketing |
| 21,774 |
|
| 22,276 |
| 21,522 | 23,492 | 43,296 | 45,768 | ||||||||||||||
Depreciation and amortization |
| 44,442 |
|
| 49,121 |
| 44,595 | 46,731 | 89,037 | 95,852 | ||||||||||||||
Federal legislation compensation |
| 650 |
|
| — |
| — | — | 650 | — | ||||||||||||||
| 827,025 |
|
| 775,399 |
| 814,696 | 802,788 | 1,641,721 | 1,578,187 | |||||||||||||||
EARNINGS (LOSS) FROM OPERATIONS |
| (2,155 | ) |
| 15,193 |
| ||||||||||||||||||
EARNINGS FROM OPERATIONS | 12,384 | 9,135 | 10,229 | 24,328 | ||||||||||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
Interest income |
| 1,096 |
|
| 808 |
| 1,171 | 1,506 | 2,267 | 2,314 | ||||||||||||||
Interest expense |
| (7,179 | ) |
| (7,679 | ) | (6,757 | ) | (8,991 | ) | (13,936 | ) | (16,670 | ) | ||||||||||
Discount on sales of receivables |
| (1,059 | ) |
| (1,305 | ) | (1,019 | ) | (885 | ) | (2,078 | ) | (2,190 | ) | ||||||||||
Other |
| (64 | ) |
| 1,896 |
| 422 | 407 | 358 | 2,303 | ||||||||||||||
EARNINGS (LOSS) BEFORE INCOME TAXES |
| (9,361 | ) |
| 8,913 |
| 6,201 | 1,172 | (3,160 | ) | 10,085 | |||||||||||||
INCOME TAX (EXPENSE) BENEFIT |
| 3,773 |
|
| (3,645 | ) | (2,448 | ) | (715 | ) | 1,325 | (4,360 | ) | |||||||||||
NET EARNINGS (LOSS) | $ | (5,588 | ) | $ | 5,268 |
| $ | 3,753 | $ | 457 | $ | (1,835 | ) | $ | 5,725 | |||||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
PER BASIC SHARE | $ | (0.12 | ) | $ | 0.11 |
| ||||||||||||||||||
NET EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
BASIC | $ | 0.08 | $ | 0.01 | $ | (0.04 | ) | $ | 0.12 | |||||||||||||||
PER DILUTED SHARE | $ | (0.12 | ) | $ | 0.11 |
| ||||||||||||||||||
DILUTED | $ | 0.08 | $ | 0.01 | $ | (0.04 | ) | $ | 0.12 | |||||||||||||||
DIVIDENDS PER SHARE | $ | 0.04 |
| $ | 0.04 |
| $ | 0.04 | $ | 0.04 | $ | 0.08 | $ | 0.08 | ||||||||||
See notes to consolidated financial statements.
1
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, 2003 | December 31, 2002 | June 30 2003 | December 31 2002 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 327,060 |
| $ | 339,900 |
| $ | 361,786 | $ | 339,900 | ||||||
Restricted cash |
| 51,430 |
|
| 36,333 |
| 61,570 | 36,333 | ||||||||
Trade accounts receivable, less allowance of $14,259 and $13,616 |
| 153,268 |
|
| 169,880 |
| ||||||||||
Accounts receivable, less allowance of $14,659 and $13,616 | 140,461 | 169,880 | ||||||||||||||
Spare parts and fuel inventory |
| 38,239 |
|
| 36,223 |
| 37,578 | 36,223 | ||||||||
Refundable income taxes |
| 1,288 |
|
| 627 |
| 322 | 627 | ||||||||
Deferred income tax assets |
| 37,787 |
|
| 32,444 |
| 39,517 | 32,444 | ||||||||
Prepaid expenses and other |
| 35,466 |
|
| 31,404 |
| 35,769 | 31,404 | ||||||||
TOTAL CURRENT ASSETS |
| 644,538 |
|
| 646,811 |
| 677,003 | 646,811 | ||||||||
PROPERTY AND EQUIPMENT, NET |
| 1,191,692 |
|
| 1,181,430 |
| 1,163,827 | 1,181,430 | ||||||||
OTHER ASSETS |
| 47,347 |
|
| 50,845 |
| ||||||||||
EQUIPMENT DEPOSITS AND OTHER ASSETS | 48,934 | 50,845 | ||||||||||||||
TOTAL ASSETS | $ | 1,883,577 |
| $ | 1,879,086 |
| $ | 1,889,764 | $ | 1,879,086 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable | $ | 147,831 |
| $ | 160,772 |
| $ | 144,118 | $ | 160,772 | ||||||
Salaries, wages and related taxes |
| 100,423 |
|
| 94,581 |
| 91,191 | 94,581 | ||||||||
Accrued expenses |
| 150,709 |
|
| 132,744 |
| 150,082 | 132,744 | ||||||||
Income taxes payable |
| — |
|
| 4,912 |
| 1,667 | 4,912 | ||||||||
Current portion of long-term obligations |
| 11,290 |
|
| 10,372 |
| 11,929 | 10,372 | ||||||||
TOTAL CURRENT LIABILITIES |
| 410,253 |
|
| 403,381 |
| 398,987 | 403,381 | ||||||||
LONG-TERM OBLIGATIONS |
| 370,844 |
|
| 370,091 |
| 369,985 | 370,091 | ||||||||
DEFERRED INCOME TAX LIABILITIES |
| 146,199 |
|
| 146,321 |
| 147,224 | 146,321 | ||||||||
POSTRETIREMENT LIABILITIES |
| 59,853 |
|
| 59,720 |
| 68,269 | 59,720 | ||||||||
OTHER LIABILITIES |
| 64,011 |
|
| 60,410 |
| 65,787 | 60,410 | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
SHAREHOLDERS’ EQUITY: | ||||||||||||||||
Preferred stock, without par value— | ||||||||||||||||
Authorized 6,000,000 shares, no shares issued | ||||||||||||||||
Common stock, par value $1 per share— | ||||||||||||||||
Authorized 120,000,000 shares | ||||||||||||||||
Issued 51,679,517 and 51,657,886 shares |
| 51,680 |
|
| 51,658 |
| ||||||||||
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 52,026,517 and 51,657,886 shares |
| 52,027 |
|
| 51,658 |
| ||||||||||
Additional paid-in capital |
| 309,491 |
|
| 308,813 |
| 314,109 | 308,813 | ||||||||
Retained earnings |
| 539,883 |
|
| 547,409 |
| 541,686 | 547,409 | ||||||||
Accumulated other comprehensive loss |
| (8,788 | ) |
| (8,859 | ) | ||||||||||
Accumulated other comprehensive income | (8,461 | ) | (8,859 | ) | ||||||||||||
| 892,266 |
|
| 899,021 |
| 899,361 | 899,021 | |||||||||
Treasury stock, 3,228,526 and 3,234,526 shares, at cost |
| (59,849 | ) |
| (59,858 | ) | (59,849 | ) | (59,858 | ) | ||||||
| 832,417 |
|
| 839,163 |
| 839,512 | 839,163 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 1,883,577 |
| $ | 1,879,086 |
| $ | 1,889,764 | $ | 1,879,086 | ||||||
See notes to consolidated financial statements.
2
AIRBORNE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, | Six Months Ended June 30 | |||||||||||||||
2003 | 2002 | 2003 | 2002 | |||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings (loss) | $ | (5,588 | ) | $ | 5,268 |
| $ | (1,835 | ) | $ | 5,725 | |||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization |
| 44,442 |
|
| 49,121 |
| 89,037 | 95,852 | ||||||||
Deferred income taxes |
| (5,465 | ) |
| (420 | ) | (6,170 | ) | 833 | |||||||
Postretirement obligations |
| 13,634 |
|
| 12,929 |
| 22,049 | 23,499 | ||||||||
Casualty insurance |
| 1,861 |
|
| 5,683 |
| 4,158 | 6,898 | ||||||||
Other |
| (54 | ) |
| (803 | ) | 142 | (778 | ) | |||||||
Change in assets and liabilities: | ||||||||||||||||
Change in assets and liabilities, net of effects of business acquisition: | ||||||||||||||||
Reduction in receivables sold | — | (100,000 | ) | |||||||||||||
Restricted cash |
| (15,097 | ) |
| — |
| (25,237 | ) | — | |||||||
Trade accounts receivable |
| 16,612 |
|
| (6,979 | ) | ||||||||||
Inventories and prepaid expenses |
| (6,078 | ) |
| (7,676 | ) | ||||||||||
Accounts receivable | 29,419 | 6,850 | ||||||||||||||
Inventory and prepaid expenses | (5,720 | ) | (3,845 | ) | ||||||||||||
Refundable income taxes |
| (661 | ) |
| 26,983 |
| 305 | 26,644 | ||||||||
Accounts payable |
| (12,941 | ) |
| (21,295 | ) | (16,654 | ) | (3,089 | ) | ||||||
Accrued expenses, salaries and taxes payable |
| 7,214 |
|
| 12,271 |
| (2,408 | ) | (3,704 | ) | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
| 37,879 |
|
| 75,082 |
| 87,086 | 54,885 | ||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Additions to property and equipment |
| (50,179 | ) |
| (27,199 | ) | (61,916 | ) | (57,694 | ) | ||||||
Proceeds from sale of securities |
| — |
|
| 3,656 |
| — | 3,778 | ||||||||
Cash acquired in business acquisition, net of purchase price paid | — | 1,027 | ||||||||||||||
Other |
| 3,237 |
|
| (3,877 | ) | 232 | (6,533 | ) | |||||||
NET CASH USED BY INVESTING ACTIVITIES |
| (46,942 | ) |
| (27,420 | ) | (61,684 | ) | (59,422 | ) | ||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Issuance of convertible debt, net of issuance costs |
| — |
|
| 145,125 |
| ||||||||||
Issuance of debt, net of issuance costs | — | 145,125 | ||||||||||||||
Principal payments on long-term obligations |
| (2,548 | ) |
| (1,611 | ) | (5,302 | ) | (3,753 | ) | ||||||
Dividends paid |
| (1,938 | ) |
| (1,930 | ) | (3,888 | ) | (3,864 | ) | ||||||
Exercise of stock options |
| 709 |
|
| 2,419 |
| 5,674 | 3,834 | ||||||||
Shareholder rights redemption | — | (242 | ) | |||||||||||||
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES |
| (3,777 | ) |
| 144,003 |
| (3,516 | ) | 141,100 | |||||||
NET (DECREASE) INCREASE IN CASH |
| (12,840 | ) |
| 191,665 |
| ||||||||||
NET INCREASE IN CASH | 21,886 | 136,563 | ||||||||||||||
CASH AND CASH EQUIVALENTS AT JANUARY 1 |
| 339,900 |
|
| 201,500 |
| 339,900 | 201,500 | ||||||||
CASH AND CASH EQUIVALENTS AT MARCH 31 | $ | 327,060 |
| $ | 393,165 |
| ||||||||||
CASH AND CASH EQUIVALENTS AT JUNE 30 | $ | 361,786 | $ | 338,063 | ||||||||||||
See notes to consolidated financial statements.
3
AIRBORNE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2003 (Unaudited)
NOTE A—SUMMARY OF FINANCIAL STATEMENT PREPARATIONPREPARATION:
The consolidated financial statements included herein are unaudited but include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the 2003 presentation.
NOTE B—TRADE ACCOUNTS RECEIVABLERECEIVABLE:
Trade accounts receivable exclude amounts sold under the Company’s accounts receivable securitization facility. As of March 31,June 30, 2003 and December 31, 2002, the Company had $200,000,000$200.0 million of outstanding accounts receivable securitized, accounts. As of March 31, 2003, the Company had eligible receivables to support additional sales up to the full $250,000,000 permitted under the facility.respectively.
NOTE C—LONG-TERM OBLIGATIONSOBLIGATIONS:
Long-term obligations consist of the following:
March 31, 2003 | December 31, 2002 | June 30, 2003 | December 31, 2002 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Convertible senior notes, 5.75%, due April 2007 | $ | 150,000 |
| $ | 150,000 |
| $ | 150,000 | $ | 150,000 | ||||||
Senior notes, 7.35%, due September 2005 |
| 100,000 |
|
| 100,000 |
| 100,000 | 100,000 | ||||||||
Aircraft loan |
| 56,487 |
|
| 57,558 |
| 55,389 | 57,558 | ||||||||
Refunding revenue bonds, effective rate of 1.17% as of March 31, 2003, due June 2011 |
| 13,200 |
|
| 13,200 |
| ||||||||||
Refunding revenue bonds, effective rate of 1.00% as of June 30, 2003, due June 2011 | 13,200 | 13,200 | ||||||||||||||
Other |
| 6,585 |
|
| 6,792 |
| 6,374 | 6,792 | ||||||||
Total long-term debt |
| 326,272 |
|
| 327,550 |
| 324,963 | 327,550 | ||||||||
Capital lease obligations |
| 55,862 |
|
| 52,913 |
| 56,951 | 52,913 | ||||||||
Total long-term obligations |
| 382,134 |
|
| 380,463 |
| 381,914 | 380,463 | ||||||||
Less current portion |
| (11,290 | ) |
| (10,372 | ) | (11,929 | ) | (10,372 | ) | ||||||
Total long-term obligations, net | $ | 370,844 |
| $ | 370,091 |
| $ | 369,985 | $ | 370,091 | ||||||
As of March 31,June 30, 2003, the Company had a revolving bank credit agreement that provided for a total commitment of $275,000,000. In$200 million. This agreement was amended in April 2003 the Company amended this agreement and expires in June 2004. The amendment reduced the total facility to $200,000,000$200 million from $275 million and revised most of the financial covenants effective for the first quarter of 2003.covenants. The agreement is collateralized by a substantial majority of the Company’s non-cash assets and contains restrictions that reduce the amount of available borrowing capacity by the amount of outstanding letters of creditscredit and by amountsan amount based on leverage limitation provisions and the level of eligible collateral. TheCapacity under the agreement requiresis dependent on a periodic appraisal ofborrowing base determined by the Company’s aircraft to re-measure the levelamount of eligible collateral. An appraisal is in process andAs of June 30, 2003, the borrowing base supported approximately $58 million of outstanding letters of credit. In July 2003, the Company estimates the results willpledged cash of $43 million in support the $100,000,000, 7.35% senior notes, which are collateralized by the same processes, andof its remaining outstanding letters of credit of approximately $50,000,000. Support forcredit. The Company has the remaining letters of credit outstanding as of March 31, 2003 of approximately $51,000,000 will requireability to increase the borrowing base by pledging additional eligible collateral, although it has no plans to pledge of additional collateral by July 15,at this time. As of June 30, 2003, (e.g. cash, cash equivalents or accounts receivable resulting from reduction of amounts sold through the accounts receivable securitization facility). The Company does not plan on pledging additional collateral to create availableno capacity exists under the agreement for general borrowing purposes. At March 31, 2003, no borrowings were outstanding underThe assets pledged also sufficiently collateralize the agreement and theCompany’s $100 million, 7.35% senior notes. The Company was in compliance with all restrictive covenants including covenants requiring the maintenanceas 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 on its common stock in excess of $2,000,000 during any calendar quarter. The agreement expires in June 2004.
NOTE D—FUEL HEDGE
In February 2003, the Company entered into a call option contract on heating oil to hedge a significant portion of its jet fuel requirements for a three-month period ending in June30, 2003. The derivative is accounted for as a hedge for accounting purposes with changes in fair value deferred until the hedged forecasted transaction occurs and is recognized in earnings. The fair value of the call option was $24,000 at March 31, 2003. In March 2003, a call option contract expired that covered most of the Company’s jet fuel consumption for the first quarter of 2003. No proceeds were received under this contract.
4
NOTE E—D—EARNINGS (LOSS) PER SHARESHARE:
Basic earnings per share are based upon the weighted average number of common shares outstanding during the interim period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the interim period plus dilutive common equivalent shares applicable to the assumed exercise of outstanding dilutive stock options and, when dilutive, the assumed conversion of the convertible senior notes.
Net earnings (loss) andWeighted average shares outstanding used in basic and diluted earnings per share calculationscomputations were as follows (in thousands except per share data):follows:
Three Months Ended March 31, | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||
NET EARNINGS (LOSS): | $ | (5,588 | ) | $ | 5,268 | |||||||||||||||
NET EARNINGS (LOSS) | $ | 3,753 | $ | 457 | $ | (1,835 | ) | $ | 5,725 | |||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||||
Basic weighted average shares outstanding |
| 48,445 |
|
| 48,253 | 48,737 | 48,357 | 48,591 | 48,305 | |||||||||||
Stock options |
| — |
|
| 336 | 649 | 625 | — | 480 | |||||||||||
Diluted weighted average shares outstanding |
| 48,445 |
|
| 48,589 | 49,386 | 48,982 | 48,591 | 48,785 | |||||||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||
Basic | $ | (0.12 | ) | $ | 0.11 | $ | 0.08 | $ | 0.01 | $ | (0.04 | ) | $ | 0.12 | ||||||
Diluted | $ | (0.12 | ) | $ | 0.11 | $ | 0.08 | $ | 0.01 | $ | (0.04 | ) | $ | 0.12 |
The above calculations of earnings (loss) per diluted share for the three months ended March 31,June 30, 2003 and 2002 exclude 4,565,0001,140,407 and 2,106,0001,279,144, 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, or the common stock equivalents were anti-dilutive. Similarly, shares excluded for the six months ended June 30, 2003 and 2002 were 1,886,780 and 2,056,836, respectively. Additionally, the 6,413,985 common shares issuable upon conversion of the Company’s convertible senior notes were excluded from earnings per diluted share calculations because they were anti-dilutive for the three and six months ended March 31,June 30, 2003 and 2002.
NOTE F—E—STOCK-BASED EMPLOYEE COMPENSATION
The Company has elected to follow APBAccounting Principles Board (APB) Opinion No. 25 in accounting for its stock option plans. No stock-based employee compensation expense was recorded in 2003 or 2002. Had stock-based employee compensation been measured under the fair value provisions of SFAS No. 123, the Company’s net earnings (loss) and earnings (loss) per basic and diluted share for the three-monthsthree and six-month periods ended March 31,June 30, 2003 and 2002 would have been reduced to the pro forma amounts as follows (in thousands, except per share data):
Three Months Ended March 31 | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
Net earnings (loss) as reported | $ | (5,588 | ) | $ | 5,268 |
| $ | 3,753 | $ | 457 | $ | (1,835 | ) | $ | 5,725 | |||||||||
Deduct: stock-based employee compensation expense determined under fair value based methods for all awards, net of tax effects |
| (1,089 | ) |
| (999 | ) | ||||||||||||||||||
Deduct: stock-based employee compensation expense determined under fair value based methods for all awards, net of tax | (1,005 | ) | (1,034 | ) | (1,998 | ) | (2,033 | ) | ||||||||||||||||
Pro forma | $ | (6,677 | ) | $ | 4,269 |
| $ | 2,748 | $ | (577 | ) | $ | (3,833 | ) | $ | 3,692 | ||||||||
Earnings (loss) per basic and diluted share: | ||||||||||||||||||||||||
Net earnings (loss) per basic and diluted share: | ||||||||||||||||||||||||
As reported | $ | (0.12 | ) | $ | 0.11 |
| $ | 0.08 | $ | 0.01 | $ | (0.04 | ) | $ | 0.12 | |||||||||
Pro forma | $ | (0.14 | ) | $ | 0.09 |
| $ | 0.06 | $ | (0.01 | ) | $ | (0.08 | ) | $ | 0.08 |
NOTE G—F—SEGMENT INFORMATION
The Company has organized its business into two reportable 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 to 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.
5
The following is a summary of key segment information (in thousands):
Three Months Ended March 31, | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
SEGMENT REVENUES: | ||||||||||||||||||||||||
Domestic | $ | 744,395 |
| $ | 714,139 |
| $ | 743,421 | $ | 721,385 | $ | 1,487,816 | $ | 1,435,524 | ||||||||||
International |
| 80,475 |
|
| 76,453 |
| 83,659 | 90,538 | 164,134 | 166,991 | ||||||||||||||
$ | 824,870 |
| $ | 790,592 |
| $ | 827,080 | $ | 811,923 | $ | 1,651,950 | $ | 1,602,515 | |||||||||||
SEGMENT EARNINGS (LOSS) FROM OPERATIONS: | ||||||||||||||||||||||||
SEGMENT EARNINGS FROM OPERATIONS: | ||||||||||||||||||||||||
Domestic | $ | (423 | ) | $ | 16,932 |
| $ | 12,539 | $ | 9,496 | $ | 12,116 | $ | 26,428 | ||||||||||
International |
| (1,732 | ) |
| (1,739 | ) | (155 | ) | (361 | ) | (1,887 | ) | (2,100 | ) | ||||||||||
$ | (2,155 | ) | $ | 15,193 |
| $ | 12,384 | $ | 9,135 | $ | 10,229 | $ | 24,328 | |||||||||||
NOTE H—G—OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) includes the following transactions and tax effects for the three-monththree and six-month periods ended March 31,June 30, 2003 and 2002, respectively (in thousands):
Three Months Ended March 31, 2003 | ||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | ||||||||||
Unrealized securities losses arising during the period | $ | (186 | ) | $ | 72 |
| $ | (114 | ) | |||
Unrealized gain on interest rate swap |
| 441 |
|
| (169 | ) |
| 272 |
| |||
Less: Reclassification adjustment for gain realized in net income |
| (446 | ) |
| 172 |
|
| (274 | ) | |||
Net unrealized interest rate swap loss |
| (5 | ) |
| 3 |
|
| (2 | ) | |||
Foreign currency translation adjustments |
| 329 |
|
| (127 | ) |
| 202 |
| |||
Fuel hedge option |
| (24 | ) |
| 9 |
|
| (15 | ) | |||
Other comprehensive income | $ | 114 |
| $ | (43 | ) | $ | 71 |
| |||
Three Months Ended March 31, 2002 | ||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | ||||||||||
Unrealized securities gains arising during the period | $ | 679 |
| $ | (262 | ) | $ | 417 |
| |||
Less: Reclassification adjustment for gains realized in net income |
| (1,656 | ) |
| 638 |
|
| (1,018 | ) | |||
Net unrealized securities losses |
| (977 | ) |
| 376 |
|
| (601 | ) | |||
Unrealized gain on interest rate swap |
| 271 |
|
| (104 | ) |
| 167 |
| |||
Add: Reclassification adjustment for loss realized in net income |
| 385 |
|
| (148 | ) |
| 237 |
| |||
Net unrealized interest rate swap gain |
| 656 |
|
| (252 | ) |
| 404 |
| |||
Foreign currency translation adjustments |
| (256 | ) |
| 99 |
|
| (157 | ) | |||
Additional minimum pension liabilities |
| (1,729 | ) |
| 665 |
|
| (1,064 | ) | |||
Other comprehensive loss | $ | (2,306 | ) | $ | 888 |
| $ | (1,418 | ) | |||
Three Months Ended June 30, 2003 | Six Months Ended June 30, 2003 | |||||||||||||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | Before Tax | Income Tax (Expense) or Benefit | Net of Tax | |||||||||||||||||||
2003 | ||||||||||||||||||||||||
Unrealized securities gains arising during the period | $ | 1,119 | $ | (431 | ) | $ | 688 | $ | 933 | $ | (359 | ) | $ | 574 | ||||||||||
Unrealized interest rate swap (loss) gain | (366 | ) | 141 | (225 | ) | 75 | (28 | ) | 47 | |||||||||||||||
Less: Reclassification adjustment for gain realized in net earnings | (450 | ) | 173 | (277 | ) | (896 | ) | 345 | (551 | ) | ||||||||||||||
Net unrealized interest rate swap loss | (816 | ) | 314 | (502 | ) | (821 | ) | 317 | (504 | ) | ||||||||||||||
Foreign currency translation adjustments | (57 | ) | 22 | (35 | ) | 272 | (105 | ) | 167 | |||||||||||||||
Fuel hedge option gain | 285 | (109 | ) | 176 | 261 | (100 | ) | 161 | ||||||||||||||||
Other comprehensive income | $ | 531 | $ | (204 | ) | $ | 327 | $ | 645 | $ | (247 | ) | $ | 398 | ||||||||||
Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 | |||||||||||||||||||||||
Before Tax | Income Tax (Expense) or Benefit | Net of Tax | Before Tax | Income Tax (Expense) or Benefit | Net of Tax | |||||||||||||||||||
2002 | ||||||||||||||||||||||||
Unrealized securities (losses) gains arising during the period | $ | (487 | ) | $ | 188 | $ | (299 | ) | $ | 192 | $ | (74 | ) | $ | 118 | |||||||||
Less: Reclassification adjustment for gains realized in net earnings | — | — | — | (1,656 | ) | 638 | (1,018 | ) | ||||||||||||||||
Net securities losses | (487 | ) | 188 | (299 | ) | (1,464 | ) | 564 | (900 | ) | ||||||||||||||
Unrealized interest rate swap loss | (2,474 | ) | 952 | (1,522 | ) | (2,202 | ) | 847 | (1,355 | ) | ||||||||||||||
Less: Reclassification adjustment for loss realized in net earnings | 403 | (155 | ) | 248 | 788 | (303 | ) | 485 | ||||||||||||||||
Net unrealized and realized interest rate swap loss | (2,071 | ) | 797 | (1,274 | ) | (1,414 | ) | 544 | (870 | ) | ||||||||||||||
Foreign currency translation adjustments | 386 | (149 | ) | 237 | 130 | (50 | ) | 80 | ||||||||||||||||
Additional minimum pension liabilities | — | — | — | (1,729 | ) | 665 | (1,064 | ) | ||||||||||||||||
Other comprehensive income | $ | (2,172 | ) | $ | 836 | $ | (1,336 | ) | $ | (4,477 | ) | $ | 1,723 | $ | (2,754 | ) | ||||||||
6
NOTE I—H—MERGER WITH DHL
On March 25, 2003, Airborne, Inc. (Airborne)the Company entered into a definitive merger agreement with DHL Worldwide Express B.V. (DHL) and Atlantis Acquisition Corporation, a wholly-owned indirect subsidiary of DHL (Atlantis). A copy of the merger agreement was included as an exhibit to a Form 8-K that Airborne filed with the SEC on April 4, 2003. Under the terms of the agreement, (1) Airborne’s air operations will be separated from the ground operations and retained by ABX Air, Inc. (ABX) (Airborne’s wholly-owned subsidiary that provides domestic air express cargo transportation service), (2) DHL will acquire the ground operations (including all operations currently conducted by Airborne Express, Inc., including its book of business, customer service, express and deferred services and products, and pick up and delivery network) through a merger of Airborne and Atlantis, and (3) Airborne shareholders will receive, for each share of Airborne common stock held, $21.25 in cash (representing total cash consideration in the transaction of $1.05 billion) and one share of common stock of ABX. Upon closing of the transaction, Airborne will operate as a wholly-owned indirect subsidiary of DHL, and ABX will become an independent public company wholly-owned by Airborne’s former shareholders (although under certain circumstances, in accordance with the merger agreement, DHL could purchase all of Airborne’s operations and Airborne shareholders would receive alternative consideration of $21.65 per share in cash). A definitive proxy statement regarding the proposed transaction was filed with the SEC on July 11, 2003 and a shareholder vote on the merger is scheduled for August 14, 2003 at our Annual Meeting of Shareholders. The waiting period under the Hart-Scott-Rodino Antitrust Improvement Act has expired. The Company anticipates the transaction which is subject to shareholder and regulatory approvals, is targeted to be completed in the third quarter of 2003.
The separation will affect ABX’s organizational documents in a number of ways including an amendment and restatement of its certificate of incorporation and bylaws. These changes include the addition of supermajority voting provisions and the implementation of a rights plan that among other factors may tend to increase the likelihood, as desired by DHL in its negotiations with the Company, that ABX will be an independent company. This desire reflects DHL’s anticipated dependence on ABX for a substantial amount of lift and sort capacity in the United States. Airborne believes that the substantial cash premium offered by DHL in the Merger was in part dependent upon meeting DHL’s desires for ABX independence in this regard.
Upon closing of the transaction, the net assets of the ground portion of ABX (including its central and regional sort facilities, runways, taxiways, aprons, buildings serving as aircraft and equipment maintenance facilities, storage facilities, a training center and both operations and administrative offices) will be transferred to Airborne as part of the ground operations to be merged with Atlantis. Additionally, in connection with the transaction, ABX will enter into a number of commercial agreements with Airborne, including an ACMI (aircraft, crew, maintenance and insurance) agreement and a hub and line-haul services agreement.
Upon the separation of ABX from Airborne, ABX will be required to perform a cash flow recoverability test to determine the existence of a potential impairment as required by SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under provisions of this statement, assuming an impairment charge is identified through this test, a company is required to record an impairment charge for the excess of the carrying amount of the long-lived asset group over its fair value. The Company anticipates,expects, given the cash flows to be derived from the ACMI agreement coupled with the decline in market values for used aircraft and related equipment, that ABX will incur a significant impairment charge as a result of the separation. The Company estimates the charge and related reductions to historical property and equipment, spare parts inventories and other asset balances would have been $633,000,000$611,000,000 as of December 31, 2002,June 30, 2003, had the separation occurred as of that date. The charge ultimately recorded will depend on a number of factors that could occur before the separation date, including but not limited to, changes in the fair values of used aircraft and related equipment.
NOTE J—I—FEDERAL LEGISLATION COMPENSATION
The Company recorded a charge in the first quarter of 2003 of $650,000 related to its filing in March 2003 with the Department of Transportation regarding the computation of compensation due to the Company under the Air Transportation Safety and System Stabilization Act. The Company ultimately received $12,350,000 under the Act, and recorded theThis charge to recognizereflects the difference between the total amounts received and amounts previously estimated and recorded in 2001.
NOTE K—J—NEW ACCOUNTING PRONOUNCEMENTS
In June 2001,December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires that the fair valueStatement 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 adoption of SFAS No. 143, which is effective for the Company’s fiscal year beginning on January 1, 2003, did not have a significant impact on its financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Previous guidance, provided under Emerging Issues Task Force Issue 94-3, required an exit cost liability to be recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for the Company’s exit or disposal activities that are initiated on or after January 1, 2003. Implementation of this statement did not have a significant impact on the Company’s financial position or results of operations.
7
In December 2002, the FASB issued SFASFinancial Accounting Standards (SFAS) No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.”123”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,”Compensation”, to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in the Company’sour annual and interim consolidated financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company currently plans to follow the provisions of Accounting Principles Board (APB)APB Opinion No. 25 in accounting for the Company’sour stock option plans until such time as new accounting rules are adopted which require recognition of the fair value of stock options as compensation. Accordingly, implementation of this statement will currently not have a significant impact on the Company’s financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which requires the consolidation of variable interest entities, as defined. The Company sells its receivables to a commercial paper conduit. Since the fair value of the Company’s receivables are less than half of the overall conduit’s assets, the Company does not have a variable interest in the conduit under this interpretation and therefore, no consolidation is required. This interpretation was effective for the Company on January 31, 2003 and did not have a material impact on its financial position, results or operations or cash flows.
7
In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”Activities”. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”Activities”. The clarification provisions of this statement require that contracts with comparable characteristics be accounted for similarly. This statement is effective for any new derivative instruments the Company enters into after June 30, 2003. Implementation of this statement is not anticipated to have a significant impact on the Company’s financial position or results of operations.operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope which possesses certain characteristics, and was previously classified as equity, as a liability (or an asset in some circumstances). The provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the second interim period beginning after June 15, 2003. Implementation of this statement is not anticipated to have a significant impact on the Company’s financial position or results of operations or cash flows.
NOTE L—K—SUPPLEMENTAL GUARANTOR INFORMATION—SENIOR NOTES
In connection with the issuance of $100,000,000 of 7.35% 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 by subsidiaries of ABX.
AEI provides domestic and international delivery services in addition to performing customer service, sales and marketing activities. 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.
Revenues and net earnings recorded by ABX, FTZ and WAP are controlled by the Company and AEI and are based on various discretionary factors. Further, certain costs incurred by AEI in performing various corporate functions on behalf of these and other guarantor and non-guarantor entities have not been allocated for purposes of presenting the financial information below. These unallocated costs include certain interest and insurance costs, and administrative costs incurred for technology support, employee benefits, treasury, accounting and cash management functions. Additionally, liabilities for pensions, employee healthcare, among other liabilities and certain assets, including deferred income tax assets have also not been allocated. As a result of the above, the financial information is not necessarily indicative of the results of operations or financial condition of these entities if they were to be reported on a standalone basis.
Intercompany advances and liabilities, which carry no repayment terms, represent net amounts due between the various entities and which result from the basis of accounting described above. Investment balances and revenues between Guarantors have been eliminated for purposes of presenting the financial information below. Intercompany advances and liabilities represent net amounts due between the various entities. The Companycompany provides its subsidiaries with a majority of the cash necessary to fund operating and capital expenditure requirements.requirements which are also reflected in the intercompany balance referred to above.
The Company’s revolving bank credit agreement imposes certain restrictions on loans made by the Company, AEI and ABX to certain nonguarantornon-guarantor subsidiaries. Loans to these subsidiaries must be approved by the agent for such credit agreement to the extent that these loans, together with certain other non-permitted investments, exceed $20.0 million.
Further, the agreement governing the Company’s accounts receivable securitization facility prohibits Airborne Credit, Inc. (“ACI”), the subsidiary of the Company that sells accounts receivable under that facility, from making any loans. The agreement generally allows ACI to pay dividends to the Company, so long as ACI maintains minimum net worth levels ($22.322.2 million as of March 31,June 30, 2003).
Except as described above, there are no contractual restrictions on the ability of the Company, AEI or any of the Guarantors to borrow money or receive dividends from any of their respective subsidiaries, or on the ability of such subsidiaries to make loans or pay dividends to their respective parents.
8
The following are consolidatingconsolidated condensed statements of operations of the Company for the three month periodand six-month periods ended March 31,June 30, 2003 and 2002, the consolidatingconsolidated condensed balance sheets of the Company as of March 31,June 30, 2003 and December 31, 2002, and the consolidatingconsolidated condensed statements of cash flows for the three monthsix-month periods ended March 31,June 30, 2003 and 2002:
Statement of Operations Information:
Three months ended March 31, 2003 | Three months ended June 30, 2003 | Six months ended June 30, 2003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | 812,598 |
| $ | — |
| $ | 12,272 |
| $ | — |
| $ | 824,870 |
| $ | 815,796 | $ | — | $ | 11,284 | $ | — | $ | 827,080 | $ | 1,628,394 | $ | — | $ | 23,556 | $ | — | $ | 1,651,950 | |||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation purchased |
| 501,368 |
|
| — |
|
| (235,832 | ) |
| — |
|
| 265,536 |
| 503,861 | — | (237,907 | ) | — | 265,954 | 1,005,229 | — | (473,739 | ) | — | 531,490 | |||||||||||||||||||||||||||||||||
Station and ground operations |
| 230,076 |
|
| — |
|
| 49,412 |
|
| — |
|
| 279,488 |
| 231,311 | — | 44,607 | — | 275,918 | 461,387 | — | 94,019 | — | 555,406 | |||||||||||||||||||||||||||||||||||
Flight operations and maintenance |
| 103 |
|
| — |
|
| 142,614 |
|
| (574 | ) |
| 142,143 |
| (156 | ) | — | 133,793 | (578 | ) | 133,059 | (53 | ) | — | 276,407 | (1,152 | ) | 275,202 | |||||||||||||||||||||||||||||||
General and administrative |
| 52,699 |
|
| 522 |
|
| 19,730 |
|
| 41 |
|
| 72,992 |
| 52,724 | 266 | 20,612 | 46 | 73,648 | 105,423 | 788 | 40,342 | 87 | 146,640 | |||||||||||||||||||||||||||||||||||
Sales and marketing |
| 21,607 |
|
| — |
|
| 167 |
|
| — |
|
| 21,774 |
| 21,354 | — | 168 | — | 21,522 | 42,961 | — | 335 | — | 43,296 | |||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| 10,298 |
|
| — |
|
| 34,066 |
|
| 78 |
|
| 44,442 |
| 10,736 | — | 33,781 | 78 | 44,595 | 21,034 | — | 67,847 | 156 | 89,037 | |||||||||||||||||||||||||||||||||||
Federal legislation compensation |
| 650 |
|
| — |
|
| — |
|
| — |
|
| 650 |
| — | — | — | — | — | 650 | — | — | — | 650 | |||||||||||||||||||||||||||||||||||
| 816,801 |
|
| 522 |
|
| 10,157 |
|
| (455 | ) |
| 827,025 |
| 819,830 | 266 | (4,946 | ) | (454 | ) | 814,696 | 1,636,631 | 788 | 5,211 | (909 | ) | 1,641,721 | |||||||||||||||||||||||||||||||||
Earnings (loss) from operations |
| (4,203 | ) |
| (522 | ) |
| 2,115 |
|
| 455 |
|
| (2,155 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
| 1,096 |
|
| — |
|
| — |
|
| — |
|
| 1,096 |
| |||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
| (5,428 | ) |
| — |
|
| (1,751 | ) |
| — |
|
| (7,179 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Discount on sales of receivables |
| (775 | ) |
| — |
|
| 1 |
|
| (285 | ) |
| (1,059 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Other |
| (64 | ) |
| — |
|
| — |
|
| — |
|
| (64 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) before income taxes |
| (9,374 | ) |
| (522 | ) |
| 365 |
|
| 170 |
|
| (9,361 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
| 3,890 |
|
| 183 |
|
| (240 | ) |
| (60 | ) |
| 3,773 |
| |||||||||||||||||||||||||||||||||||||||||||||
Net earnings (loss) | $ | (5,484 | ) | $ | (339 | ) | $ | 125 |
| $ | 110 |
| $ | (5,588 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Three months ended March 31, 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | 773,041 |
| $ | — |
| $ | 17,551 |
| $ | — |
| $ | 790,592 |
| |||||||||||||||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transportation purchased |
| 469,072 |
|
| — |
|
| (220,041 | ) |
| — |
|
| 249,031 |
| |||||||||||||||||||||||||||||||||||||||||||||
Station and ground operations |
| 223,482 |
|
| — |
|
| 40,637 |
|
| — |
|
| 264,119 |
| |||||||||||||||||||||||||||||||||||||||||||||
Flight operations and maintenance |
| (455 | ) |
| — |
|
| 126,435 |
|
| (614 | ) |
| 125,366 |
| |||||||||||||||||||||||||||||||||||||||||||||
General and administrative |
| 44,789 |
|
| 271 |
|
| 20,388 |
|
| 38 |
|
| 65,486 |
| |||||||||||||||||||||||||||||||||||||||||||||
Sales and marketing |
| 22,076 |
|
| — |
|
| 200 |
|
| — |
|
| 22,276 |
| |||||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| 11,813 |
|
| — |
|
| 37,225 |
|
| 83 |
|
| 49,121 |
| |||||||||||||||||||||||||||||||||||||||||||||
| 770,777 |
|
| 271 |
|
| 4,844 |
|
| (493 | ) |
| 775,399 |
| ||||||||||||||||||||||||||||||||||||||||||||||
Earnings (loss) from operations |
| 2,264 |
|
| (271 | ) |
| 12,707 |
|
| 493 |
|
| 15,193 |
| (4,034 | ) | (266 | ) | 16,230 | 454 | 12,384 | (8,237 | ) | (788 | ) | 18,345 | 909 | 10,229 | |||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
| 808 |
|
| — |
|
| — |
|
| — |
|
| 808 |
| 1,171 | — | — | — | 1,171 | 2,267 | — | — | — | 2,267 | |||||||||||||||||||||||||||||||||||
Interest expense |
| (5,563 | ) |
| (175 | ) |
| (1,941 | ) |
| — |
|
| (7,679 | ) | (5,023 | ) | — | (1,734 | ) | — | (6,757 | ) | (10,451 | ) | — | (3,485 | ) | — | (13,936 | ) | |||||||||||||||||||||||||||||
Discount on sales of receivables |
| (965 | ) |
| — |
|
| — |
|
| (340 | ) |
| (1,305 | ) | (720 | ) | — | (1 | ) | (298 | ) | (1,019 | ) | (1,495 | ) | — | — | (583 | ) | (2,078 | ) | ||||||||||||||||||||||||||||
Other |
| 1,896 |
|
| — |
|
| — |
|
| — |
|
| 1,896 |
| 422 | — | — | — | 422 | 358 | — | — | — | 358 | |||||||||||||||||||||||||||||||||||
Earnings (loss) before income taxes |
| (1,560 | ) |
| (446 | ) |
| 10,766 |
|
| 153 |
|
| 8,913 |
| (8,184 | ) | (266 | ) | 14,495 | 156 | 6,201 | (17,558 | ) | (788 | ) | 14,860 | 326 | (3,160 | ) | ||||||||||||||||||||||||||||||
Income tax (expense) benefit |
| 166 |
|
| 156 |
|
| (4,258 | ) |
| 291 |
|
| (3,645 | ) | 2,724 | 93 | (5,211 | ) | (54 | ) | (2,448 | ) | 6,614 | 276 | (5,451 | ) | (114 | ) | 1,325 | ||||||||||||||||||||||||||||||
Net earnings (loss) | $ | (1,394 | ) | $ | (290 | ) | $ | 6,508 |
| $ | 444 |
| $ | 5,268 |
| $ | (5,460 | ) | $ | (173 | ) | $ | 9,284 | $ | 102 | $ | 3,753 | $ | (10,944 | ) | $ | (512 | ) | $ | 9,409 | $ | 212 | $ | (1,835 | ) | ||||||||||||||||||||
9
Statement of Operations Information:
Three months ended June 30, 2002 | Six months ended June 30, 2002 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
Revenues | $ | 798,322 | $ | — | $ | 13,601 | $ | — | $ | 811,923 | $ | 1,571,363 | $ | — | $ | 31,152 | $ | — | $ | 1,602,515 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Transportation purchased | 480,542 | — | (213,174 | ) | — | 267,368 | 949,614 | — | (433,215 | ) | — | 516,399 | ||||||||||||||||||||||||||||
Station and ground operations | 224,816 | — | 41,141 | — | 265,957 | 448,298 | — | 81,778 | — | 530,076 | ||||||||||||||||||||||||||||||
Flight operations and maintenance | (869 | ) | — | 133,989 | (589 | ) | 132,531 | (1,324 | ) | — | 260,424 | (1,203 | ) | 257,897 | ||||||||||||||||||||||||||
General and administrative | 50,047 | 518 | 16,103 | 41 | 66,709 | 94,836 | 789 | 36,491 | 79 | 132,195 | ||||||||||||||||||||||||||||||
Sales and marketing | 23,261 | — | 231 | — | 23,492 | 45,337 | — | 431 | — | 45,768 | ||||||||||||||||||||||||||||||
Depreciation and amortization | 10,926 | — | 35,723 | 82 | 46,731 | 22,739 | — | 72,948 | 165 | 95,852 | ||||||||||||||||||||||||||||||
788,723 | 518 | 14,013 | (466 | ) | 802,788 | 1,559,500 | 789 | 18,857 | (959 | ) | 1,578,187 | |||||||||||||||||||||||||||||
Earnings (loss) from operations | 9,599 | (518 | ) | (412 | ) | 466 | 9,135 | 11,863 | (789 | ) | 12,295 | 959 | 24,328 | |||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||
Interest income | 1,506 | — | — | — | 1,506 | 2,314 | — | — | — | 2,314 | ||||||||||||||||||||||||||||||
Interest expense | (7,391 | ) | 175 | (1,775 | ) | — | (8,991 | ) | (12,954 | ) | — | (3,716 | ) | — | (16,670 | ) | ||||||||||||||||||||||||
Discount on sales of receivables | (1,001 | ) | — | (1 | ) | 117 | (885 | ) | (1,966 | ) | — | (1 | ) | (223 | ) | (2,190 | ) | |||||||||||||||||||||||
Other | 407 | — | — | — | 407 | 2,303 | — | — | — | 2,303 | ||||||||||||||||||||||||||||||
Earnings (loss) before income taxes | 3,120 | (343 | ) | (2,188 | ) | 583 | 1,172 | 1,560 | (789 | ) | 8,578 | 736 | 10,085 | |||||||||||||||||||||||||||
Income tax (expense) benefit | (1,078 | ) | 120 | 791 | (548 | ) | (715 | ) | (912 | ) | 276 | (3,467 | ) | (257 | ) | (4,360 | ) | |||||||||||||||||||||||
Net earnings (loss) | $ | 2,042 | $ | (223 | ) | $ | (1,397 | ) | $ | 35 | $ | 457 | $ | 648 | $ | (513 | ) | $ | 5,111 | $ | 479 | $ | 5,725 | |||||||||||||||||
10
Balance Sheet Information:
March 31, 2003 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||||||||||||||||||||||||
June 30, 2003 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 323,423 |
| $ | — |
| $ | 171 |
| $ | 3,466 | $ | — |
| $ | 327,060 |
| $ | 356,297 | $ | — | $ | 109 | $ | 5,380 | $ | — | $ | 361,786 | |||||||||||||||||
Restricted cash |
| 51,430 |
|
| — |
|
| — |
|
| — |
| — |
|
| 51,430 |
| 61,570 | — | — | — | 61,570 | ||||||||||||||||||||||||
Trade accounts receivable, less allowance |
| 33,793 |
|
| — |
|
| 8,090 |
|
| 111,385 |
| — |
|
| 153,268 |
| |||||||||||||||||||||||||||||
Accounts receivable, net of allowance | 33,319 | — | 5,604 | 101,538 | — | 140,461 | ||||||||||||||||||||||||||||||||||||||||
Spare parts and fuel inventory |
| — |
|
| — |
|
| 33,641 |
|
| 4,598 |
| — |
|
| 38,239 |
| — | — | 33,803 | 3,775 | — | 37,578 | |||||||||||||||||||||||
Refundable income taxes |
| 1,288 |
|
| — |
|
| — |
|
| — |
| — |
|
| 1,288 |
| 322 | — | — | — | — | 322 | |||||||||||||||||||||||
Deferred income tax assets |
| 37,787 |
|
| — |
|
| — |
|
| — |
| — |
|
| 37,787 |
| 39,517 | — | — | — | — | 39,517 | |||||||||||||||||||||||
Prepaid expenses and other |
| 21,983 |
|
| — |
|
| 13,209 |
|
| 274 |
| — |
|
| 35,466 |
| 23,146 | — | 12,438 | 185 | — | 35,769 | |||||||||||||||||||||||
Total current assets |
| 469,704 |
|
| — |
|
| 55,111 |
|
| 119,723 |
| — |
|
| 644,538 |
| 514,171 | — | 51,954 | 110,878 | — | 677,003 | |||||||||||||||||||||||
Property and equipment, net |
| 90,340 |
|
| — |
|
| 1,097,483 |
|
| 3,869 |
| — |
|
| 1,191,692 |
| 86,510 | — | 1,073,474 | 3,843 | — | 1,163,827 | |||||||||||||||||||||||
Intercompany advances |
| (29,244 | ) |
| 230,956 |
|
| 26,261 |
|
| 104,288 |
| (332,261 | ) |
| — |
| (73,930 | ) | 231,929 | 72,638 | 110,209 | (340,846 | ) | — | |||||||||||||||||||||
Other assets |
| 28,781 |
|
| 225,300 |
|
| 8,368 |
|
| 10 |
| (215,112 | ) |
| 47,347 |
| |||||||||||||||||||||||||||||
Equipment deposits and other assets | 30,763 | 225,013 | 8,260 | 10 | (215,112 | ) | 48,934 | |||||||||||||||||||||||||||||||||||||||
Total assets | $ | 559,581 |
| $ | 456,256 |
| $ | 1,187,223 |
| $ | 227,890 | $ | (547,373 | ) | $ | 1,883,577 |
| $ | 557,514 | $ | 456,942 | $ | 1,206,326 | $ | 224,940 | $ | (555,958 | ) | $ | 1,889,764 | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | 102,991 |
| $ | — |
| $ | 40,585 |
| $ | 4,311 | $ | (56 | ) | $ | 147,831 |
| $ | 102,336 | $ | — | $ | 40,519 | $ | 1,315 | $ | (52 | ) | $ | 144,118 | ||||||||||||||||
Salaries, wages and related taxes |
| 56,366 |
|
| — |
|
| 44,057 |
|
| — |
| — |
|
| 100,423 |
| 53,293 | — | 37,898 | — | — | 91,191 | |||||||||||||||||||||||
Accrued expenses |
| 140,261 |
|
| 4,336 |
|
| 5,329 |
|
| 783 |
| — |
|
| 150,709 |
| 142,360 | 2,180 | 4,814 | 728 | — | 150,082 | |||||||||||||||||||||||
Income taxes payable | 1,667 | — | — | — | — | 1,667 | ||||||||||||||||||||||||||||||||||||||||
Current portion of long-term obligations |
| 4,088 |
|
| — |
|
| 7,202 |
|
| — |
| — |
|
| 11,290 |
| 4,583 | — | 7,346 | — | — | 11,929 | |||||||||||||||||||||||
Total current liabilities |
| 303,706 |
|
| 4,336 |
|
| 97,173 |
|
| 5,094 |
| (56 | ) |
| 410,253 |
| 304,239 | 2,180 | 90,577 | 2,043 | (52 | ) | 398,987 | ||||||||||||||||||||||
Long-term obligations |
| 115,616 |
|
| 150,000 |
|
| 105,228 |
|
| — |
| — |
|
| 370,844 |
| 116,654 | 150,000 | 103,331 | — | — | 369,985 | |||||||||||||||||||||||
Intercompany liabilities |
| — |
|
| — |
|
| 332,205 |
|
| — |
| (332,205 | ) |
| — |
| — | — | 340,794 | — | (340,794 | ) | — | ||||||||||||||||||||||
Deferred income tax liabilities |
| (15,184 | ) |
| — |
|
| 160,759 |
|
| 624 |
| — |
|
| 146,199 |
| (14,160 | ) | — | 160,760 | 624 | — | 147,224 | ||||||||||||||||||||||
Postretirement liabilities |
| 50,132 |
|
| — |
|
| 9,721 |
|
| — |
| — |
|
| 59,853 |
| 48,828 | — | 19,441 | — | — | 68,269 | |||||||||||||||||||||||
Other liabilities |
| 64,011 |
|
| — |
|
| — |
|
| — |
| — |
|
| 64,011 |
| 65,787 | — | — | — | — | 65,787 | |||||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock |
| 1 |
|
| 51,680 |
|
| (9 | ) |
| 120 |
| (112 | ) |
| 51,680 |
| 1 | 52,027 | (9 | ) | 120 | (112 | ) | 52,027 | |||||||||||||||||||||
Additional paid-in capital |
| — |
|
| 309,491 |
|
| (753 | ) |
| 215,753 |
| (215,000 | ) |
| 309,491 |
| — | 314,109 | (753 | ) | 215,753 | (215,000 | ) | 314,109 | |||||||||||||||||||||
Retained earnings |
| 50,086 |
|
| 598 |
|
| 482,900 |
|
| 6,299 |
| — |
|
| 539,883 |
| 44,626 | (1,525 | ) | 492,185 | 6,400 | — | 541,686 | ||||||||||||||||||||||
Accumulated other comprehensive loss |
| (8,787 | ) |
| — |
|
| (1 | ) |
| — |
| — |
|
| (8,788 | ) | |||||||||||||||||||||||||||||
Accumulated other comprehensive income | (8,461 | ) | — | — | — | — | (8,461 | ) | ||||||||||||||||||||||||||||||||||||||
Treasury stock |
| — |
|
| (59,849 | ) |
| — |
|
| — |
| — |
|
| (59,849 | ) | — | (59,849 | ) | — | — | — | (59,849 | ) | |||||||||||||||||||||
Total shareholders’ equity |
| 41,300 |
|
| 301,920 |
|
| 482,137 |
|
| 222,172 |
| (215,112 | ) |
| 832,417 |
| 36,166 | 304,762 | 491,423 | 222,273 | (215,112 | ) | 839,512 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 559,581 |
| $ | 456,256 |
| $ | 1,187,223 |
| $ | 227,890 | $ | (547,373 | ) | $ | 1,883,577 |
| $ | 557,514 | $ | 456,942 | $ | 1,206,326 | $ | 224,940 | $ | (555,958 | ) | $ | 1,889,764 | ||||||||||||||||
1011
Balance Sheet Information:
December 31, 2002 | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 338,517 |
| $ | — |
| $ | 73 |
| $ | 1,310 | $ | — |
| $ | 339,900 |
| $ | 338,517 | $ | — | $ | 73 | $ | 1,310 | $ | — | $ | 339,900 | |||||||||||||||||
Restricted cash |
| 36,333 |
|
| — |
|
| — |
|
| — |
| — |
|
| 36,333 |
| 36,333 | — | — | — | — | 36,333 | |||||||||||||||||||||||
Accounts receivable, less allowance |
| 31,314 |
|
| — |
|
| 8,314 |
|
| 130,252 |
| — |
|
| 169,880 |
| |||||||||||||||||||||||||||||
Accounts receivable, net of allowance | 31,314 | — | 8,314 | 130,252 | 169,880 | |||||||||||||||||||||||||||||||||||||||||
Spare parts and fuel inventory |
| — |
|
| — |
|
| 33,600 |
|
| 2,623 |
| — |
|
| 36,223 |
| — | — | 33,600 | 2,623 | — | 36,223 | |||||||||||||||||||||||
Refundable income taxes |
| 627 |
|
| — |
|
| — |
|
| — |
| — |
|
| 627 |
| 627 | — | — | — | — | 627 | |||||||||||||||||||||||
Deferred income tax assets |
| 32,444 |
|
| — |
|
| — |
|
| — |
| — |
|
| 32,444 |
| 32,444 | — | — | — | — | 32,444 | |||||||||||||||||||||||
Prepaid expenses and other |
| 16,494 |
|
| — |
|
| 14,647 |
|
| 263 |
| — |
|
| 31,404 |
| 16,494 | — | 14,647 | 263 | — | 31,404 | |||||||||||||||||||||||
Total current assets |
| 455,729 |
|
| — |
|
| 56,634 |
|
| 134,448 |
| — |
|
| 646,811 |
| 455,729 | — | 56,634 | 134,448 | — | 646,811 | |||||||||||||||||||||||
Property and equipment, net |
| 92,401 |
|
| — |
|
| 1,085,093 |
|
| 3,936 |
| — |
|
| 1,181,430 |
| 92,401 | — | 1,085,093 | 3,936 | — | 1,181,430 | |||||||||||||||||||||||
Intercompany advances |
| — |
|
| 230,137 |
|
| 34,818 |
|
| 89,498 |
| (354,453 | ) |
| — |
| — | 230,137 | 34,818 | 89,498 | (354,453 | ) | — | ||||||||||||||||||||||
Other assets |
| 31,565 |
|
| 225,532 |
|
| 8,850 |
|
| 10 |
| (215,112 | ) |
| 50,845 |
| |||||||||||||||||||||||||||||
Equipment deposits and other assets | 31,565 | 225,532 | 8,850 | 10 | (215,112 | ) | 50,845 | |||||||||||||||||||||||||||||||||||||||
Total assets | $ | 579,695 |
| $ | 455,669 |
| $ | 1,185,395 |
| $ | 227,892 | $ | (569,565 | ) | $ | 1,879,086 |
| $ | 579,695 | $ | 455,669 | $ | 1,185,395 | $ | 227,892 | $ | (569,565 | ) | $ | 1,879,086 | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | 106,826 |
| $ | — |
| $ | 50,934 |
| $ | 3,045 | $ | (33 | ) | $ | 160,772 |
| $ | 106,826 | $ | — | $ | 50,934 | $ | 3,045 | $ | (33 | ) | $ | 160,772 | ||||||||||||||||
Salaries, wages and related taxes |
| 57,507 |
|
| — |
|
| 37,074 |
|
| — |
| — |
|
| 94,581 |
| 57,507 | — | 37,074 | — | — | 94,581 | |||||||||||||||||||||||
Accrued expenses |
| 123,972 |
|
| 2,181 |
|
| 5,678 |
|
| 913 |
| — |
|
| 132,744 |
| 123,972 | 2,181 | 5,678 | 913 | — | 132,744 | |||||||||||||||||||||||
Income taxes payable |
| 4,912 |
|
| — |
|
| — |
|
| — |
| — |
|
| 4,912 |
| 4,912 | — | — | — | — | 4,912 | |||||||||||||||||||||||
Current portion of long-term obligations |
| 3,306 |
|
| — |
|
| 7,066 |
|
| — |
| — |
|
| 10,372 |
| 3,306 | — | 7,066 | — | — | 10,372 | |||||||||||||||||||||||
Total current liabilities |
| 296,523 |
|
| 2,181 |
|
| 100,752 |
|
| 3,958 |
| (33 | ) |
| 403,381 |
| 296,523 | 2,181 | 100,752 | 3,958 | (33 | ) | 403,381 | ||||||||||||||||||||||
Long-term obligations |
| 113,014 |
|
| 150,000 |
|
| 107,077 |
|
| — |
| — |
|
| 370,091 |
| 113,014 | 150,000 | 107,077 | — | — | 370,091 | |||||||||||||||||||||||
Intercompany liabilities |
| 39,652 |
|
| — |
|
| 314,768 |
|
| — |
| (354,420 | ) |
| — |
| 39,652 | — | 314,768 | — | (354,420 | ) | — | ||||||||||||||||||||||
Deferred income tax liabilities |
| (4,183 | ) |
| — |
|
| 149,972 |
|
| 532 |
| — |
|
| 146,321 |
| (4,183 | ) | — | 149,972 | 532 | — | 146,321 | ||||||||||||||||||||||
Postretirement liabilities |
| 27,567 |
|
| — |
|
| 32,153 |
|
| — |
| — |
|
| 59,720 |
| 27,567 | — | 32,153 | — | — | 59,720 | |||||||||||||||||||||||
Other liabilities |
| 60,410 |
|
| — |
|
| — |
|
| — |
| — |
|
| 60,410 |
| 60,410 | — | — | — | — | 60,410 | |||||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock |
| 1 |
|
| 51,658 |
|
| (9 | ) |
| 120 |
| (112 | ) |
| 51,658 |
| 1 | 51,658 | (9 | ) | 120 | (112 | ) | 51,658 | |||||||||||||||||||||
Additional paid-in capital |
| — |
|
| 308,813 |
|
| (753 | ) |
| 215,753 |
| (215,000 | ) |
| 308,813 |
| — | 308,813 | (753 | ) | 215,753 | (215,000 | ) | 308,813 | |||||||||||||||||||||
Retained earnings |
| 55,570 |
|
| 2,875 |
|
| 481,435 |
|
| 7,529 |
| — |
|
| 547,409 |
| 55,570 | 2,875 | 481,435 | 7,529 | — | 547,409 | |||||||||||||||||||||||
Accumulated other comprehensive loss |
| (8,859 | ) |
| — |
|
| — |
|
| — |
| — |
|
| (8,859 | ) | |||||||||||||||||||||||||||||
Accumulated other comprehensive income | (8,859 | ) | — | — | — | — | (8,859 | ) | ||||||||||||||||||||||||||||||||||||||
Treasury stock |
| — |
|
| (59,858 | ) |
| — |
|
| — |
| — |
|
| (59,858 | ) | — | (59,858 | ) | — | — | — | (59,858 | ) | |||||||||||||||||||||
Total shareholders’ equity |
| 46,712 |
|
| 303,488 |
|
| 480,673 |
|
| 223,402 |
| (215,112 | ) |
| 839,163 |
| 46,712 | 303,488 | 480,673 | 223,402 | (215,112 | ) | 839,163 | ||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 579,695 |
| $ | 455,669 |
| $ | 1,185,395 |
| $ | 227,892 | $ | (569,565 | ) | $ | 1,879,086 |
| $ | 579,695 | $ | 455,669 | $ | 1,185,395 | $ | 227,892 | $ | (569,565 | ) | $ | 1,879,086 | ||||||||||||||||
1112
Statement of Cash Flows Information:
Three months ended March 31, 2003 | Six months ended June 30, 2003 | |||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net earnings (loss) | $ | (5,484 | ) | $ | (339 | ) | $ | 125 |
| $ | 110 |
| $ | (5,588 | ) | $ | (10,944 | ) | $ | (512 | ) | $ | 9,409 | $ | 212 | $ | (1,835 | ) | ||||||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||||||||||
Non-cash operating activities |
| 41,695 |
|
| 230 |
|
| 12,355 |
|
| 138 |
|
| 54,418 |
| |||||||||||||||||||||||||
Change in current assets and liabilities |
| (50,177 | ) |
| 1,521 |
|
| 35,786 |
|
| 1,919 |
|
| (10,951 | ) | |||||||||||||||||||||||||
Net cash provided (used) by operating activities |
| (13,966 | ) |
| 1,412 |
|
| 48,266 |
|
| 2,167 |
|
| 37,879 |
| |||||||||||||||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash used by investing activities |
| (476 | ) |
| — |
|
| (46,455 | ) |
| (11 | ) |
| (46,942 | ) | |||||||||||||||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash used by financing activities |
| (651 | ) |
| (1,412 | ) |
| (1,714 | ) |
| — |
|
| (3,777 | ) | |||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
| (15,093 | ) |
| — |
|
| 97 |
|
| 2,156 |
|
| (12,840 | ) | |||||||||||||||||||||||||
Cash and cash equivalents at January 1, 2003 |
| 338,516 |
|
| — |
|
| 74 |
|
| 1,310 |
|
| 339,900 |
| |||||||||||||||||||||||||
Cash and cash equivalents at March 31, 2003 | $ | 323,423 |
| $ | — |
| $ | 171 |
| $ | 3,466 |
| $ | 327,060 |
| |||||||||||||||||||||||||
Three months ended March 31, 2002 | ||||||||||||||||||||||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | ||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net earnings (loss) | $ | (1,394 | ) | $ | (290 | ) | $ | 6,508 |
| $ | 444 |
| $ | 5,268 |
| |||||||||||||||||||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||||||||||||||||||||||||||
Non-cash operating activities |
| 48,379 |
|
| (4,895 | ) |
| 23,234 |
|
| (208 | ) |
| 66,510 |
| |||||||||||||||||||||||||
Cash provided by operating activities | 51,416 | (3,647 | ) | 61,176 | 271 | 109,216 | ||||||||||||||||||||||||||||||||||
Change in current assets and liabilities |
| 157,671 |
|
| (144,992 | ) |
| (798 | ) |
| (8,577 | ) |
| 3,304 |
| (11,574 | ) | (1,515 | ) | (10,856 | ) | 3,650 | (20,295 | ) | ||||||||||||||||
Net cash provided (used) by operating activities |
| 204,656 |
|
| (150,177 | ) |
| 28,944 |
|
| (8,341 | ) |
| 75,082 |
| 28,898 | (5,674 | ) | 59,729 | 4,133 | 87,086 | |||||||||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash used by investing activities |
| (185 | ) |
| — |
|
| (27,235 | ) |
| — |
|
| (27,420 | ) | (5,394 | ) | — | (56,227 | ) | (63 | ) | (61,684 | ) | ||||||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||
Net cash provided (used) by financing activities |
| (4,630 | ) |
| 150,177 |
|
| (1,544 | ) |
| — |
|
| 144,003 |
| (5,723 | ) | 5,674 | (3,467 | ) | — | (3,516 | ) | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents |
| 199,841 |
|
| — |
|
| 165 |
|
| (8,341 | ) |
| 191,665 |
| |||||||||||||||||||||||||
Cash and cash equivalents at January 1, 2002 |
| 191,629 |
|
| — |
|
| 607 |
|
| 9,264 |
|
| 201,500 |
| |||||||||||||||||||||||||
Net increase (decrease) in cash | 17,781 | — | 35 | 4,070 | 21,886 | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents at January 1 | 338,516 | — | 74 | 1,310 | 339,900 | |||||||||||||||||||||||||||||||||||
Cash and cash equivalents at March 31, 2002 | $ | 391,470 |
| $ | — |
| $ | 772 |
| $ | 923 |
| $ | 393,165 |
| |||||||||||||||||||||||||
Cash and cash equivalents at June 30 | $ | 356,297 | $ | — | $ | 109 | $ | 5,380 | $ | 361,786 | ||||||||||||||||||||||||||||||
Six months ended June 30, 2002 | ||||||||||||||||||||
Airborne Express, Inc. | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||
Net earnings (loss) | $ | 648 | $ | (513 | ) | $ | 5,111 | $ | 479 | $ | 5,725 | |||||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||||||
Cash provided by operating activities | 68,725 | (109,368 | ) | 66,526 | 100,421 | 126,304 | ||||||||||||||
Change in current assets and liabilities | 92,244 | (43,962 | ) | (16,272 | ) | (109,154 | ) | (77,144 | ) | |||||||||||
Net cash provided (used) by operating activities | 161,617 | (153,843 | ) | 55,365 | (8,254 | ) | 54,885 | |||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||
Net cash used by investing activities | (6,721 | ) | — | (52,701 | ) | — | (59,422 | ) | ||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||
Net cash provided (used) by financing activities | (9,578 | ) | 153,843 | (3,165 | ) | — | 141,100 | |||||||||||||
�� | ||||||||||||||||||||
Net increase (decrease) in cash | 145,318 | — | (501 | ) | (8,254 | ) | 136,563 | |||||||||||||
Cash and cash equivalents at January 1 | 191,629 | — | 607 | 9,264 | 201,500 | |||||||||||||||
Cash and cash equivalents at June 30 | $ | 336,947 | $ | — | $ | 106 | $ | 1,010 | $ | 338,063 | ||||||||||
13
NOTE M—L—SUPPLEMENTAL GUARANTOR INFORMATION—CONVERTIBLE SENIOR NOTES
In connection with the issuance of $150 million of 5.75% Convertible Senior Notes due April 2007 (“Notes”), the Company and certain subsidiaries (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”). AFI purchases and sells aviation and other fuels. SSI is holder of certainretrofits company aircraft equipment patents.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 L.K. Note LK also contains a description of the intercompany loan and dividend restrictions that apply to the Company and its subsidiaries.
12
The following are consolidating condensed statements of operations of the Company for the three-monththree and six-month periods ended March 31,June 30, 2003 and 2002, the consolidating condensedconsolidated balance sheets of the Company as of March 31,June 30, 2003 and December 31, 2002, and the consolidating condensed statements of cash flows for the three-month periodsix-month periods ended March 31,June 30, 2003 and 2002. A description regarding the basis of presenting these statements is contained in Note L.2002:
Statement of Operations Information:
Three months ended March 31, 2003 | Three months ended June 30, 2003 | Six months ended June 30, 2003 | ||||||||||||||||||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | — |
| $ | 824,870 |
| $ | — |
| $ | 824,870 |
| $ | — | $ | 827,080 | $ | — | $ | 827,080 | $ | — | $ | 1,651,950 | $ | — | $ | 1,651,950 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Transportation purchased |
| — |
|
| 265,536 |
|
| — |
|
| 265,536 |
| — | 265,954 | — | 265,954 | — | 531,490 | — | 531,490 | ||||||||||||||||||||||||||||
Station and ground operations |
| — |
|
| 279,488 |
|
| — |
|
| 279,488 |
| — | 275,918 | — | 275,918 | — | 555,406 | — | 555,406 | ||||||||||||||||||||||||||||
Flight operations and maintenance |
| — |
|
| 142,143 |
|
| — |
|
| 142,143 |
| — | 133,059 | — | 133,059 | — | 275,202 | — | 275,202 | ||||||||||||||||||||||||||||
General and administrative |
| 522 |
|
| 72,470 |
|
| — |
|
| 72,992 |
| 266 | 73,382 | — | 73,648 | 788 | 145,852 | — | 146,640 | ||||||||||||||||||||||||||||
Sales and marketing |
| — |
|
| 21,774 |
|
| — |
|
| 21,774 |
| — | 21,522 | — | 21,522 | — | 43,296 | — | 43,296 | ||||||||||||||||||||||||||||
Depreciation and amortization |
| — |
|
| 44,442 |
|
| — |
|
| 44,442 |
| — | 44,595 | — | 44,595 | — | 89,037 | — | 89,037 | ||||||||||||||||||||||||||||
Federal legislation compensation |
| — |
|
| 650 |
|
| — |
|
| 650 |
| — | — | — | — | — | 650 | — | 650 | ||||||||||||||||||||||||||||
| 522 |
|
| 826,503 |
|
| — |
|
| 827,025 |
| 266 | 814,430 | — | 814,696 | 788 | 1,640,933 | — | 1,641,721 | |||||||||||||||||||||||||||||
Loss from operations |
| (522 | ) |
| (1,633 | ) |
| — |
|
| (2,155 | ) | ||||||||||||||||||||||||||||||||||||
Other income: | ||||||||||||||||||||||||||||||||||||||||||||||||
Earnings (Loss) from operations | (266 | ) | 12,650 | — | 12,384 | (788 | ) | 11,017 | — | 10,229 | ||||||||||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
| — |
|
| 1,096 |
|
| — |
|
| 1,096 |
| — | 1,171 | — | 1,171 | — | 2,267 | — | 2,267 | ||||||||||||||||||||||||||||
Interest expense |
| — |
|
| (7,179 | ) |
| — |
|
| (7,179 | ) | — | (6,757 | ) | — | (6,757 | ) | — | (13,936 | ) | — | (13,936 | ) | ||||||||||||||||||||||||
Discount on sales of receivables |
| — |
|
| (774 | ) |
| (285 | ) |
| (1,059 | ) | — | (721 | ) | (298 | ) | (1,019 | ) | — | (1,495 | ) | (583 | ) | (2,078 | ) | ||||||||||||||||||||||
Other |
| — |
|
| (64 | ) |
| — |
|
| (64 | ) | ||||||||||||||||||||||||||||||||||||
Loss before income taxes |
| (522 | ) |
| (8,554 | ) |
| (285 | ) |
| (9,361 | ) | ||||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
| 183 |
|
| 3,490 |
|
| 100 |
|
| 3,773 |
| ||||||||||||||||||||||||||||||||||||
Net earnings (loss) | $ | (339 | ) | $ | (5,064 | ) | $ | (185 | ) | $ | (5,588 | ) | ||||||||||||||||||||||||||||||||||||
Three months ended March 31, 2002 | ||||||||||||||||||||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | — |
| $ | 790,592 |
| $ | — |
| $ | 790,592 |
| ||||||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Transportation purchased |
| — |
|
| 249,031 |
|
| — |
|
| 249,031 |
| ||||||||||||||||||||||||||||||||||||
Station and ground operations |
| — |
|
| 264,119 |
|
| — |
|
| 264,119 |
| ||||||||||||||||||||||||||||||||||||
Flight operations and maintenance |
| — |
|
| 125,366 |
|
| — |
|
| 125,366 |
| ||||||||||||||||||||||||||||||||||||
General and administrative |
| 271 |
|
| 65,215 |
|
| — |
|
| 65,486 |
| ||||||||||||||||||||||||||||||||||||
Sales and marketing |
| — |
|
| 22,276 |
|
| — |
|
| 22,276 |
| ||||||||||||||||||||||||||||||||||||
Depreciation and amortization |
| — |
|
| 49,121 |
|
| — |
|
| 49,121 |
| ||||||||||||||||||||||||||||||||||||
| 271 |
|
| 775,128 |
|
| — |
|
| 775,399 |
| |||||||||||||||||||||||||||||||||||||
Loss from operations |
| (271 | ) |
| 15,464 |
|
| — |
|
| 15,193 |
| ||||||||||||||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest income |
| — |
|
| 808 |
|
| — |
|
| 808 |
| ||||||||||||||||||||||||||||||||||||
Interest expense |
| (175 | ) |
| (7,504 | ) |
| — |
|
| (7,679 | ) | ||||||||||||||||||||||||||||||||||||
Discounts on sales of receivables |
| — |
|
| (965 | ) |
| (340 | ) |
| (1,305 | ) | ||||||||||||||||||||||||||||||||||||
Other |
| — |
|
| 1,896 |
|
| — |
|
| 1,896 |
| — | 422 | — | 422 | — | 358 | — | 358 | ||||||||||||||||||||||||||||
Earnings (loss) before income taxes |
| (446 | ) |
| 9,699 |
|
| (340 | ) |
| 8,913 |
| (266 | ) | 6,765 | (298 | ) | 6,201 | (788 | ) | (1,789 | ) | (583 | ) | (3,160 | ) | ||||||||||||||||||||||
Income tax (expense) benefit |
| 156 |
|
| (3,920 | ) |
| 119 |
|
| (3,645 | ) | 93 | (2,645 | ) | 104 | (2,448 | ) | 276 | 845 | 204 | 1,325 | ||||||||||||||||||||||||||
Net earnings (loss) | $ | (290 | ) | $ | 5,779 |
| $ | (221 | ) | $ | 5,268 |
| $ | (173 | ) | $ | 4,120 | $ | (194 | ) | $ | 3,753 | $ | (512 | ) | $ | (944 | ) | $ | (379 | ) | $ | (1,835 | ) | ||||||||||||||
1314
Three months ended June 30, 2002 | Six months ended June 30, 2002 | |||||||||||||||||||||||||||||||
Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Revenues | $ | — | $ | 811,923 | $ | — | $ | 811,923 | $ | — | $ | 1,602,515 | $ | — | $ | 1,602,515 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Transportation purchased | — | 267,368 | — | 267,368 | — | 516,399 | — | 516,399 | ||||||||||||||||||||||||
Station and ground operations | — | 265,957 | — | 265,957 | — | 530,076 | — | 530,076 | ||||||||||||||||||||||||
Flight operations and maintenance | — | 132,531 | — | 132,531 | — | 257,897 | — | 257,897 | ||||||||||||||||||||||||
General and administrative | 518 | 66,191 | — | 66,709 | 789 | 131,406 | — | 132,195 | ||||||||||||||||||||||||
Sales and marketing | — | 23,492 | — | 23,492 | — | 45,768 | — | 45,768 | ||||||||||||||||||||||||
Depreciation and amortization | — | 46,731 | — | 46,731 | — | 95,852 | — | 95,852 | ||||||||||||||||||||||||
518 | 802,270 | — | 802,788 | 789 | 1,577,398 | — | 1,578,187 | |||||||||||||||||||||||||
Earnings (loss) from operations | (518 | ) | 9,653 | — | 9,135 | (789 | ) | 25,117 | — | 24,328 | ||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest income | — | 1,506 | — | 1,506 | — | 2,314 | — | 2,314 | ||||||||||||||||||||||||
Interest expense | 175 | (9,166 | ) | — | (8,991 | ) | — | (16,670 | ) | — | (16,670 | ) | ||||||||||||||||||||
Discount on sales of receivables | — | (1,002 | ) | 117 | (885 | ) | — | (1,967 | ) | (223 | ) | (2,190 | ) | |||||||||||||||||||
Other | — | 407 | — | 407 | — | 2,303 | — | 2,303 | ||||||||||||||||||||||||
Earnings (loss) before income taxes | (343 | ) | 1,398 | 117 | 1,172 | (789 | ) | 11,097 | (223 | ) | 10,085 | |||||||||||||||||||||
Income tax (expense) benefit | 120 | (794 | ) | (41 | ) | (715 | ) | 276 | (4,714 | ) | 78 | (4,360 | ) | |||||||||||||||||||
Net earnings (loss) | $ | (223 | ) | $ | 604 | $ | 76 | $ | 457 | $ | (513 | ) | $ | 6,383 | $ | (145 | ) | $ | 5,725 | |||||||||||||
15
Balance Sheet Information:
March 31, 2003 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | |||||||||||||||||||||||||||||||||
June 30, 2003 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | |||||||||||||||||||||||||||||||||
(In thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — |
| $ | 323,454 |
| $ | 3,606 | $ | — |
| $ | 327,060 |
| $ | — | $ | 356,329 | $ | 5,457 | $ | — | $ | 361,786 | ||||||||||||||
Restricted cash |
| — |
|
| 51,430 |
|
| — |
| — |
|
| 51,430 |
| — | 61,570 | — | — | 61,570 | |||||||||||||||||||
Trade accounts receivable, less allowance |
| — |
|
| 41,903 |
|
| 111,365 |
| — |
|
| 153,268 |
| ||||||||||||||||||||||||
Accounts receivable, net of allowance | — | 38,938 | 101,523 | — | 140,461 | |||||||||||||||||||||||||||||||||
Spare parts and fuel inventory |
| — |
|
| 38,239 |
|
| — |
| — |
|
| 38,239 |
| — | 37,578 | — | — | 37,578 | |||||||||||||||||||
Refundable income taxes |
| — |
|
| 1,288 |
|
| — |
| — |
|
| 1,288 |
| — | 322 | — | — | 322 | |||||||||||||||||||
Deferred income tax assets |
| — |
|
| 37,787 |
|
| — |
| — |
|
| 37,787 |
| — | 39,517 | — | — | 39,517 | |||||||||||||||||||
Prepaid expenses and other |
| — |
|
| 35,286 |
|
| 180 |
| — |
|
| 35,466 |
| — | 35,636 | 133 | — | 35,769 | |||||||||||||||||||
Total current assets |
| — |
|
| 529,387 |
|
| 115,151 |
| — |
|
| 644,538 |
| — | 569,890 | 107,113 | — | 677,003 | |||||||||||||||||||
Property and equipment, net |
| — |
|
| 1,191,692 |
|
| — |
| — |
|
| 1,191,692 |
| — | 1,163,827 | — | — | 1,163,827 | |||||||||||||||||||
Intercompany advances |
| 230,956 |
|
| (283 | ) |
| 101,588 |
| (332,261 | ) |
| — |
| 231,929 | (480 | ) | 109,397 | (340,846 | ) | — | |||||||||||||||||
Other assets |
| 225,300 |
|
| 37,159 |
|
| — |
| (215,112 | ) |
| 47,347 |
| ||||||||||||||||||||||||
Equipment deposits and other assets | 225,013 | 39,033 | — | (215,112 | ) | 48,934 | ||||||||||||||||||||||||||||||||
Total assets | $ | 456,256 |
| $ | 1,757,955 |
| $ | 216,739 | $ | (547,373 | ) | $ | 1,883,577 |
| $ | 456,942 | $ | 1,772,270 | $ | 216,510 | $ | (555,958 | ) | $ | 1,889,764 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — |
| $ | 147,887 |
| $ | — | $ | (56 | ) | $ | 147,831 |
| $ | — | $ | 144,170 | $ | — | $ | (52 | ) | $ | 144,118 | |||||||||||||
Salaries, wages and related taxes |
| — |
|
| 100,423 |
|
| — |
| — |
|
| 100,423 |
| — | 91,191 | — | — | 91,191 | |||||||||||||||||||
Accrued expenses |
| 4,336 |
|
| 145,806 |
|
| 567 |
| — |
|
| 150,709 |
| 2,180 | 147,370 | 532 | — | 150,082 | |||||||||||||||||||
Income taxes payable | — | 1,667 | — | — | 1,667 | |||||||||||||||||||||||||||||||||
Current portion of long-term obligations |
| — |
|
| 11,290 |
|
| — |
| — |
|
| 11,290 |
| — | 11,929 | — | — | 11,929 | |||||||||||||||||||
Total current liabilities |
| 4,336 |
|
| 405,406 |
|
| 567 |
| (56 | ) |
| 410,253 |
| 2,180 | 396,327 | 532 | (52 | ) | 398,987 | ||||||||||||||||||
Long-term obligations |
| 150,000 |
|
| 220,844 |
|
| — |
| — |
|
| 370,844 |
| 150,000 | 219,985 | — | — | 369,985 | |||||||||||||||||||
Intercompany liabilities |
| — |
|
| 332,205 |
|
| — |
| (332,205 | ) |
| — |
| — | 340,794 | — | (340,794 | ) | — | ||||||||||||||||||
Deferred income tax liabilities |
| — |
|
| 146,199 |
|
| — |
| — |
|
| 146,199 |
| — | 147,224 | — | — | 147,224 | |||||||||||||||||||
Postretirement liabilities |
| — |
|
| 59,853 |
|
| — |
| — |
|
| 59,853 |
| — | 68,269 | — | — | 68,269 | |||||||||||||||||||
Other liabilities |
| — |
|
| 64,011 |
|
| — |
| — |
|
| 64,011 |
| — | 65,787 | — | — | 65,787 | |||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||
Common stock |
| 51,680 |
|
| 102 |
|
| 10 |
| (112 | ) |
| 51,680 |
| 52,027 | 102 | 10 | (112 | ) | 52,027 | ||||||||||||||||||
Additional paid-in capital |
| 309,491 |
|
| — |
|
| 215,000 |
| (215,000 | ) |
| 309,491 |
| 314,109 | — | 215,000 | (215,000 | ) | 314,109 | ||||||||||||||||||
Retained earnings |
| 598 |
|
| 538,123 |
|
| 1,162 |
| — |
|
| 539,883 |
| (1,525 | ) | 542,243 | 968 | — | 541,686 | ||||||||||||||||||
Accumulated other comprehensive loss |
| — |
|
| (8,788 | ) |
| — |
| — |
|
| (8,788 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive income | — | (8,461 | ) | — | — | (8,461 | ) | |||||||||||||||||||||||||||||||
Treasury stock |
| (59,849 | ) |
| — |
|
| — |
| — |
|
| (59,849 | ) | (59,849 | ) | — | — | — | (59,849 | ) | |||||||||||||||||
Total shareholders’ equity |
| 301,920 |
|
| 529,437 |
|
| 216,172 |
| (215,112 | ) |
| 832,417 |
| 304,762 | 533,884 | 215,978 | (215,112 | ) | 839,512 | ||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 456,256 |
| $ | 1,757,955 |
| $ | 216,739 | $ | (547,373 | ) | $ | 1,883,577 |
| $ | 456,942 | $ | 1,772,270 | $ | 216,510 | $ | (555,958 | ) | $ | 1,889,764 | |||||||||||||
1416
Balance Sheet Information:
December 31, 2002 | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | Airborne, Inc. | Guarantors | Non- guarantors | Elimination | Consolidated | ||||||||||||||||||||||||||||
(In thousands) | (in thousands) | |||||||||||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — |
| $ | 338,550 |
| $ | 1,350 | $ | — |
| $ | 339,900 |
| $ | — | $ | 338,550 | $ | 1,350 | $ | — | $ | 339,900 | ||||||||||||||
Restricted cash |
| — |
|
| 36,333 |
|
| — |
| — |
|
| 36,333 |
| 36,333 | — | — | 36,333 | ||||||||||||||||||||
Trade accounts receivable, less allowance |
| — |
|
| 39,655 |
|
| 130,225 |
| — |
|
| 169,880 |
| ||||||||||||||||||||||||
Accounts receivable, net of allowance | — | 39,655 | 130,225 | — | 169,880 | |||||||||||||||||||||||||||||||||
Spare parts and fuel inventory |
| — |
|
| 36,223 |
|
| — |
| — |
|
| 36,223 |
| — | 36,223 | — | — | 36,223 | |||||||||||||||||||
Refundable income taxes |
| — |
|
| 627 |
|
| — |
| — |
|
| 627 |
| — | 627 | — | — | 627 | |||||||||||||||||||
Deferred income tax assets |
| — |
|
| 32,444 |
|
| — |
| — |
|
| 32,444 |
| — | 32,444 | — | — | 32,444 | |||||||||||||||||||
Prepaid expenses and other |
| — |
|
| 31,176 |
|
| 228 |
| — |
|
| 31,404 |
| — | 31,176 | 228 | — | 31,404 | |||||||||||||||||||
Total current assets |
| — |
|
| 515,008 |
|
| 131,803 |
| — |
|
| 646,811 |
| — | 515,008 | 131,803 | — | 646,811 | |||||||||||||||||||
Property and equipment, net |
| — |
|
| 1,181,430 |
|
| — |
| — |
|
| 1,181,430 |
| — | 1,181,430 | — | — | 1,181,430 | |||||||||||||||||||
Intercompany advances |
| 230,137 |
|
| (500 | ) |
| 85,164 |
| (314,801 | ) |
| — |
| 230,137 | (500 | ) | 85,164 | (314,801 | ) | — | |||||||||||||||||
Other assets |
| 225,532 |
|
| 40,425 |
|
| — |
| (215,112 | ) |
| 50,845 |
| ||||||||||||||||||||||||
Equipment deposits and other assets | 225,532 | 40,425 | — | (215,112 | ) | 50,845 | ||||||||||||||||||||||||||||||||
Total assets | $ | 455,669 |
| $ | 1,736,363 |
| $ | 216,967 | $ | (529,913 | ) | $ | 1,879,086 |
| $ | 455,669 | $ | 1,736,363 | $ | 216,967 | $ | (529,913 | ) | $ | 1,879,086 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||||||||||||||||
Accounts payable | $ | — |
| $ | 160,805 |
| $ | — | $ | (33 | ) | $ | 160,772 |
| $ | — | $ | 160,805 | $ | — | $ | (33 | ) | $ | 160,772 | |||||||||||||
Salaries, wages and related taxes |
| — |
|
| 94,581 |
|
| — |
| — |
|
| 94,581 |
| — | 94,581 | — | — | 94,581 | |||||||||||||||||||
Accrued expenses |
| 2,181 |
|
| 129,953 |
|
| 610 |
| — |
|
| 132,744 |
| 2,181 | 129,953 | 610 | — | 132,744 | |||||||||||||||||||
Income taxes payable |
| — |
|
| 4,912 |
|
| — |
| — |
|
| 4,912 |
| — | 4,912 | — | — | 4,912 | |||||||||||||||||||
Current portion of long-term obligations |
| — |
|
| 10,372 |
|
| — |
| — |
|
| 10,372 |
| — | 10,372 | — | — | 10,372 | |||||||||||||||||||
Total current liabilities |
| 2,181 |
|
| 400,623 |
|
| 610 |
| (33 | ) |
| 403,381 |
| 2,181 | 400,623 | 610 | (33 | ) | 403,381 | ||||||||||||||||||
Long-term obligations |
| 150,000 |
|
| 220,091 |
|
| — |
| — |
|
| 370,091 |
| 150,000 | 220,091 | — | — | 370,091 | |||||||||||||||||||
Intercompany liabilities |
| — |
|
| 314,768 |
|
| — |
| (314,768 | ) |
| — |
| — | 314,768 | — | (314,768 | ) | — | ||||||||||||||||||
Deferred income tax liabilities |
| — |
|
| 146,321 |
|
| — |
| — |
|
| 146,321 |
| — | 146,321 | — | — | 146,321 | |||||||||||||||||||
Postretirement liabilities |
| — |
|
| 59,720 |
|
| — |
| — |
|
| 59,720 |
| — | 59,720 | — | — | 59,720 | |||||||||||||||||||
Other liabilities |
| — |
|
| 60,410 |
|
| — |
| — |
|
| 60,410 |
| — | 60,410 | — | — | 60,410 | |||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||
Common stock |
| 51,658 |
|
| 102 |
|
| 10 |
| (112 | ) |
| 51,658 |
| 51,658 | 102 | 10 | (112 | ) | 51,658 | ||||||||||||||||||
Additional paid-in capital |
| 308,813 |
|
| — |
|
| 215,000 |
| (215,000 | ) |
| 308,813 |
| 308,813 | — | 215,000 | (215,000 | ) | 308,813 | ||||||||||||||||||
Retained earnings |
| 2,875 |
|
| 543,187 |
|
| 1,347 |
| — |
|
| 547,409 |
| 2,875 | 543,187 | 1,347 | — | 547,409 | |||||||||||||||||||
Accumulated other comprehensive loss |
| — |
|
| (8,859 | ) |
| — |
| — |
|
| (8,859 | ) | ||||||||||||||||||||||||
Accumulated other comprehensive income | — | (8,859 | ) | — | — | (8,859 | ) | |||||||||||||||||||||||||||||||
Treasury stock |
| (59,858 | ) |
| — |
|
| — |
| — |
|
| (59,858 | ) | (59,858 | ) | — | — | — | (59,858 | ) | |||||||||||||||||
Total shareholders’ equity |
| 303,488 |
|
| 534,430 |
|
| 216,357 |
| (215,112 | ) |
| 839,163 |
| 303,488 | 534,430 | 216,357 | (215,112 | ) | 839,163 | ||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 455,669 |
| $ | 1,736,363 |
| $ | 216,967 | $ | (529,913 | ) | $ | 1,879,086 |
| $ | 455,669 | $ | 1,736,363 | $ | 216,967 | $ | (529,913 | ) | $ | 1,879,086 | |||||||||||||
1517
StatementsStatement of Cash Flows Information:information:
Three months ended March 31, 2003 | ||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | |||||||||||||
(In thousands) | ||||||||||||||||
Operating Activities: | ||||||||||||||||
Net loss | $ | (339 | ) | $ | (5,064 | ) | $ | (185 | ) | $ | (5,588 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
Non-cash operating activities |
| 231 |
|
| 54,287 |
|
| (100 | ) |
| 54,418 |
| ||||
Change in current assets and liabilities |
| 1,521 |
|
| (15,013 | ) |
| 2,541 |
|
| (10,951 | ) | ||||
Net cash provided (used) by operating activities |
| 1,413 |
|
| 34,210 |
|
| 2,256 |
|
| 37,879 |
| ||||
Investing Activities: | ||||||||||||||||
Net cash used by investing activities |
| — |
|
| (46,942 | ) |
| — |
|
| (46,942 | ) | ||||
Financing Activities: | ||||||||||||||||
Net cash used by financing activities |
| (1,413 | ) |
| (2,364 | ) |
| — |
|
| (3,777 | ) | ||||
Net increase (decrease) in cash |
| — |
|
| (15,096 | ) |
| 2,256 |
|
| (12,840 | ) | ||||
Cash and cash equivalents at January 1, 2003 |
| — |
|
| 338,550 |
|
| 1,350 |
|
| 339,900 |
| ||||
Cash and cash equivalents at March 31, 2003 | $ | — |
| $ | 323,454 |
| $ | 3,606 |
| $ | 327,060 |
| ||||
Three months ended March 31, 2002 | ||||||||||||||||
Airborne, Inc. | Guarantors | Non-guarantors | Consolidated | |||||||||||||
(In thousands) | ||||||||||||||||
Operating Activities: | ||||||||||||||||
Net earnings (loss) | $ | (290 | ) | $ | 5,779 |
| $ | (221 | ) | $ | 5,268 |
| ||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||
Non-cash operating activities |
| (4,895 | ) |
| 71,524 |
|
| (119 | ) |
| 66,510 |
| ||||
Change in current assets and liabilities |
| (144,992 | ) |
| 156,132 |
|
| (7,836 | ) |
| 3,304 |
| ||||
Net cash provided (used) by operating activities |
| (150,177 | ) |
| 233,435 |
|
| (8,176 | ) |
| 75,082 |
| ||||
Investing Activities: | ||||||||||||||||
Net cash used by investing activities |
| — |
|
| (27,420 | ) |
| — |
|
| (27,420 | ) | ||||
Financing Activities: | ||||||||||||||||
Net cash provided (used) by financing activities |
| 150,177 |
|
| (6,174 | ) |
| — |
|
| 144,003 |
| ||||
Net increase (decrease) in cash |
| — |
|
| 199,841 |
|
| (8,176 | ) |
| 191,665 |
| ||||
Cash and cash equivalents at January 1, 2002 |
| — |
|
| 191,664 |
|
| 9,836 |
|
| 201,500 |
| ||||
Cash and cash equivalents at March 31, 2002 | $ | — |
| $ | 391,505 |
| $ | 1,660 |
| $ | 393,165 |
| ||||
Six months ended June 30, 2003 | ||||||||||||||||
Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings (loss) | $ | (512 | ) | $ | (944 | ) | $ | (379 | ) | $ | (1,835 | ) | ||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||
Cash provided by operating activities | (3,647 | ) | 113,067 | (204 | ) | 109,216 | ||||||||||
Change in current assets and liabilities | (1,515 | ) | (23,470 | ) | 4,690 | (20,295 | ) | |||||||||
Net cash provided (used) by operating activities | (5,674 | ) | 88,653 | 4,107 | 87,086 | |||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Net cash used by investing activities | — | (61,684 | ) | — | (61,684 | ) | ||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Net cash provided (used) by financing activities | 5,674 | (9,190 | ) | — | (3,516 | ) | ||||||||||
Net increase in cash | — | 17,779 | 4,107 | 21,886 | ||||||||||||
Cash and cash equivalents at January 1 | — | 338,550 | 1,350 | 339,900 | ||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | 356,329 | $ | 5,457 | $ | 361,786 | ||||||||
Six months ended June 30, 2002 | ||||||||||||||||
Airborne, Inc. | Guarantors | Non- guarantors | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||
Net earnings (loss) | $ | (513 | ) | $ | 6,383 | $ | (145 | ) | $ | 5,725 | ||||||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||||
Cash provided by operating activities | (109,367 | ) | 135,749 | 99,922 | 126,304 | |||||||||||
Change in current assets and liabilities | (43,962 | ) | 75,350 | (108,532 | ) | (77,144 | ) | |||||||||
Net cash provided (used) by operating activities | (153,842 | ) | 217,482 | (8,755 | ) | 54,885 | ||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||
Net cash used by investing activities | — | (59,422 | ) | — | (59,422 | ) | ||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||
Net cash provided (used) by financing activities | 153,842 | (12,742 | ) | — | 141,100 | |||||||||||
Net increase (decrease) in cash | — | 145,318 | (8,755 | ) | 136,563 | |||||||||||
Cash and cash equivalents at January 1 | — | 191,664 | 9,836 | 201,500 | ||||||||||||
Cash and cash equivalents at June 30 | $ | — | $ | 336,982 | $ | 1,081 | $ | 338,063 | ||||||||
1618
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Results of Operations
We had a net lossearnings in the firstsecond quarter of 2003 of $5.6$3.8 million, or $.12$.08 per diluted share, compared to net earnings of $5.3$.5 million or $.11$.01 per share in the firstsecond quarter of 2002. The improved operating performance in the second quarter resulted from increased domestic shipment volumes and operating cost efficiencies. The results for the first quarter of 2003 reflectwere achieved despite continued weak core air express shipment volumes due to a difficult economic environment and higher operating costs due to escalatingexpenses for fuel, costs,pension and employee healthcare, and expenses associated with our announced merger with DHL, and costs relatedDHL. The results for the second quarter of 2002 included a non-recurring restructuring charge of $2.3 million, or $.03 per share after tax.
We reported a net loss for the first half of 2003 of $1.8 million, or $.04 per diluted share, compared to the adverse winter weather conditions. Also, as anticipated, corporate costs related to pension and employee healthcare were significantly highernet earnings of $5.7 million or $.12 per share in the first quarterhalf of 2003 than in2002. The first half of 2002 included the first quarterpreviously mentioned restructuring charge of 2002.$.03 per share and a non-recurring securities gain of $1.7 million or $.02 per share after tax.
The results for the first quarterhalf of 2003 include a non-recurring charge of $650,000, or $.01 per share after tax, related to the finalization of our filing with the Department of Transportation regarding the computation of compensation due the Company under the Air Transportation Safety and System Stabilization Act. This charge, recorded in the first quarter of 2003, reflects the difference between the $12.3 millionamounts we ultimately received under the Act, and amounts previously recorded in 2001. Results for the first quarter of 2002 included a non-recurring credit of $1.7 million, or $.02 per share after-tax, related to a gain on the sale of securities.
The following table is an overview of our shipments, revenue and weight trends for the quartersperiods indicated:
Three Months Ended March 31 | Change | Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||||||||||||||||
2003 | 2002 | 2003 | 2002 | Change | 2003 | 2002 | Change | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||
Shipments: | |||||||||||||||||||||||||||
Shipments (in thousands): | |||||||||||||||||||||||||||
Domestic | |||||||||||||||||||||||||||
Overnight |
| 37,311 |
| 39,917 | –6.5 | % | 36,853 | 39,839 | (7.5 | )% | 74,164 | 79,756 | (7.0 | )% | |||||||||||||
Next Afternoon Service |
| 12,180 |
| 13,185 | –7.6 | % | 12,078 | 13,000 | (7.1 | )% | 24,258 | 26,185 | (7.4 | )% | |||||||||||||
Second Day Service |
| 16,187 |
| 18,323 | –11.7 | % | 16,061 | 17,440 | (7.9 | )% | 32,248 | 35,763 | (9.8 | )% | |||||||||||||
Ground Delivery Service |
| 13,854 |
| 5,790 | 139.3 | % | 15,306 | 8,826 | 73.4 | % | 29,160 | 14,616 | 99.5 | % | |||||||||||||
airborne@home |
| 6,494 |
| 5,866 | 9.7 | % | |||||||||||||||||||||
Airborne@home | 5,616 | 4,991 | 12.5 | % | 12,110 | 10,857 | 11.5 | % | |||||||||||||||||||
Total Domestic |
| 86,026 |
| 83,081 | 3.5 | % | 85,914 | 84,096 | 2.2 | % | 171,940 | 167,177 | 2.8 | % | |||||||||||||
International | |||||||||||||||||||||||||||
Express |
| 1,318 |
| 1,330 | –.09 | % | 1,360 | 1,431 | (5.0 | )% | 2,678 | 2,761 | (3.0 | )% | |||||||||||||
Freight |
| 69 |
| 87 | –20.7 | % | 68 | 93 | (26.9 | )% | 137 | 180 | (23.9 | )% | |||||||||||||
Total International |
| 1,387 |
| 1,417 | –2.1 | % | 1,428 | 1,524 | (6.3 | )% | 2,815 | 2,941 | (4.3 | )% | |||||||||||||
Total Shipments |
| 87,413 |
| 84,498 | 3.4 | % | 87,342 | 85,620 | 2.0 | % | 174,755 | 170,118 | 2.7 | % | |||||||||||||
Average Pounds per Shipment: | |||||||||||||||||||||||||||
Domestic |
| 5.09 |
| 4.44 | 14.6 | % | 5.12 | 4.72 | 8.5 | % | 5.10 | 4.58 | 11.3 | % | |||||||||||||
International |
| 56.33 |
| 55.43 | 1.6 | % | 53.96 | 59.19 | (8.8 | )% | 55.15 | 57.37 | (3.9 | )% | |||||||||||||
Average Revenue per Pound: | |||||||||||||||||||||||||||
Domestic | $ | 1.68 | $ | 1.88 | –10.6 | % | $ | 1.66 | $ | 1.77 | (6.2 | )% | $ | 1.67 | $ | 1.83 | (8.7 | )% | |||||||||
International | $ | 1.01 | $ | 0.95 | 6.3 | % | $ | 1.08 | $ | 0.98 | 10.2 | % | $ | 1.04 | $ | 0.97 | 7.2 | % | |||||||||
Average Revenue per Shipment: | |||||||||||||||||||||||||||
Domestic | $ | 8.63 | $ | 8.55 | 1.2 | % | $ | 8.64 | $ | 8.53 | 1.4 | % | $ | 8.64 | $ | 8.54 | 1.1 | % | |||||||||
International | $ | 58.02 | $ | 53.95 | 7.5 | % | $ | 58.58 | $ | 59.41 | (1.4 | )% | $ | 58.31 | $ | 56.78 | 2.7 | % |
Total revenues increased 4.3%1.9% to $824.9$827.1 million in the firstsecond quarter of 2003 compared to revenues of $790.6$811.9 million in the second quarter of 2002. For the first quarterhalf of 2003, total revenues increased 3.1% to $1.65 billion compared to $1.60 billion in the first half of 2002. Shipment volumes increased 3.4%2.0% to 87.487.3 million in the firstsecond quarter compared to 84.585.6 million in the same quarter a year ago. For the first half of 2003, shipment volumes were 174.8 million, an increase of 2.7% over the same period in 2002. There were the same number of operating days in the second quarter and first quarterhalf of 2003 as were in the second quarter and first half of 2002.
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Domestic revenues increased 3.1% to $743.4 million in the second quarter of 2003 compared to $721.4 million in the second quarter of 2002. Domestic revenues increased 4.2% to $744.4 million3.6% in the first quartersix months of 2003 to $1.49 billion compared to $714.1 million$1.44 billion in the first quarter of 2002. Revenuesame period a year ago. Domestic revenue per shipment of our core air express products has experienced improvement over the past year, increasing to $9.48$9.53 and $9.50 in the second quarter and first quarterhalf of 2003, respectively, compared to $8.86$8.99 and $8.93 in the samesecond quarter a year ago.and first half of 2002. Core air express products include our Overnight, Next Afternoon (NAS) and Second Day (SDS) services. Average revenue per shipment for all products was $8.63$8.64 in the firstsecond quarter of 2003 compared to compared $8.55$8.53 in the firstsecond quarter of 2002. Average revenue per shipment was $8.64 for the first half of 2003 compared to $8.54 in the same period a year ago. The improvement in core air express product and average revenuesrevenue per shipment are due to rate and fee actions we have taken as well asand increased fuel surcharge rates. In addition to several new ancillary fees which we added in late 2002, in January 2003 we took additional fee actions and increased rates forrate increases on most domestic and international services commensurate with rate increases announced by other major carriers.
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Domestic revenues include fuel surcharge revenues that are used to help offset the historically high prices of fuel affecting our air and surface operations. We have increased our fuel surcharges since the price of fuel has increased significantly during the latter part of 2002 and through March of this year when the first quarterprice of 2003fuel increased significantly as a result of the conflicts in the Middle East. The fuel surcharge had been increased to 4.3% on core express products and 1.3% on deferred products inby November 2002 from surcharges of 2.9% and 1.0%1%, respectively, which were in effect prior to the increase and for the majority of the first quarterhalf of 2002. In early March 2003, the fuel surcharge was increased to 5.1% on core express products and 1.8% on deferred products and further increased to 5.5% and 2.0%, respectively, beginning early April 2003. As fuel prices abated somewhat after the Middle East war concluded, in early June 2003 we lowered the fuel surcharge to 4.5% on core express products and 1.8% on deferred products. We continue to monitor fuel cost trends and will make changes to the surcharges as warranted.
Domestic shipments increased 3.5%2.2% to 86.085.9 million in the firstsecond quarter of 2003 compared to 83.184.1 million in the second quarter of 2002. For the first six months of 2003, domestic shipments increased 2.8% to 171.9 million compared to 167.2 million in the first quarterhalf of 2002. The shipment growth is due to expansion of our deferred Ground Delivery Service (GDS) and airborne@home products. GDS growth has been strong since its introduction in April 2001, producing 13.915.3 and 29.2 million shipments in the second quarter and first quarterhalf of 2003, respectively, compared to 5.88.8 and 14.6 million shipments in the second quarter and first quarterhalf of 2002. Having achieved a higher level of GDS volume, we are focused on achieving a more balanced approach of yield management and volume growth. GDS shipment volume averaged 239,000 shipments per day in the second quarter of 2003, exceeding our target of 230,000 shipments per day. Our airborne@home product grew 10.7%increased 12.5% to 6.55.6 million shipments in the second quarter of 2003 compared to 5.0 million shipments in last year’s second quarter. This product averaged 88,000 shipments per day in the second quarter of 2003, which was below our target of 100,000 shipments per day due to a larger than expected decease in business from catalogue merchants. airborne@home shipments increased 11.5% to 12.1 million shipments in the first quarterhalf of 2003 compared to 5.910.9 million shipments in last year’s first quarter.the same period of 2002. The airborne@home service is intended to capture primarily business-to-consumer shipments from e-commerce and catalog fulfillment providers and utilizes an arrangement with the U.S. Postal Service to provide final delivery of the product.
Our core air express shipment volumes, which comprised 76.3%75.6% of our domestic shipment volumes in the firstsecond quarter of 2003, declined 8.0%7.5% to 65.765.0 million shipments compared to 71.470.3 million shipments in the firstsecond quarter of 2002. For the first six months of 2003, core air express shipment volumes declined 7.8% to 130.7 million compared to 141.7 million in 2002. We believe the decline is due to the difficult economic environment, in which tends to see customers tend to shift their business to lower yielding express and deferred services. Higher yielding Overnight shipments decreased 6.5% in the first quarter of 2003 compared to a decline of 12.6% in the first quarter of 2002. NAS shipment volumes decreased 7.6% in this year’s first quarter compared to 1.8% in the same quarter of 2002. SDS shipment volumes declined 11.7% compared to a decline of 3.6% in the first quarter of 2002.
International revenues increased 5.3%declined 7.6% in the firstsecond quarter of 2003 to $80.5$83.7 million compared to $76.5$90.5 million in the firstsecond quarter of 2002.2003. International revenues for the first half of 2003 declined 1.7% to $164.1 million compared to $167.0 million in the same period in 2001. Total international shipments decreased 2.1%6.3% to 1.4 million shipments in this year’s firstsecond quarter compared to an increasea decrease of 4.9%12.3% in the firstsecond quarter of 2002. Our lower-yielding, small package international express shipments declined 0.9%5.0% in the second quarter of 2003 and 3.0% in the first quarterhalf of 2003 compared to a decline of 16.9% in the same periodperiods of 2002. The higher yielding,higher-yielding, heavyweight international freight shipments declined 20.7%26.9% in the second quarter of 2003 and 23.9% for the first quarterhalf of 2003 compared to a 14.7% declinethe same periods a year ago. The international segment had a loss from operations of $1.7$.2 million in the second quarter of 2003 compared to a loss of $.4 million in the second quarter of 2002. The international segment loss was $1.9 million in the first quarterhalf of 2003 the same as reportedcompared to $2.1 million in the first quarterhalf of 2002.
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Operating expense per shipment decreased .5% to $9.33 in the second quarter of 2003 compared to $9.38 in the second quarter of 2002. Operating expense per shipment increased 3.1% to $9.46$9.39 in the first quartersix months of 2003 compared to $9.18$9.28 in the first quarter ofsame period in 2002 and $9.23 for the full year of 2002. While we continue to aggressively manage our costs and improve labor productivity, increases in fuel, employee healthcare and pension costs coupled with our merger-related costs and higher costs due to adverse weather experienced in the first quarter of 2003 resulted in higher costs measured on a per shipment basis in the first quarterhalf of 2003 compared to the same period in 2002. The decline in operating cost per shipment in the second quarter of 2003 was primarily due to lower levels of higher cost international freight shipments, which resulted in lower international airline costs. Labor productivity, as measured by shipments handled per paid employee hour, improved 3.7% compared to an improvement of 3.9%5.0% and 4.3% in the second quarter and first six months of 2003, respectively. This compares to improvements of 6.2% and 7.3% in the second quarter and first six months of 2002.2002, respectively.
Transportation purchased as a percentage of revenues increaseddecreased to 32.2% in the firstsecond quarter of 2003 as compared to 31.5%32.9% in the same period a year ago. For the first half of 2003, this category of expense comprised 32.2% of revenues, the same as in 2002. Total transportation purchased expense increased 6.6%decreased .5% in the firstsecond quarter of 2003 compared to last year. For the first six months of 2003, transportation purchased expense increased 2.9% compared to the first six months of 2002. The increasedecrease in total costs and costs as a percentage of revenues in the firstsecond quarter of 2003 was due primarily to lower international airline costs resulting from the decline in international freight shipment volumes. These declines were partially offset by incremental costs associated with higher GDS and airborne@home shipment volumes. Pickup and delivery costs paid to independent contractors and surface linehaul costs increased due to the higher volumes of these deferred service shipments. International airline costs also increased in the first quarter of 2003 due to additional weight transported.
Station and ground expense as a percentage of revenues was 33.9%33.4% in this year’s firstsecond quarter compared to 33.4%32.8% in the firstsecond quarter of 2002. For the first six months of 2003, this category of expense was 33.6% of revenues compared to 33.1% for the same period in 2002. Total station and ground expense increased 5.8%3.7% and 4.8% in the second quarter and first quarterhalf of 2003, respectively, compared to a year ago.the same periods in 2003. The cost increases in this category include additional wage and benefit costs and costs incurred to service deferred shipment growth. Additionally, the adverse winter weather in the first quarter of 2003, particularly in the Midwest and Northeast, had negative effects on shipment volumes and labor productivity and added an estimated $2.9$1.7 million to our facilities maintenance costs over levels incurred in the first quarter of 2002. Despite the weather disruptions, costCost increases in this category were partially offset by improvements in labor productivity.
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Flight operations and maintenance expense as a percentage of revenues was 17.2%16.1% in the firstsecond quarter of 2003 compared to 15.9%16.3% in the firstsecond quarter of 2002. ThisFor the first six months of 2003, this category of expense was 16.7% of revenues compared to 16.1% for the same period in 2002. These expenses increased 13.4%.4% in the firstsecond quarter of 2003 and 6.7% for the first half of 2003 compared to the same periods a year ago due primarily to higher jet fuel prices and aircraft deicing costs compared to the same period in 2002.costs. The average aviation fuel price per gallon was $1.12$.94 in the second quarter and $1.03 in the first quarterhalf of 2003 compared to $.71 and $.93$.82 in the second quarter and $.76 for the first and fourth quartershalf of 2002, respectively.2002. Fuel prices peaked at $1.21 per gallon in March 2003 and declined somewhatdue to the conflict in April 2003 to $1.04 per gallon.the Middle East. To mitigate potential exposure from extreme price increases in jet fuel, we have periodically entered into call option contracts on heating oil to hedge a significant portionportions of our projected jet fuel requirements. In MarchWhile no contracts were outstanding as of June 30, 2003, a contract expired thatwe were covered most of our consumption forunder contracts during the first quartersix months of 2003. No proceeds were received under this contract. In February 2003 we entered into a contract for the three-month period extending through June 2003. This contractthat would mitigatehave mitigated exposure on most of our consumption if prices were to risehad risen above $1.26 per gallon. Aviation fuel consumption decreased 4.8%6.1% in the firstsecond quarter to 36.536.2 million gallons and decreased 5.5% for the first six months of 2003 compared to a decrease of 12.0%the same periods in the first quarter of 2002. The decrease in consumption was primarily due to the reduction and combination of certain flight segments and the placement of three 767 aircraft in service since the firstsecond quarter of 2002, which has allowed less fuel efficient DC-8 aircraft to be moved to shorter lane segments or backup status or removed from service. Flight operations and maintenance expense was negatively impacted by the adverse winter weather, which caused deicing costs, among other cost increases, to increase $1.7 million in the first quarter of 2003 compared to the first quarter of 2002. Aircraft maintenance expenses were 5.7%5.9% of revenues in the firstsecond quarter of 2003 compared to 5.8%6.0% in the firstsecond quarter of 2002. For the first half of 2003, aircraft maintenance expenses were 5.8% of revenues in comparison to 5.9% for the same period in 2002.
General and administrative expense as a percentage of revenues was 8.8%8.9% in the second quarter and first quartersix months of 2003 compared to 8.3%8.2% in the second quarter and first quartersix months of 2002. Total general and administrative costs increased 11.4%10.4% and 10.9% in the second quarter and first quarter of 2003six months, respectively, compared to the first quarter ofsame periods in 2002. Included in this category of expense in the second quarter and first quarter washalf of 2003 were approximately $6.0$2.3 million and $8.3 million, respectively, for legal and professional expenses incurred due to our proposed merger with DHL. Also included in general and administrative expenses were increases of $2.7$2.8 million in the second quarter and $5.5 million in the first half of 2003 in pension expense associated with our Company-sponsored retirement plans. As expected, our defined benefit pension plans. As expected, pensionplan costs increased due to market-driven events, including negative investmenthistorical returns on plan assets that were less than expected and lower discount rates applied to future pension obligations. These increased costscost increases were partially offset by a $2.6 million, recorded in the first quarter of 2003, from insurance recoveryrecoveries related to the disruption of our New York operations after the events of September 11, 2001. In the second quarter of 2002, we incurred $2.3 million in non-recurring restructuring charges in connection with certain domestic and international operational realignments.
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Sales and marketing expenses as a percentage of revenues decreased to 2.6% in the second quarter and first half of 2003 compared to 2.9% in the second quarter and first half of 2002. Lower packaging costs and wage expenses resulted in a decline in this category of expense in comparison to the second quarter and first half of 2002.
Employee healthcare costs increased $5.0$6.0 million in the first quarterhalf of 2003 over levels incurred in the first quarterhalf of 2002. The increase in costs is due primarily to higher utilization of plan benefits and general healthcare industry cost trends. These costs are included in the station and ground, flight operations and maintenance, general and administrative and sales and marketing expense categories.
Sales and marketing expenses as a percentage of revenues decreased to 2.6% in the first quarter of 2003 compared to 2.8% in the first quarter of 2002. Lower packaging expenses resulted in a 2.3% decline in this category of expense in comparison to the first quarter of 2002.
Depreciation and amortization expense totaled 5.4% of revenues in the second quarter and first quarterhalf of 2003 in comparison to 5.8% and 6.2%6.0% in the second quarter and first quarterhalf of 2002.2002, respectively. Depreciation and amortization expense decreased 9.5%4.6% in the second quarter and 7.1% in the first quarterhalf of 2003 compared to the same periodperiods in 20022002. The decline in depreciation and amortization expenses was due to relatively lower levels of capital expenditures made over the past several years coupled with the timing of certain aircraft assets becoming fully depreciated.
Interest income increaseddecreased to $1.1$1.2 million in the firstsecond quarter of 2003 compared to $.8$1.5 million in the firstsecond quarter of 2002. The increase inFor the first six months of 2003 and 2002, interest income was $2.3 million. The decrease in the second quarter of 2003 is due primarily to higher average levels oflower interest rates earned on cash equivalent short-term investments resulting from liquidity actions we have taken over the last year.equivalents.
Interest expense decreased in the firstsecond quarter of 2003 compared to the same period a year ago due to lower average interest rates and reduced levels of average borrowings outstanding coupled with higher levels of capitalized interest and lower average interest rates. There was no interestinterest. Interest capitalized, during the first quarter of 2002 compared to $.3 million of capitalized interest in the first quarter of 2003primarily on the acquisition and modification of 767 aircraft.aircraft, during the second quarter and first half of 2003 was $.7 million and $1.0 million, respectively. Interest capitalized during the second quarter and first half of 2002 was $.4 million.
Discounts on the sales of receivables associated with recording the obligation to fund the purchaser’s costs under our accounts receivable securitization facility were $1.1$1.0 million and $2.1 million in the second quarter and first quarterhalf of 2003 compared to $1.3$.9 million and $2.2 million in the second quarter and first quarterhalf of 2002. The decreaseincrease in cost in the second quarter of 2003 is due to lower discounts on amountshigher levels of average receivables sold as a result ofunder the lower interest rate environment.facility. Because of the sales recognition treatment associated with these securitization transactions, the cost is recorded separateseparately from interest expense.
Included in other income in the first quarterhalf of 2002 was a non-recurring gain of $1.7 million from the sale of an equity interest in one of our international agents.
Our effective tax benefitexpense rate of 40.3%39.5% in the firstsecond quarter of 20022003 compares to a tax expense rate of 40.9%61.0% in the firstsecond quarter of 2003.2002. The effective tax rate in the second quarter of 2002 was impacted by the relatively low levels of earnings and by nondeductible expenses. For the first six months of 2003, our effective tax benefit rate was 41.9% compared to a tax expense rate of 43.2% in the same period of 2002.
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Merger with DHL
On March 25, 2003, we entered into a definitive merger agreement with DHL Worldwide Express B.V. (DHL) and Atlantis Acquisition Corporation, a wholly-ownedwholly owned indirect subsidiary of DHL (Atlantis). A copy of the merger agreement was included as an exhibit to a Form 8-K that we filed with the SEC on April 4, 2003. Under the terms of the agreement, (1) Airborne’s air operations will be separated from the ground operations and retained by ABX Air, Inc. (ABX) (our wholly-owned subsidiary that provides us with domestic air express cargo transportation service), (2) DHL will acquire the ground operations (including all operations currently conducted by Airborne Express, Inc., including its book of business, customer service, express and deferred services and products, and pick up and delivery network) through a merger of Airborne and Atlantis, and (3) Airborne shareholders will receive, for each share of Airborne common stock held, $21.25 in cash (representing total cash consideration in the transaction of $1.05 billion) and one share of common stock of ABX. Upon closing of the transaction, Airborne will operate as an indirect wholly-owned subsidiary of DHL, and ABX will become an independent public company wholly-owned by Airborne’s former shareholders (although under certain circumstances, in accordance with the merger agreement, DHL could purchase all of Airborne’s operations and Airborne shareholders would receive alternative consideration of $21.65 per share in cash). A definitive proxy statement regarding the proposed transaction was filed with the SEC on July 11, 2003 and a shareholder vote on the merger is scheduled for August 14, 2003 at our Annual Meeting of Shareholders. The waiting period under the Hart-Scott-Rodino Antitrust Improvement Act has expired. We anticipate the transaction which is subject to shareholder and regulatory approvals, is targeted to be completed in the third quarter of 2003.
The separation will affect ABX’s organizational documents in a number of ways including an amendment and restatement of its certificate of incorporation and bylaws. These changes include the addition of supermajority voting provisions and the implementation of a rights plan that among other factors may tend to increase the likelihood, as desired by DHL in its negotiations with us, that ABX will be an independent company. This desire reflects DHL’s anticipated dependence on ABX for a substantial amount of lift and sort capacity in the United States. We believe that the substantial cash premium offered by DHL in the Merger was in part dependent upon meeting DHL’s desires for ABX independence in this regard.
Upon closing of the transaction, the net assets of the ground portion of ABX (including its central and regional sort facilities, runways, taxiways, aprons, buildings serving as aircraft and equipment maintenance facilities, storage facilities, a training center and both operations and administrative offices) will be transferred to Airborne as part of the ground operations to be merged with Atlantis. Additionally, in connection with the transaction, ABX will enter into a number of commercial agreements with Airborne, including an ACMI (aircraft, crew, maintenance and insurance) agreement and a hub services agreement.
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Upon the separation of ABX from Airborne, ABX will be required to perform a cash flow recoverability test to determine the existence of a potential impairment as required by SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under provisions of this statement, assuming an impairment charge is identified through this test, a company is required to record an impairment charge for the excess of the carrying amount of the long-lived asset group over its fair value. We anticipate,expect, given the cash flows to be derived from the ACMI agreement coupled with the decline in market values for used aircraft and related equipment, that ABX will incur a significant impairment charge as a result of the separation. We estimate the charge and related reductions to historical property and equipment, spare parts inventories and other asset balances would have been $633$611 million as of December 31, 2002,June 30, 2003, had the separation occurred as of that date. The charge ultimately recorded will depend on a number of factors that could occur before the separation date, including but not limited to, changes in the fair values of used aircraft and related equipment.
Outlook
The performance of the U.S. and global economies will have an impact on our operating results for the balance of 2003 and beyond. As the economy does not appear to be showing signs of sustained growth, we are cautious regarding the prospects of shipment growth in our core air express products. While we expect 2003 will show overall shipment growth, these increases will come from our deferred products as we anticipate our core air express volumes will decline on a year-over-year basis, including declines in the secondthird quarter of 2003. We are targeting 220,000250,000 to 230,000260,000 GDS shipments per day, and 100,00075,000 to 110,00085,000 airborne@home shipments per day in the secondthird quarter.
We expect continued operating performance pressure in 2003 from higher operating costs, due in part to higher GDS shipment volumes, increased pension and employee healthcare costs, and higher fuel expenses. The levellevels of legal and professional expenses in 2003 are expected to remain higher than in 2002 due to ongoing work related to the DHL transaction. Fuel prices, while having abated some from the March 2003 level, will likely remain higher than levels experienced in the secondthird quarter of 2002. While the increased fuel surcharge revenues should help mitigate the increase in fuel costs, it may be difficult to completely offset incremental fuel costs compared to last year.
On August 7, 2003, the Company and the International Brotherhood of Teamsters, which represents our flight crewmembers, reached a tentative agreement on a labor contract that extends through July 31, 2006. The agreement, which is subject to ratification by the pilots membership, amends a contract that became amendable on July 31, 2001. Provisions of the agreement include a contract-signing bonus, wage increases in each of the three years remaining under the contract and changes to scope and successorship language.
Financial Condition, Liquidity and Capital Resources
Our operating cash flow is a major source of liquidity. Cash provided by operating activities was $37.9$87.1 million in the first quarterhalf of 2003 compared to $75.1$54.9 million in the first quarter inhalf of 2002. The declineincrease in operating cash provided by operating activitiesflow was due primarily to payments made in 2002 to reduce the amount of receivables outstanding under our securitization facility. Our operating cash flows in 2003 were negatively impacted by lower operating performance coupled with increases of $25.2 million in restricted cash. In September 2003, cash flows will be impacted by a planned contribution of $39.7 million to our Company-sponsored defined benefit pension plans. Cash and cash equivalents, including restricted cash were $378.5$423.4 million and $376.2 million as of March 31,June 30, 2003 and December 31, 2002, respectively. Included in theseRestricted cash and cash equivalent totals are restricted cash balances, whichamounts are restricted from general use and held in insurance trusts to support a portion of outstanding self-insured casualty liabilities, including workers’ compensation, automobile and general liability coverages. Restricted cash balances were $51.4$61.6 million and $36.3 million as of March 31,June 30, 2003 and December 31, 2003. There were no restricted cash balances at March 31, 2003.2002.
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Capital expenditures and financing associated with those expenditures are significant factors that affect our financial condition. During the first quarterhalf of 2003, capital expenditures, net of dispositions, were $50.2$61.9 million compared to $27.2$57.7 million in the first quarterhalf of 2002. A significant portion of our capital expenditures relates to the acquisition and modification of aircraft and related flight equipment. In the first quarterhalf of 2003, we took delivery of two 767 aircraft compared to one 767 delivery in the first quarter of 2002. We anticipateand plan on taking delivery of threeone additional 767 aircraft in 2003, the same number of aircraft deliveries as in 2002.this year. Our level of capital spending for 2003 is anticipated to be $150.0$150 million, an increase of $41.6 million over 2002 spending of $108.4 million. The increase inIn addition to the three aircraft mentioned, we anticipate incurring other capital spending is primarily the result of sort facility expansion and improvement as well as technology investments.expenditures that maintain or enhance service. In addition to our capital expenditures, we financed $4.2operating and capital leases of $9.4 million and $17.7 million were entered into in the first half of 2003 and 2002, respectively, to finance the acquisition of delivery vehicles and shipment scanning equipment through operating and capital leases in the first quarter of 2003 compared to $2.8 million in the first quarter of 2002.equipment.
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In addition to our existing cash and cash equivalent reserves,equivalents, we had eligible receivables as of March 31,June 30, 2003 to support an additional $50$42.7 million of sales proceeds under our accounts receivable securitization facility. The facility is accounted for as a sale of assets, and accordingly, receivables sold and the amounts outstanding under the facility are not reflected on the consolidated balance sheet. At March 31,June 30, 2003 and December 31, 2002 we had received $200 million in sales proceeds under the facility.
As of March 31,June 30, 2003 we had a revolving bank credit agreement that provided for a total commitment of $275$200 million. InThis agreement was amended in April 2003 we amended this agreement and expires in June 2004. The amendment reduced the total facility to $200 million from $275 million and revised most of the financial covenants effective for the first quarter of 2003.covenants. The agreement is collateralized by a substantial majority of our assets and contains restrictions that reduce the amount of available borrowing capacity by the amount of outstanding letters of credit and by amountsan amount based on leverage limitation provisions and the level of eligible collateral. TheCapacity under the agreement requiresis dependent on a periodic appraisal of our aircraft to re-measureborrowing base determined by the levelamount of eligible collateral. An appraisal is in process and we estimateAs of June 30, 2003, the results will support the $100 million, 7.35% senior notes, which are collateralized by the same processes, and outstanding letters of credit ofborrowing base supported approximately $50 million under the revolving credit facility. Support for the remaining $51$58 million of outstanding letters of credit will requirecredit. In July 2003 we pledged cash of $43 million in support for our remaining outstanding letters of credit. We have the ability to increase the borrowing base by pledging additional eligible collateral, although we have no plans to pledge of additional collateral by July 15,at this time. As of June 30, 2003, (e.g. cash, cash equivalents or accounts receivable resulting from reduction of amounts sold through the accounts receivable sercuritization facility). We do not plan on pledging additional collateral to create availableno capacity exists under the agreement for general borrowing purposes. The assets pledged also sufficiently collateralize our $100 million, 7.35% senior notes. We were in compliance with all restrictive covenants as of June 30, 2003.
The Company’s quarterly dividend of $.04 per share will only be paid to shareholders if the merger with DHL closes on August 19 or thereafter.
In our opinion, existing cash and cash equivalents coupled with anticipated cash flow from operations and available capacity under the accounts receivable securitization facility should provide adequate flexibility for financing operations and capital expenditures in 2003.
While we believe we have the ability to sufficiently fund our planned operations and capital expenditures for 2003, certain circumstances could arise that would materially affect liquidity. Cash flows from operations could be affected by continued deterioration in core shipment volumes caused by a continued slow economy, further geopolitical conflicts or terrorist attacks, or our inability to successfully implement sales growth initiatives in a cost effective manner. Operating results could also be negatively impacted by prolonged labor disputes or changes in our cost structure from areas such as a significant rise in fuel prices. Weakening operating performance also could result in our inability to remain in compliance with financial covenants contained in our bank credit and accounts receivable securitization agreements, thereby reducing liquidity sources and potentially requiring the further restriction of cash to support outstanding letters of credit. Lower revenues could also cause amounts currently drawn under the securitization facility to be reduced.
Critical Accounting Policies and Estimates
The “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations”, as well as disclosures included elsewhere in the Form 10-Q, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to select appropriate accounting polices and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. In certain cases, there are alternative polices or estimation techniques which could be selected. On an on-going basis, we evaluate our selection of policies and the estimation techniques we use, including those related to revenue recognition, postretirement liabilities, bad debts, self-insurance reserves, accruals for labor contract settlements, valuation of spare-parts inventory, useful lives, salvage values and impairmentsimpairment of property and equipment, income taxes, contingencies and litigation. We base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of the consolidated financial statements.
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Revenue Recognition
We recognize revenue when shipments are delivered to the customer. our customers. Pricing for our services, including ancillary fees and fuel surcharges, are based on fixed tariffs established with our customers.
For shipments picked up but not delivered, direct costs are deferred and recognized upon delivery. We estimate the amount of direct costs to be deferred utilizing recent shipment levellevels cost trends applied to the actual shipments in transit as of a particular reporting date.
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Asset Valuation
We maintain an allowance for doubtfulon our accounts receivable balances for estimated losses resulting from the potential inability of our customers to make required payments.payments and by billing correction adjustments. This allowance is estimated based on historical credit losses and billing correction trends, and considers the current aging of outstanding accounts receivables. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, or billing correction trends were to negatively change, additional allowances may be required.
We continually evaluate the useful lives, salvage values and fair values of our property and equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result from changes in the estimated useful lives of assets due to a number of factors, such as a determination that excess capacity exists in our air or ground networks, or changes in regulations grounding the use of our aircraft. When an asset is considered impaired, the asset is adjusted to its fair value.
We value our aircraft spare parts inventory at weighted-average cost and maintain a related obsolescence reserve. A provision for spare parts obsolescence is recorded over the estimated useful life of our aircraft and considers the amount of spare parts expected to be on hand on the date the aircraft are anticipated to be removed from service. Should changes occur regarding expected spare parts to be on hand or anticipated useful lives of aircraft, revisions to the estimated obsolescence reserve may be required.
We have not recorded a valuation allowance to reduce our deferred tax assets, as we believe it is more likely than not that the deferred tax asset will be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for thea valuation allowance. Should we determine that we will not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.
Self-Insurance
We self-insure certain claims relating to workers compensation, automobile, general liability, healthcare and loss and damage on customer shipments. We record a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data, recent claims trends and, in the case of workers compensation and healthcare, independent actuarial reports. Changes in claim severity and frequency could result in actual claims being materially different than the amounts provided for in our annual results of operations.
Contingencies
We are involved in legal matters that have a degree of uncertainty associated with them. We continually assess the likely outcomes of these matters and the adequacy of amounts, if any, provided for these matters. There can be no assurance that the ultimate outcome of those matters will not differ materially from our assessment of them. There also can be no assurance that we know all matters that may be brought against us at any point in time.
Postretirement Obligations
We sponsor qualified defined benefit pension plans and healthcare plans that provide postretirement benefits for certain union and a substantial portion of our non-union employees. Additionally, we have unfunded excess plans for certain employees, including our executive management, that provide benefits in addition to amounts permitted to be paid under provisions of the tax law to participants in our qualified plans.
The accounting and valuation for these postretirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long-term nature of these benefit payouts increases the sensitivity of certain estimates on our postretirement costs. In actuarially valuing our pension obligations and determining related expense amounts, assumptions we consider most sensitive are discount rates, expected long-term investment returns on plan assets and future salary increases. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. For our postretirement healthcare plans, consideration of future medical cost trend rates is a critical assumption in valuing these obligations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our annual results of operations.
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New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (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 adoption of SFAS No. 143, which is effective for our fiscal year beginning on January 1, 2003, did not have a significant impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Previous guidance, provided under Emerging Issues Task Force Issue 94-3, required an exit cost liability to be recognized at the date of an entity’s commitment to an exit plan. The provisions of this statement are effective for our exit or disposal activities that are initiated on or after January 1, 2003. Implementation of this statement did not have a significant impact on our financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123.”123”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,”Compensation”, to provide alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in our annual and interim consolidated financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We currently plan to follow the provisions of Accounting Principles Board (APB) Opinion No. 25 in accounting for our stock option plans until such time as new accounting rules are adopted which require recognition of the fair value of stock options as compensation. Accordingly, implementation of this statement will currently not have a significant impact on our financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” which requires the consolidation of variable interest entities, as defined. We sell our receivables to a commercial paper conduit. Since the fair value of our receivables are less than half of the overall conduit’s assets, we do not have a variable interest in the conduit under this interpretation and therefore, no consolidation is required. This interpretation was effective for us on January 31, 2003 and did not have a material impact on our financial position, results or operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”Activities”. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.”Activities”. The clarification provisions of this statement require that contracts with comparable characteristics be accounted for similarly. This statement is effective for any new derivative instruments we enter into after June 30, 2003. Implementation of this statement is not anticipated to have a significant impact on our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments and characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope which possesses certain characteristics, and was previously classified as equity, as a liability (or an asset in some circumstances). The provisions of this statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of the provisions of SFAS No. 150 is not expected to have a material impact on our financial position or results of operations.
Item 3. |
To mitigate potential exposure from extreme increases in fuel prices, we had entered into call option contracts on heating oil to hedge significant portions of our projected jet fuel requirements for the first six months of 2003. No payments were received under these contracts, which would have mitigated fuel price exposure on most of our consumption if prices had risen above $1.26 per gallon. These contracts had expired as of June 30, 2003 and we currently have no other contracts outstanding. We may enter into contracts in future periods depending on pricing and market conditions.
ThereOther than discussed above, there have been no material changes in market risks from the information provided in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, contained in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2002.
Item 4. |
(a) Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
As of June 30, 2003, the Company had carried out an evaluation, under the supervision and with the participation of the Company’s management, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon the evaluation, the Company’s Chairman and Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within time periods specified in Securities and Exchange Commission rules and forms.
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the date of the evaluation. There were no significant deficiencies or material weaknesses, and therefore, there were no corrective actions taken.
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(b) Evaluation of Disclosure Controls and Procedures
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the date of the evaluation. There were no significant deficiencies or material weaknesses, and therefore, there were no corrective actions taken.
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Item 5. | Other Information |
The Audit Committee of the Board of Directors approved the categories of all non-audit services performed by the Company’s independent accountants during the period covered by this report.
PART II. OTHER INFORMATION
Item 6. | Exhibits and Reports on Form |
(a) Exhibits –
EXHIBIT NO. 10 | Material Contracts | |
10(a) | Employment Agreement Amendment dated April 11, 2003 between Airborne, Inc., Airborne Express, Inc. and Mr. Lanny H. Michael, Executive Vice President and Chief Financial Officer. A substantially identical agreement has been entered into with Mr. Carl D. Donaway, Chairman and Chief Executive Officer. | |
10(b) | Employment Agreement Amendment dated April 11, 2003 between Airborne, Inc., Airborne Express, Inc. and Mr. Bruce Grout, Senior Vice President, International. Substantially identical agreements have been entered into with three other executive officers. | |
10(c) | Employment Agreement Amendment dated April 11, 2003, between Airborne Inc., Airborne Express, Inc. and Mr. Robert T Christensen, Vice President, Controller. Substantially identical agreements have been entered with most of the Company’s remaining officers. | |
EXHIBIT NO. 12 | Statements Regarding Computation of Ratios | |
12.1 | Ratio of Earnings to Fixed Charges | |
EXHIBIT NO. 31 | ||
31(a) | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31(b) | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
EXHIBIT NO. 32 | ||
32(a) | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32(b) | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(b) Reports on Form 8-K –
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(b) Reports on Form 8-K –
On February 4, 2003, the Company filed a Form 8-K to announce that the Board of Directors voted to amend the Company’s bylaws so that each class of directors elected subsequent to the 2003 annual meeting of shareholders will have a term of one year. The amended and restated bylaws and a press release announcing the action were filed as exhibits thereto.
On March 24, 2003, the Company filed a Form 8-K to furnish a press release that confirmed it was in discussions with DHL Worldwide Express regarding a potential transaction in which DHL would acquire Airborne’s ground operations for cash at a premium to Airborne’s current stock price. As part of the transaction, Airborne’s air operations would become an independent public company that would continue to be wholly owned by Airborne’s current shareholders.
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On April 3, 2003, the Company filed a Form 8-K that furnished certain agreements pursuant to the Company’s proposed merger with DHL Worldwide Express B.V. The filing also provided certain background information regarding the transaction in addition to announcing that the Company’s regular annual shareholders’ meeting had been postponed and its intent to combine its regular meeting with the shareholders’ meeting to approve the merger.
On April 30, 2003, the Company filed a Form 8-K to furnish certain press releases concerning its financial results for the quarter ended March 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
AIRBORNE, INC. | ||||||||
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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carl D. Donaway, certify that:
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(Registrant) | ||||||||
Date: 8/8/03 | /s/ CARL D. DONAWAY | |||||||
Carl D. Donaway Chairman and Chief Executive Officer |
Date: 8/8/03
26/s/ LANNY H. MICHAEL
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lanny H. Michael certify that:
Executive Vice President and
Chief Financial Officer
Date: 8/8/03 | /s/ ROBERT T. CHRISTENSEN |
Robert T. Christensen Chief Accounting Officer |
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