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, 1995
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State of incorporation or organization)
91-0837469
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(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
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(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: XXX No:
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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 315,150 treasury shares)
as of March 31, 1995 21,050,336 shares
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AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended
March 31
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1995 1994
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REVENUES:
Domestic $442,177 $396,884
International 87,739 69,668
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529,916 466,552
OPERATING EXPENSES:
Transportation purchased 188,785 154,998
Station and ground operations 165,114 145,210
Flight operations and maintenance 78,061 65,782
General and administrative 37,494 35,716
Sales and marketing 15,631 13,295
Depreciation and amortization 34,802 33,765
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519,887 448,766
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EARNINGS FROM OPERATIONS 10,029 17,786
INTEREST, NET 6,725 5,941
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EARNINGS BEFORE INCOME TAXES 3,304 11,845
INCOME TAXES 1,424 4,845
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NET EARNINGS 1,880 7,000
PREFERRED STOCK DIVIDENDS 71 584
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NET EARNINGS AVAILABLE TO COMMON $1,809 $6,416
SHAREHOLDERS
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NET EARNINGS PER COMMON SHARE $.09 $.32
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DIVIDENDS PER COMMON SHARE $ .075 $ .075
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See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31 December 31
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1995 1994
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash $ 10,815 $ 10,318
Trade accounts receivable, less allowance 217,635 221,788
of $7,550 and $7,500
Spare parts and fuel inventory 29,643 28,071
Deferred income tax assets 12,862 12,458
Prepaid expenses 22,242 20,701
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TOTAL CURRENT ASSETS 293,197 293,336
PROPERTY AND EQUIPMENT, NET 790,662 766,346
EQUIPMENT DEPOSITS and OTHER ASSETS 18,125 18,824
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TOTAL ASSETS $1,101,984 $1,078,506
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable $ 121,479 $ 117,194
Salaries, wages and related taxes 41,016 43,858
Accrued expenses 63,853 59,053
Income taxes payable 104 342
Current portion of debt 6,079 6,018
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TOTAL CURRENT LIABILITIES 232,531 226,465
LONG-TERM DEBT 300,168 279,422
SUBORDINATED DEBT 118,580 118,580
DEFERRED INCOME TAX LIABILITIES 29,656 30,402
OTHER LIABILITIES 28,101 31,239
REDEEMABLE PREFERRED STOCK 3,948 5,000
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares, no shares
issued
Common stock, par value $1 per share -
Authorized 60,000,000 shares
Issued 21,365,486 and 21,285,924 shares 21,366 21,286
Additional paid-in capital 185,661 184,369
Retained earnings 182,944 182,714
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389,971 388,369
Treasury stock, 315,150 shares, at cost (971) (971)
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389,000 387,398
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,101,984 $1,078,506
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See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
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1995 1994
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OPERATING ACTIVITIES:
Net Earnings $ 1,880 $ 7,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 32,335 31,319
Provision for aircraft engine 2,467 2,446
overhauls
Deferred income taxes (1,150) (1,006)
Other (3,175) (3,495)
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CASH PROVIDED BY OPERATIONS 32,357 36,264
Change in:
Receivables 4,153 (10,448)
Inventories and prepaid expenses (3,113) 1,183
Accounts payable 4,285 6,133
Accrued expenses, salaries and taxes 1,720 7,321
payable
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NET CASH PROVIDED BY OPERATING ACTIVITIES 39,402 40,453
INVESTING ACTIVITIES:
Additions to property and equipment (55,588) (49,106)
Dispositions of property and equipment 55 39
Expenditures for engine overhauls (2,555) (676)
Other (291) (1,443)
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NET CASH USED IN INVESTING ACTIVITIES (58,379) (51,186)
FINANCING ACTIVITIES:
Proceeds on bank notes, net 33,700 6,200
Principal payments on debt (12,893) (453)
Proceeds from common stock issuance 320 2,636
Dividends paid (1,653) (2,149)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 19,474 6,234
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NET INCREASE (DECREASE) IN CASH 497 (4,499)
CASH AT JANUARY 1 10,318 7,134
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CASH AT MARCH 31 $ 10,815 $ 2,635
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See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(Unaudited)
NOTE A--SUMMARY OF FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements included herein are unaudited but
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the
1995 presentation.
NOTE B--LONG-TERM DEBT:
Long-term debt consists of the following:
March 31 December 31
1995 1994
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(In thousands)
Senior debt:
Revolving bank credit $170,000 $135,000
Notes payable 15,700 17,000
Senior notes 100,000 100,000
Revenue bonds 13,200 13,200
Other debt 3,777 16,670
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302,677 281,870
Subordinated debt:
Senior subordinated notes 7,150 7,150
Convertible subordinated debentures 115,000 115,000
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122,150 122,150
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Total long-term debt 424,827 404,020
Less current portion 6,079 6,018
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$418,748 $398,002
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NOTE C--EARNINGS PER COMMON SHARE:
Net earnings per common share are computed by dividing net earnings
available to common shareholders by the weighted average number of common
shares outstanding during the interim period plus dilutive common
equivalent shares applicable to the assumed exercise of employee stock
options. Fully diluted earnings per common share are the same as net
earnings per common share for the interim periods presented herein.
Average common shares outstanding used in earnings per share computations
at March 31, 1995 and 1994 were 21,184,000 and 20,173,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the first quarter of 1995 resulted
in significantly lower operating income and net earnings compared to the
first quarter of 1994. Domestic yields were negatively impacted by a
decline in the average weight per shipment. Coupled with the higher growth
rate of lower yielding deferred service shipments, this resulted in a
higher than normal decline in the average revenue per domestic shipment.
Operating costs per shipment were lowered during the quarter, aided by
strong productivity improvement. However, the operating cost decreases
were not adequate to keep pace with the decline in average revenue per
shipment.
Net earnings available to common shareholders for the first quarter of 1995
were $1.8 million, or $.09 per share, compared to $6.4 million, or $.32 per
share for the first quarter of 1994.
The following table sets forth selected shipment and revenue data for
the periods indicated:
Three Months Ended March 31
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1995 1994
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Shipments (in thousands):
Domestic
Overnight
Letters 9,130 8,476
0-2 Lbs. 12,013 10,788
3-99 Lbs. 10,472 9,628
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31,615 28,892
Select Delivery Service
0-2 Lbs. 13,903 9,566
3-99 Lbs. 7,676 5,782
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21,579 15,348
100 Lbs. and over 81 86
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Total Domestic 53,275 44,326
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International
Express 936 804
All Other 130 112
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Total International 1,066 916
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Total Shipments 54,341 45,242
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Average Pounds per Shipment:
Domestic 4.5 4.7
International 67.8 61.5
Average Revenue per Pound:
Domestic $ 1.82 $ 1.90
International $ 1.22 $ 1.23
Average Revenue per Shipment:
Domestic $ 8.29 $ 8.95
International $82.31 $76.06
Total shipments increased 20% in the first quarter of 1995 compared to 18%
in the first quarter of 1994. Total revenues increased 14% in the first
quarter of 1995 compared to 17% in 1994.
Domestic shipments increased 20% in the first quarter of 1995 compared to
18% for the same period of 1994. The growth in domestic shipments
continued to be aided by strong growth in the Company's deferred service
product, Select Delivery Service (SDS). For the first quarter of 1995, SDS
accounted for over 40% of total domestic shipments, compared to 35% for the
first quarter of 1994. Domestic overnight shipment growth was 9% in the
first quarter of 1995 compared to 11% for the same period in 1994.
Domestic revenues increased 11% in the first quarter of 1995, compared to
15% in 1994. Revenue growth was negatively impacted by a 3.5% decline in
the average weight per domestic shipment. This decline in average weight
in combination with the trend of a higher growth rate in lower yielding SDS
shipments, resulted in a decrease in the average revenue per domestic
shipment of more than 7.5% to $8.29 per shipment in the first quarter of
1995 versus $8.95 in 1994. The decline in average weight per shipment is
assumed to be due to the market place adjusting to current inventory levels
and economic conditions. The stabilization of domestic weight per shipment
and related revenue per shipment yields will be key to quarterly results in
upcoming quarters of 1995.
International shipments increased 16% in the first quarter of 1995 compared
to 9% in 1994. The growth in international shipments continues to be aided
by the growth in higher yielding freight shipments which increased 16% in
the first quarter of 1995 compared to 19% for the same period of 1994.
International revenues increased 26% in the first quarter of 1995 compared
to 32% in 1994. International revenue per shipment and the average weight
per shipment increased significantly as a result of the continued strong
unit growth in higher yielding freight shipments.
Operating expenses as a percentage of revenues were 98.1% for the first
quarter of 1995 compared to 96.2% in the first quarter of 1994 and 95.5%
for all of 1994. Operating cost per shipment handled decreased 3.5% for
the first quarter of 1995 compared to 2% decrease in 1994. During the
early part of the first quarter of 1994, operating expenses were negatively
impacted by severe winter weather and the California earthquake. The
Company experienced a 9.5% improvement in productivity for the first
quarter of 1995, as measured by shipments handled per paid employee hour,
compared to 6% in first quarter of 1994. Comparisons of certain operating
expense components are discussed below.
Transportation purchased increased as a percentage of revenues to 35.6% in
the first quarter of 1995 compared to 33.2% in 1994. This increase was
primarily due to additional commercial airline costs resulting from the
growth in international freight shipments discussed above.
Station and ground expense as a percentage of revenues was 31.2% in the
first quarter of 1995 which is comparable to the first quarter of 1994, as
productivity gains achieved offset any inflationary pressures on costs.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1995 was 14.7%, compared to 14.1% in the first
quarter of 1994. The average aviation fuel price for the first quarter of
1995 was $.59 per gallon compared to $.60 per gallon in the first quarter
of 1994. Aviation fuel consumption increased to 33.7 million gallons in
the first quarter of 1995, a 12% increase compared to the first quarter of
1994. The increase in fuel consumption is a result of additional Company
operated aircraft placed in service since the first quarter in 1994. The
effect of comparatively lower average fuel costs in the first quarter of
1995 was offset by higher aircraft maintenance costs. The Company
anticipates aircraft maintenance costs in the second quarter of 1995 will
be comparable to the first quarter costs, but will decrease as a percent of
revenues in the third and fourth quarters.
The increased number of aircraft in service also accounted for the increase
in depreciation and amortization expense in the first quarter of 1995.
General and administrative and sales and marketing expenses on a combined
basis decreased as a percentage of revenues in the first quarter of 1995
compared to 1994. This was primarily the result of continuing productivity
gains and a strong focus on all discretionary spending.
Interest expense in the first quarter of 1995 was higher than the same
period of 1994. This increase was the result of slightly higher average
outstanding borrowings combined with higher effective interest rates.
The Company's effective tax rate was 43.1% in the first quarter of 1995
compared to 40.9% in the first quarter of 1994 and 39.6% for all of 1994.
The higher effective tax rate for the first quarter of 1995 was a result of
certain taxes that are not directly related to the level of earnings.
LIQUIDITY AND CAPITAL RESOURCES:
Capital expenditures and associated financing continue to be the primary
factors affecting the financial condition of the Company. The Company
anticipates total capital expenditures to approximate $235 million in 1995,
of which a significant portion is related to the acquisition and
modification of aircraft. During the first quarter of 1995, total capital
expenditures net of dispositions were $56 million. The principal sources
of liquidity for financing capital expenditures during the first quarter of
1995 were cash provided by operations and financing under the Company's
bank lines of credit.
The Company's unsecured revolving bank credit agreement has traditionally
been used as a major source of liquidity for periods between other
financing transactions. The Company also has available $45 million under
unsecured uncommitted money market lines of credit with several banks, used
in conjunction with the revolving credit agreement to facilitate settlement
and accommodate short-term borrowing fluctuations. At March 31, 1995, a
total of $185.7 million was outstanding under the revolving bank credit and
money market credit lines.
The Company amended its revolving bank credit agreement effective
March 31, 1995, increasing the total commitment from $240 million to $250
million, subject to a maximum level of Company indebtedness permitted by
certain covenants in the agreement and other loan agreements. The amended
agreement is effective through May 31, 1998, with option to extend to
May 31, 2000.
The $100 million aircraft financing facility commitment with Mitsui & Co.
expired in March 1995.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1995
operations and other sources of borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1995.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
EXHIBIT NO. 10 Material Contracts
10. First Amendment to Revolving Loan Facility dated as of March 31,
1995 among the Company, as borrower, and Wachovia Bank of Georgia, N.A., as
Agent, and Wachovia Bank of Georgia, N.A., ABN AMRO Bank N.V., United
States National Bank of Oregon, Seattle-First National Bank, CIBC, Inc.,
National City Bank, Columbus, Bank of America National Trust and Savings
Association, The Bank of New York and NBD Bank, N.A.
EXHIBIT NO. 27 Financial Data Schedule
(b) Reports on form 8-K - A Form 8-K dated May 2, 1995, has been duly
filed. The form included the following information:
(1) Election of Directors for terms expiring in 1998.
(2) Adopted the 1995 - 1999 Executive Incentive Compensation Plan
(3) Approval of the selection of Deloitte & Touche LLP as the
independent public accountants for the ensuing year.
(4) Re-election of all exiting officers including the principal
executive officers of the corporation.
Name Title
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Robert S. Cline Chairman of the Board
Chief Executive Officer
Robert G. Brazier President
Chief Operating Officer
(5) Declared dividends on common and preferred stock.
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
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(Registrant)
Date: 5/12/95 /s/Roy C. Liljebeck
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Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/12/95 /s/Lanny H. Michael
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Lanny H. Michael
Senior Vice President,
Treasurer and Controller