<PAGE>1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994
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
---------------------------------
(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:
--- ---
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, 1994 20,949,045 shares
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<PAGE>2
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1994 1993
---- ----
<S> <C> <C>
REVENUES:
Domestic $396,884 $345,960
International 69,668 52,806
-------- --------
466,552 398,766
OPERATING EXPENSES:
Transportation purchased 154,998 124,780
Station and ground operations 145,210 126,557
Flight operations and maintenance 65,782 58,619
General and administrative 35,716 32,006
Sales and marketing 13,295 12,651
Depreciation and amortization 33,765 32,217
-------- --------
448,766 386,830
-------- --------
EARNINGS FROM OPERATIONS 17,786 11,936
INTEREST, NET 5,941 5,960
-------- --------
EARNINGS BEFORE INCOME TAXES 11,845 5,976
INCOME TAXES 4,845 2,350
-------- --------
NET EARNINGS BEFORE CHANGES IN 7,000 3,626
ACCOUNTING
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING -- 3,828
-------- --------
NET EARNINGS 7,000 7,454
PREFERRED STOCK DIVIDENDS 584 681
-------- --------
NET EARNINGS AVAILABLE TO COMMON $6,416 $ 6,773
SHAREHOLDERS
======== ========
NET EARNINGS PER COMMON SHARE:
Before changes in accounting $.32 $ .15
Cumulative effect of changes in -- .20
accounting
-------- --------
Net earnings available to common $.32 $ .35
shareholders
======== ========
DIVIDENDS PER COMMON SHARE $ .075 $ .075
======== ========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31 December 31
------------ -----------
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 2,635 $ 7,134
Trade accounts receivable, less allowance 201,235 190,787
of $7,290 and $6,925
Spare parts and fuel inventory 27,011 27,224
Deferred income tax assets 15,912 15,206
Prepaid expenses 17,845 18,815
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TOTAL CURRENT ASSETS 264,638 259,166
PROPERTY AND EQUIPMENT, NET 754,729 733,963
EQUIPMENT DEPOSITS and OTHER ASSETS 15,956 13,780
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TOTAL ASSETS $1,035,323 $1,006,909
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 100,461 $ 95,684
Salaries, wages and related taxes 38,175 37,885
Accrued expenses 60,406 55,545
Income taxes payable 5,808 3,638
Current portion of debt 6,092 5,850
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TOTAL CURRENT LIABILITIES 210,942 198,602
LONG-TERM DEBT 281,555 269,250
SUBORDINATED DEBT 122,150 122,150
DEFERRED INCOME TAX LIABILITIES 27,962 28,262
OTHER LIABILITIES 26,326 29,821
REDEEMABLE PREFERRED STOCK 6,000 40,000
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 21,264,195 and 19,688,731 shares 21,264 19,689
Additional paid-in capital 184,188 149,156
Retained earnings 155,907 150,950
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361,359 319,795
Treasury stock, 315,150 shares, at cost (971) (971)
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360,388 318,824
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,035,323 $1,006,909
========== ==========
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 7,000 $ 7,454
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 31,319 29,470
Provision for aircraft engine 2,446 2,747
overhauls
Deferred income taxes (1,006) (1,145)
Cumulative effect of changes in -- (3,828)
accounting
Other (3,495) (3,176)
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CASH PROVIDED BY OPERATIONS 36,264 31,522
Change in:
Receivables (10,448) (12,780)
Inventories and prepaid expenses 1,183 (2,077)
Accounts payable 6,133 (3,724)
Accrued expenses, salaries and taxes 7,321 16,003
payable
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NET CASH PROVIDED BY OPERATING ACTIVITIES 40,453 28,944
INVESTING ACTIVITIES:
Additions to property and equipment (49,106) (40,385)
Dispositions of property and equipment 39 112
Expenditures for engine overhauls (676) (340)
Other (1,443) (1,230)
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NET CASH USED IN INVESTING ACTIVITIES (51,186) (41,843)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net 6,200 21,500
Principal payments on debt (453) (4,459)
Proceeds from common stock issuance 2,636 386
Dividends paid (2,149) (2,131)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 6,234 15,296
-------- --------
NET INCREASE (DECREASE) IN CASH (4,499) 2,397
CASH AT JANUARY 1 7,134 10,179
-------- --------
CASH AT MARCH 31 $ 2,635 $ 12,576
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>5
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
(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
1994 presentation.
NOTE B--LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
March 31 December 31
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $111,200 $105,000
Notes payable 34,000 34,000
Senior notes 100,000 100,000
Revenue bonds 13,200 13,200
Other debt 25,677 19,330
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284,077 271,530
Subordinated debt:
Senior subordinated notes 10,720 10,720
Convertible subordinated debentures 115,000 115,000
-------- --------
125,720 125,720
-------- --------
Total long-term debt 409,797 397,250
Less current portion 6,092 5,850
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$403,705 $391,400
======== ========
</TABLE>
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, 1994 and 1993 were 20,173,000 and 19,507,000, respectively.
NOTE D--ACCOUNTING CHANGES:
The Company adopted several new accounting standards as of January 1,
1993 and recorded the effect of the changes in the quarter ended March 31,
1993. The new standards changed the Company's methods used to account for
income taxes and post-retirement health care benefit costs. The net
cumulative effect of adopting these standards was to increase net earnings
for the period ended March 31, 1993 by $3,828,000 or $.20 per share.
<PAGE>6
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 1994
resulted in significantly higher operating income and net earnings compared
to the first quarter of 1993. This improvement was the result of strong
productivity gains and cost controls, achieved despite the negative impact
of severe winter weather and the Los Angeles earthquake in the early part
of the quarter.
Net earnings available to common shareholders for the first quarter of
1994 were $6.4 million, or $.32 per share, compared to $2.9 million, or
$.15 per share for the first quarter of 1993. The 1993 net earnings are
before the cumulative effect of changes in accounting which resulted in a
net increase to earnings of $.20 per share increasing the net earnings
available to common shareholders to $.35 per share.
<TABLE>
The following table sets forth selected shipment and revenue data for
the periods indicated:
<CAPTION>
Three Months Ended March 31
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1994 1993
---- ----
<S> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 8,476 7,919
0-2 Lbs. 10,788 9,781
3-99 Lbs. 9,628 8,275
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28,892 25,975
Select Delivery Service
0-2 Lbs. 9,566 7,381
3-99 Lbs. 5,782 4,012
------ ------
15,348 11,393
100 Lbs. and over 86 84
------ ------
Total Domestic 44,326 37,452
------ ------
International
Express 804 745
All Other 112 94
------ ------
Total International 916 839
------ ------
Total Shipments 45,242 38,291
====== ======
Average Pounds per Shipment:
Domestic 4.7 4.7
International 61.5 44.0
Average Revenue per Pound:
Domestic $ 1.90 $ 1.97
International $ 1.23 $ 1.42
Average Revenue per Shipment:
Domestic $ 8.95 $ 9.24
International $76.06 $62.94
</TABLE>
<PAGE>7
Total shipments increased 18% in the first quarter of 1994 compared to
an increase of 23% in the first quarter of 1993. Domestic and
international shipments increased by 18% and 9%, respectively, in the first
quarter of 1994 compared to 24% and 6%, respectively, in the first quarter
of 1993. Domestic shipments increased 16% and international shipments
increased 7% on a per-day basis in the first quarter of 1993 when adjusted
for one extra day in the first quarter of 1994 compared to 1993.
The growth in domestic shipments continues to be aided by growth in the
Company's deferred service product, Select Delivery Service (SDS). For the
first quarter of 1994, SDS accounted for 35% of total domestic shipments,
compared to 30% for the first quarter of 1993. Domestic overnight
shipments increased 9.5% on a per day basis in the first quarter of 1994,
compared to 12% in the first quarter of 1993. The growth in international
shipments was aided by growth in higher yielding freight shipments which
increased 19% in the first quarter of 1994.
Total revenues increased 17% in the first quarter of 1994 compared to
11% in the first quarter of 1993 with domestic revenues increasing 15% and
14%, respectively. International revenues increased 32% in the first
quarter of 1994 compared to a decrease of 5% in the first quarter of 1993.
The significant growth rate in international revenue in the first quarter
of 1993, was attributable to the strong growth in higher yielding freight
shipments.
The domestic pricing environment has improved over the last year and a
half and is currently very competitive but relatively stable. Average
domestic revenue per shipment for the first quarter of 1994 declined only
3.1% compared to the first quarter of 1993 to $8.95 per shipment.
International revenue per shipment increased as a result of the strong
growth in heavier weight freight shipments.
Operating expenses as a percentage of revenues were 96.2% for the first
quarter of 1994 compared to 97.0% in the first quarter of 1993 and 95.2%
for all of 1993. Severe winter weather and the Los Angeles earthquake had
a negative impact on the level of business in the early part of the first
quarter of 1994, and required added operating expenses. However, the
Company experienced strong productivity gains and cost control in the
balance of the quarter, resulting in a 2% decrease in the operating cost
per shipment handled compared to the first quarter of 1993. Comparisons of
certain operating expense components are discussed below.
Transportation purchased increased as a percentage of revenues to 33.2%
in the first quarter of 1994 compared to 31.3% in 1993. This increase was
primarily due to additional commercial airline costs resulting from the
growth in international freight shipments.
Station and ground expense as a percentage of revenues was 31.1% in the
first quarter of 1994 compared to 31.7% in the first quarter of 1992, as
productivity gains achieved offset costs incurred to maintain service
integrity.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1994 was 14.1%, compared to 14.7% in the first
quarter of 1993. The average aviation fuel price for the first quarter of
1994 was $.60 per gallon compared to $.66 per gallon in the first quarter
of 1993. Aviation fuel consumption increased 18% to 30.1 million gallons
in the first quarter of 1994 compared to the first quarter of 1993. The
increase in fuel consumption is a result of additional Company operated
aircraft placed in service since the first quarter of 1993 and the
disruption to air operations as a result of the severe winter weather. The
increased number of aircraft in service also accounted for the increase in
depreciation and amortization expense in the first quarter of 1994 compared
to the same period in 1993.
General and administrative and sales and marketing expenses decreased as
a percentage of revenues in the first quarter of 1994 compared to 1993.
This was primarily the result of continuing productivity gains and a strong
focus on all discretionary spending.
Interest expense in the first quarter of 1994 was comparable to the
level of expense in the same period of 1993, as slightly higher effective
interest rates and a lower amount of capitalized interest were offset by
the benefit of lower average outstanding borrowings.
The Company's effective tax rate was 40.9% in the first quarter of 1994
compared to 39.3% in the first quarter of 1993 and 40.2% for all of 1993.
The Company anticipates the effective tax rate for the 1994 year to be
comparable to the first quarter of 1994.
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 $190 million in 1994,
of which a significant portion is related to the acquisition and
modification of aircraft. During the first quarter of 1994, total capital
expenditures net of dispositions were $49 million.
The principal sources of liquidity for financing capital expenditures
during the first quarter of 1994 were cash provided by operations and
financing under the Company's bank lines of credit.
<PAGE>8
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 has a revolving bank credit
agreement providing for a total commitment of $240 million, subject to a
maximum level of Company indebtedness permitted by certain covenants in the
agreement and other loan agreements. The Company also has available $20
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, 1994, a total of $111.2 million was outstanding under the
revolving bank credit and money market credit lines.
The Company filed a post-effective amendment with the Securities & Exchange
Commission effective February 28, 1994, thereby withdrawing the remaining
$100 million shelf registration of debt securities outstanding since
December 1992. This registration was due to expire in December 1994, and
the Company determined that additional financing under the registration
would not be required.
In March 1994, certain holders of the Company's 6.9% redeemable
cumulative convertible preferred stock converted their preferred shares
into common stock. The conversion of 680,000 preferred shares with a par
value of $34 million, resulted in the issuance of 1,453,000 shares of
common stock. The balance of preferred stock outstanding at March 31, 1994
was $6 million par value representing 120,000 preferred shares.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1994
operations and other sources of borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1994.
<PAGE>9
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on form 8-K - A Form 8-K dated April 26, 1994, has been
duly filed. The form included the following information:
(1) Election of Directors for terms expiring in 1997.
(2) Adopted the 1994 Airborne Key Employee Stock Option and Stock
Appreciation Rights Plan
(3) Approval of the selection of Deloitte & Touche as the
independent public accountants for the ensuing year.
(4) Re-election of all exiting officers including the principal
executive officers of the corporation.
<TABLE>
<CAPTION>
Name Title
----- -----
<S> <C>
Robert S. Cline Chairman of the Board
Chief Executive Officer
Robert G. Brazier President
Chief Operating Officer
</TABLE>
(5) Declared dividends on common and preferred stock.
(6) Amended the By-laws of the Company.
<PAGE>10
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 5/12/94 /s/Roy C. Liljebeck
------- --------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/12/94 /s/Lanny H. Michael
------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
