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 June 30, 1994
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(State of incorporation or organization)
91-0837469
---------------------------------
(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: 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 June 30, 1994 20,967,374 shares
-----------------
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Domestic $407,657 $363,744 $804,541 $709,704
International 76,885 56,137 146,553 108,943
-------- -------- -------- --------
484,542 419,881 951,094 818,647
OPERATING EXPENSES:
Transportation purchased 162,534 131,454 317,532 256,234
Station and ground operations 144,931 130,669 290,141 257,226
Flight operations and maintenance 65,454 61,135 131,236 119,754
General and administrative 36,552 34,699 72,268 66,705
Sales and marketing 14,037 12,478 27,332 25,129
Depreciation and amortization 33,309 33,152 67,074 65,369
-------- -------- -------- --------
456,817 403,587 905,583 790,417
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 27,725 16,294 45,511 28,230
INTEREST, NET (6,069) (6,066) (12,010) (12,026)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 21,656 10,228 33,501 16,204
INCOME TAXES (8,593) (3,946) (13,438) (6,296)
-------- -------- -------- --------
NET EARNINGS BEFORE
CHANGES IN ACCOUNTING 13,063 6,282 20,063 9,908
CUMULATIVE EFFECT OF CHANGES IN - - - 3,828
ACCOUNTING
-------- -------- -------- --------
NET EARNINGS 13,063 6,282 20,063 13,736
PREFERRED STOCK DIVIDENDS (103) (688) (687) (1,369)
-------- -------- -------- --------
NET EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS $ 12,960 $ 5,594 $ 19,376 $ 12,367
======== ======== ======== ========
NET EARNINGS PER COMMON SHARE:
Primary -
Before changes in accounting $ .61 $ .29 $ .93 $ .44
Cumulative effect of changes in - - - .19
accounting
-------- -------- -------- --------
Net earnings available
to common shareholders $ .61 $ .29 $ .93 $ .63
Fully Diluted -
Before changes in accounting $ .57 $ .29 $ .89 $ .44
Cumulative effect of changes in - - - .19
accounting
-------- -------- -------- --------
Net earnings available to common $ .57 $ .29 $ .89 $ .63
shareholders
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .15 $ .15
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30 December 31
------- -----------
ASSETS
------ 1994 1993
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 6,045 $ 7,134
Trade accounts receivable,
less allowance of $7,325 and $6,925 204,331 190,787
Spare parts and fuel inventory 27,442 27,224
Deferred income tax assets 16,525 15,206
Prepaid expenses 14,977 18,815
---------- ----------
TOTAL CURRENT ASSETS 269,320 259,166
PROPERTY AND EQUIPMENT, NET 759,762 733,963
EQUIPMENT DEPOSITS and OTHER ASSETS 17,107 13,780
---------- ----------
TOTAL ASSETS $1,046,189 $1,006,909
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 106,546 $ 95,684
Salaries, wages and related taxes 38,059 37,885
Accrued expenses 58,713 55,545
Income taxes payable 2,733 3,638
Current portion of debt 5,899 5,850
---------- ----------
TOTAL CURRENT LIABILITIES 211,950 198,602
LONG-TERM DEBT 280,933 269,250
SUBORDINATED DEBT 118,580 122,150
DEFERRED INCOME TAX LIABILITIES 29,882 28,262
OTHER LIABILITIES 26,901 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 21,282,524 and 19,688,731 shares 21,282 19,689
Additional paid-in capital 184,337 149,156
Retained earnings 167,295 150,950
---------- ----------
372,914 319,795
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
371,943 318,824
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,046,189 $1,006,909
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
----------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 20,063 $ 13,736
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effect of changes in accounting - (3,828)
Depreciation and amortization 62,119 59,754
Provision for aircraft engine overhauls 4,955 5,615
Deferred income taxes 301 (1,250)
Other (2,920) (2,103)
-------- --------
CASH PROVIDED BY OPERATIONS 84,518 71,924
Change in:
Receivables (13,544) (8,604)
Inventories and prepaid expenses 3,620 (1,026)
Accounts payable 12,218 3,792
Accrued expenses, salaries & taxes payable 2,437 7,749
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 89,249 73,835
INVESTING ACTIVITIES:
Additions to property and equipment (94,267) (89,144)
Dispositions of property and equipment 755 188
Expenditures for engine overhauls (3,064) (1,934)
Other (889) (2,094)
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (97,465) (92,984)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net 47,000 29,200
Principal payments on debt (38,838) (4,491)
Proceeds from common stock issuance 2,803 605
Dividends paid (3,838) (4,265)
-------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,127 21,049
-------- ---------
NET INCREASE (DECREASE) IN CASH (1,089) 1,900
CASH AT DECEMBER 31 7,134 10,179
-------- ---------
CASH AT JUNE 30 $ 6,045 $ 12,079
======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANACIAL STATEMENTS
June 30, 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>
June 30 December 31
------- -----------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $152,000 $105,000
Notes payable -- 34,000
Senior notes 100,000 100,000
Revenue bonds 13,200 13,200
Other debt 18,062 19,330
-------- --------
283,262 271,530
Subordinated debt:
Senior subordinated notes 7,150 10,720
Convertible subordinated debentures 115,000 115,000
-------- --------
122,150 125,720
-------- --------
Total long-term debt 405,412 397,250
Less current portion 5,899 5,850
-------- --------
$399,513 $391,400
======== ========
</TABLE>
NOTE C--EARNINGS PER COMMON SHARE:
Primary earnings per common 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
stock options.
Fully diluted earnings per share for the three and six months ended June
30, 1994, assumes conversion of the Company's redeemable preferred stock
and convertible subordinated debentures as well as the dilutive common
equivalent shares applicable to the assumed exercise of stock options. Net
earnings as adjusted for the elimination of preferred stock dividends and
interest expense, net of applicable taxes, relative to the assumed
conversions was $14,128,000 and $22,193,000 for the three and six month
periods, respectively. Fully diluted earnings per share for the three and
six month period ended June 30, 1993 are the same as primary earnings per
share.
<TABLE>
Average shares outstanding used in earnings per share computations were as
follows:
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary 21,404 19,571 20,788 19,539
Fully Diluted 24,900 19,614 24,900 19,600
</TABLE>
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 change 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 $.19 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the second quarter of 1994 resulted
in significantly higher operating income and net earnings compared to the
second quarter of 1993, continuing the trend of improved comparative
operating results realized in first quarter 1994. This improvement was the
result of strong productivity gains, cost controls, and strong growth in
international heavyweight business. The growth rate of domestic business,
while good, slowed somewhat versus prior periods.
Net earnings available to common shareholders for the first six months of
1994 were $19.4 million, or $.93 per share, compared to $12.4 million, or
$.44 per share for the first half of 1993. The 1993 net earnings are
before the cumulative effect of changes in accounting which resulted in a
net increase to earnings of $.19 per share, increasing the net earnings
available to common shareholders to $.63 per share.
Second quarter 1994 earnings available to common shareholders were $.61 per
share compared to $.29 per share for the second quarter of 1993. On a
fully diluted basis, earnings per share were $.89 and $.57 for the first
six months and second quarter of 1994, respectively.
<TABLE>
The following table sets forth selected shipment and revenue data for the
comparative periods indicated:
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 8,498 8,144 16,974 16,063
0-2 Lbs. 11,002 10,291 21,790 20,072
3-99 Lbs. 9,670 8,717 19,298 16,992
------ ------ ------ ------
29,170 27,152 58,062 53,127
Select Delivery Service
0-2 Lbs. 10,132 7,598 19,698 14,979
3-99 Lbs. 6,024 4,394 11,806 8,406
------ ------ ------ ------
16,156 11,992 31,504 23,385
100 Lbs. & over 90 87 176 171
------ ------ ------ ------
Total Domestic 45,416 39,231 89,742 76,683
------ ------ ------ ------
International
Express 859 783 1,663 1,528
All Other 122 100 234 194
------ ------ ------ ------
Total International 981 883 1,897 1,722
------ ------ ------ ------
Total Shipments 46,397 40,114 91,639 78,405
====== ====== ====== ======
Average Pounds per Shipment:
Domestic 4.8 4.7 4.7 4.7
International 64.9 44.1 63.2 44.1
Average Revenue per Pound:
Domestic $ 1.87 $ 1.97 $ 1.89 $ 1.97
International $ 1.20 $ 1.46 $ 1.21 $ 1.44
Average Revenue per
Shipment:
Domestic $ 8.98 $ 9.27 $ 8.97 $ 9.26
International $78.37 $63.58 $77.26 $63.27
</TABLE>
Total shipments increased 17% in the first six months of 1994 compared to
an increase of 25% in the first six months of 1993. Domestic and
international shipments increased by 17% and 10%, respectively, during this
period of 1994 compared to 26% and 6%, respectively, for the same period of
1993. Domestic shipments increased 16% and international shipments
increased 11% in the second quarter of 1994 compared to 1993.
The growth in international shipments was aided by the growth in higher
yielding freight shipments which increased 21% in the first six months of
1994 compared to a decrease of 8% for the same period of 1993. The growth
in domestic shipments continues to be aided by growth in the Company's
deferred service product, Select Delivery Service (SDS), which provides
next afternoon and second-day delivery service. For the first six months
of 1994, SDS accounted for over 35% of total domestic shipments, compared
to 30% for the first six months of 1993. While the overall domestic growth
rate in the first two quarters of 1994 is fairly strong, it is a lower
growth rate than experienced in previous periods. This slower rate appears
to be the result of uncertain economic conditions. The domestic growth
rate will be key to results in the second half of the year.
Domestic revenues increased 13% in the first six months of 1994 compared to
17% in 1993. International revenues increased 35% in the first six months
of 1994 compared to a decrease of 3% in 1993. The strong growth rate of
heavyweight international shipments is driving the significant growth rate
of international revenues. Total revenues increased 16% in the first six
months of 1994 compared to 14% in the first six months of 1993.
Average domestic revenue per shipment for the second quarter of 1994
declined only 3.1% compared to the second quarter of 1993 to $8.98 per
shipment. International revenue per shipment and the average weight per
shipment increased significantly as a result of the strong unit growth in
higher yielding freight shipments.
Operating expenses as a percentage of revenues were 95.2% for the first six
months of 1994 compared to 96.6% in the first six months of 1993 and 95.2%
for all of 1993. Operating cost per shipment handled decreased
approximately 2% to $9.88 for the first six months of 1994 compared to the
first six months of 1993. This reduction in total operating cost per
shipment appears low due to the increase of costs in the transportation
purchased category and the correlating increase in transportation purchased
cost per shipment. Operating cost per shipment decreased approximately 6%
for all other operating expense categories combined, factoring out
transportation purchased, for this same period. The severe winter weather
and the Los Angeles earthquake also negatively affected operating expenses
during the first quarter of 1994. The Company experienced a 6% improvement
in productivity for the second quarter of 1994 as measured by shipments
handled per paid employee hour. Comparisons of certain operating expense
components are discussed below.
Transportation purchased increased as a percentage of revenues to 33.4% in
the first six months of 1994 compared to 31.3% in 1993. This increase was
primarily due to higher commercial airline costs resulting from the
increase in international freight shipments discussed above.
Station and ground expense as a percentage of revenues in the first six
months of 1994 was 30.5% compared to 31.4% in the first six months of 1993,
as productivity gains achieved offset costs incurred to maintain service
integrity.
Flight operations and maintenance expense as a percentage of revenues
during the first six months of 1994 was 13.8%, compared to 14.6% in the
first six months of 1993. Average aviation fuel price for the first half
of 1994 was $.59 per gallon compared to the average price of $.66 per
gallon in the first half of 1993. Aviation fuel consumption increased 16%
to 59.6 million gallons in the first half of 1994 compared to the same
period in 1993. The increase in fuel consumption is a result of additional
Company operated aircraft placed in service since the first quarter of 1993
and to the disruption to air operations as a result of severe winter
weather. The increased number of aircraft in service also accounted for
the slight increase in depreciation and amortization expense which, as a
percentage of revenues in the first half of 1994 was 7.1%, compared to 8.0%
for the same period in 1993.
General and administrative, and sales and marketing expenses decreased as a
percentage of revenues in the first six months 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 six months of 1994 was comparable to the
level of expense in the same period of 1993, as slightly higher effective
interest rates and lower amount of capitalized interest were offset by the
benefit of lower average outstanding borrowings.
The Company's effective tax rate was 40.1% in the first six months of 1994
compared to 38.9% in the first six months 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 six months 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 $185 million in 1994,
of which a significant portion is related to the acquisition and
modification of aircraft. During the first six months of 1994, total
capital expenditures net of dispositions were $94 million.
The principal sources of liquidity for financing capital expenditures
during the first six months of 1994 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 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 $25
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 June 30, 1994, a total of $152 million was outstanding under the
revolving bank credit and money market credit lines.
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.
PART II. OTHER INFORMATION
--------------------------
Information required under Part II is not applicable for the quarter ended
June 30, 1994.
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 FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 8/12/94 /s/Roy C. Liljebeck
------------------------- -------------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 8/12/94 /s/Lanny H. Michael
------------------------- -------------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> JUN-30-1994
<CASH> 6,045
<SECURITIES> 0
<RECEIVABLES> 211,656
<ALLOWANCES> 7,325
<INVENTORY> 27,442
<CURRENT-ASSETS> 269,320
<PP&E> 1,323,341
<DEPRECIATION> 563,579
<TOTAL-ASSETS> 1,046,189
<CURRENT-LIABILITIES> 211,950
<BONDS> 399,513
<COMMON> 21,282
6,000
0
<OTHER-SE> 350,661
<TOTAL-LIABILITY-AND-EQUITY> 1,046,189
<SALES> 0
<TOTAL-REVENUES> 951,094
<CGS> 0
<TOTAL-COSTS> 905,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,010
<INCOME-PRETAX> 33,501
<INCOME-TAX> 13,438
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,376
<EPS-PRIMARY> .93
<EPS-DILUTED> .89
</TABLE>
