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 September 30, 1995
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 September 30, 1995 21,050,336 shares
-----------------
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Domestic $468,275 $415,417 $1,363,083 $1,219,958
International 92,290 74,327 273,338 220,880
-------- -------- ---------- ----------
560,565 489,744 1,636,421 1,440,838
OPERATING EXPENSES:
Transportation purchased 196,566 164,745 582,077 482,277
Station and ground operations 171,649 147,915 507,575 438,056
Flight operations and maintenance 81,738 73,046 239,110 204,282
General and administrative 39,767 35,898 114,280 108,166
Sales and marketing 14,490 13,679 46,371 41,011
Depreciation and amortization 36,134 34,763 105,782 101,837
-------- -------- ---------- ----------
540,344 470,046 1,595,195 1,375,629
-------- -------- ---------- ----------
EARNINGS FROM OPERATIONS 20,221 19,698 41,226 65,209
INTEREST, NET 7,343 6,212 21,032 18,222
-------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 12,878 13,486 20,194 46,987
INCOME TAXES 5,176 5,341 8,350 18,779
-------- -------- ---------- ----------
NET EARNINGS 7,702 8,145 11,844 28,208
PREFERRED STOCK DIVIDENDS 69 105 208 792
-------- -------- ---------- ----------
NET EARNINGS AVAILABLE TO COMMON $ 7,633 $ 8,040 $ 11,636 $ 27,416
SHAREHOLDERS
======== ======== ========== ==========
NET EARNINGS PER COMMON SHARE $ .36 $ .38 $ .55 $ 1.31
======== ======== ========== ==========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .225 $ .225
======== ======== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION> September 30 December 31
------------ -----------
ASSETS 1995 1994
------ ---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 14,137 $ 10,318
Trade accounts receivable, less 239,576 221,788
allowance of $7,650 and $7,500
Spare parts and fuel inventory 31,004 28,071
Deferred income tax assets 13,838 12,458
Prepaid expenses 21,958 20,701
---------- ----------
TOTAL CURRENT ASSETS 320,513 293,336
PROPERTY AND EQUIPMENT, NET 830,845 766,346
EQUIPMENT DEPOSITS and OTHER ASSETS 21,675 18,824
---------- ----------
TOTAL ASSETS $1,173,033 $1,078,506
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 121,627 $ 117,194
Salaries, wages and related taxes 39,669 43,858
Accrued expenses 66,036 59,053
Income taxes payable 2,142 342
Current portion of debt 6,435 6,018
---------- ----------
TOTAL CURRENT LIABILITIES 235,909 226,465
LONG-TERM DEBT 361,317 279,422
SUBORDINATED DEBT 115,000 118,580
DEFERRED INCOME TAX LIABILITIES 32,548 30,402
OTHER LIABILITIES 28,656 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 21,366 21,286
shares
Additional paid-in capital 185,647 184,369
Retained earnings 189,613 182,714
---------- ----------
396,626 388,369
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
395,655 387,398
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,173,033 $1,078,506
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
----------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 11,844 $ 28,208
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 98,224 94,511
Provision for aircraft engine 7,558 7,326
overhauls
Deferred income taxes 766 1,213
Other (2,470) (2,316)
-------- --------
CASH PROVIDED BY OPERATIONS 115,922 128,942
Change in:
Receivables (17,788) (14,795)
Inventories and prepaid expenses (4,190) 3,000
Accounts payable 4,433 16,442
Accrued expenses, salaries and 4,594 3,755
taxes payable
-------- --------
NET CASH PROVIDED BY OPERATING 102,971 137,344
ACTIVITIES
INVESTING ACTIVITIES:
Additions to property and equipment (167,541) (125,861)
Disposition of property and equipment 904 913
Expenditures for engine overhauls (6,060) (3,064)
Other 520 (653)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (172,177) (128,665)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net (12,100) 37,100
Proceeds from debt issuance 107,461 --
Principal payments on debt (17,693) (39,578)
Proceeds from common stock issuance 306 2,805
Dividends paid (4,949) (5,518)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING 73,025 (5,191)
ACTIVITIES
-------- --------
NET INCREASE IN CASH 3,819 3,488
CASH AT JANUARY 1 10,318 7,134
-------- --------
CASH AT SEPTEMBER 30 $ 14,137 $ 10,622
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
September 30 December 31
------------ ------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $100,000 $135,000
Notes payable 39,900 17,000
Senior notes 200,000 100,000
Revenue bonds 13,200 13,200
Other debt 11,072 16,670
-------- --------
364,172 281,870
Subordinated debt:
Senior subordinated notes 3,580 7,150
Convertible subordinated debentures 115,000 115,000
-------- --------
118,580 122,150
-------- --------
Total long-term debt 482,752 404,020
Less current portion 6,435 6,018
-------- --------
$476,317 $398,002
======== ========
</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 nine
months ended September 30, 1995 and 1994 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 Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 21,196 21,288 21,186 20,955
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the third quarter of 1995
resulted in significantly higher operating income and net earnings compared
to the first and second quarters of the year. Operating results were
positively impacted by improving shipment yields and lower average costs
per shipment handled. Shipment yields improved due to several factors: an
increase in the average weight per shipment in the latter part of the
quarter; stronger growth in the overnight express product; and, rate
increases imposed in specific customer segments. Productivity gains were a
major contributor to the 4.6% improvement in the average cost per shipment
handled, when compared to last years third quarter.
Net earnings available to common shareholders for the third quarter of
1995 were $7.6 million, or $.36 per share, compared to $8.0 million, or
$.38 per share for the third quarter of 1994. Net earnings available to
common shareholders for the first nine months of 1995 were $.55 per share
compared to $1.31 per share for the comparable period of 1994.
<TABLE>
The following table sets forth selected shipment and revenue data for
the comparative periods indicated:
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ----------------
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 9,393 8,571 27,540 25,545
0-2 Lbs. 12,689 11,128 36,910 32,918
3-99 Lbs. 11,211 9,877 32,192 29,175
------- ------- ------- -------
33,293 29,576 96,642 87,638
Select Delivery Service
0-2 Lbs. 14,933 10,808 43,394 30,506
3-99 Lbs. 8,310 6,475 24,129 18,281
------- ------- ------- -------
23,243 17,283 67,523 48,787
100 Lbs. and over 78 89 240 265
------- ------- ------- -------
Total Domestic 56,614 46,948 164,405 136,690
------- ------- ------- -------
International
Express 1,037 891 2,986 2,554
All Other 140 120 412 354
------- ------- ------- -------
Total International 1,177 1,011 3,398 2,908
------- ------- ------- -------
Total Shipments 57,791 47,959 167,803 139,598
======= ======= ======= =======
Average Pounds per Shipment:
Domestic 4.5 4.8 4.5 4.8
International 61.2 60.0 63.7 62.1
Average Revenue per Pound:
Domestic $ 1.80 $ 1.83 $ 1.81 $ 1.87
International $ 1.29 $ 1.23 $ 1.27 $ 1.22
Average Revenue per Shipment:
Domestic $ 8.24 $ 8.85 $ 8.27 $ 8.92
International $ 78.41 $ 73.52 $ 80.44 $ 75.96
</TABLE>
Total shipments increased 20.2% in the first nine months of 1995
compared to 16.4% in the first nine months of 1994. Total revenues
increased 13.6% in the first nine months of 1995 compared to 15.0% in 1994.
Domestic shipments increased 20.3% in the first nine months of 1995
compared to 16.5% for the same period of 1994. Domestic shipments
increased 20.6% in the third quarter of 1995 compared to 15.5% in 1994.
Domestic shipment growth during the first nine months of 1995 was
positively impacted by the higher growth rate for overnight shipments, than
in prior periods, particularly in the third quarter of 1995 when overnight
shipments increased 12.6% compared to 5.5% in the corresponding period of
1994. Also growth in the Company's deferred service products which provide
next afternoon and second-day delivery service continues to aid domestic
growth. For the first nine months of 1995, deferred service accounted for
over 41.1% of total domestic shipments, compared to 35.7% for the first
nine months of 1994.
Domestic revenues increased 11.7% in the first nine months of 1995 and
12.7% in the third quarter of 1995 compared to 12.1% and 9.8% in the nine
month period and third quarter of 1994, respectively. Third quarter 1995
domestic revenue growth was positively impacted by the significant growth
in higher yielding overnight shipments. The Company also initiated a yield
enhancement program with rate increases on specific business segments being
initiated during the third quarter, with additional rate increases planned
for the fourth quarter and in 1996. Furthermore, the average weight per
shipment was stable during the third quarter and actually increased during
the latter part of the quarter. These factors all combined to produce a
more stable domestic yield environment in the third quarter compared to the
first and second quarters of 1995.
International shipments increased 16.9% in the first nine months of 1995
compared to 11.2% in 1994, and 16.4% in the third quarter of 1995 compared
to 13.3% in the corresponding period of 1994. The growth in international
shipments was aided by the relatively balanced growth in higher yielding
freight as well as express shipments. International revenues increased
23.7% in the first nine months of 1995 compared to 34.0% in 1994 and for
the third quarter of 1995 and 1994 increased 24.2% and 32.9%, respectively.
International revenue per shipment and the average weight per shipment
increased during the first nine months of 1995 compared to the
corresponding 1994 period, as a result of the sustained growth in higher
yielding freight shipments.
Operating expenses as a percentage of revenues were 97.5% for the first
nine months of 1995 compared to 95.5% in the first nine months of 1994 and
95.5% for all of 1994. Operating cost per shipment handled decreased 3.5%
to $9.51 for the first nine months of 1995 compared to the corresponding
1994 period. The operating cost per shipment for the third quarter of 1995
decreased 4.6% to $9.35, compared to the third quarter of 1994 and
decreased 2.7% from the second quarter of 1995. The Company experienced a
7.0% improvement in productivity for the third quarter of 1995 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 35.6%
in the first nine months of 1995 compared to 33.5% 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 in the first nine
months of 1995 was 31.0% compared to 30.4% in the first nine months of
1994. Productivity gains helped offset inflationary pressures on costs.
Flight operations and maintenance expense as a percentage of revenues
during the first nine months of 1995 was 14.6%, compared to 14.2% in the
first nine months of 1994. The average aviation fuel price for the first
nine months of 1995 was $.59 per gallon, which was also the average price
per gallon in the corresponding period of 1994. Aviation fuel consumption
increased to 103 million gallons in the first nine months of 1995, a 14.4%
increase compared to the first nine months of 1994. The increase in fuel
consumption is a result of additional Company operated aircraft placed in
service since the third quarter of 1994.
The increased number of aircraft in service also accounted for the
increase in depreciation and amortization expense which, as a percentage of
revenues in the first nine months of 1995 was 6.5%, compared to 7.1% for
the corresponding period in 1994.
General and administrative and sales and marketing expenses on a
combined basis decreased as a percentage of revenues in the first nine
months 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 nine months of 1995 was higher than the
corresponding period of 1994. This increase was the result of higher
average outstanding borrowings combined with higher effective interest
rates.
The Company's effective tax rate was 41.3% in the first nine months of
1995 compared to 40.0 in the first nine months of 1994 and 39.6% for all of
1994. The higher effective tax rate for the first nine months of 1995 was
the result of certain taxes and nondeductible expenses 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 $220 to $225 million
in 1995, of which a significant portion is related to the acquisition and
modification of aircraft. During the first nine months of 1995, total
capital expenditures net of dispositions were $167 million. The principal
sources of liquidity for financing capital expenditures during the first
nine months of 1995 were cash provided by operations and financing under
the Company's bank lines of credit.
The Company's $250 million 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 $65 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 September 30, 1995, a total of $139.9 million was outstanding under the
revolving bank credit and money market credit lines.
In September, 1995 the Company issued $100 million of 7.35% notes due
September 15, 2005. The net proceeds from this transaction were used to
pay down the Company's bank lines of credit, and replaced floating rate
debt with a fixed rate.
In August, 1995 the Company's long term senior debt classification was
downgraded by Standard & Poor's from "BBB+" to "BBB", citing the pressure
on domestic yields as the primary factor. Moody's rating of "Baa3"
remained unchanged.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1995
operations should provide adequate flexibility to finance anticipated
capital expenditures for the balance of 1995.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports or Form 8-K.
(a) Exhibits
Exhibit No. 27 - Financial Data Schedule
(b) Reports on Form 8-K - A Form 8-K dated September 18, 1995,
has been duly filed. The form included the following
information:
(1) Provided notice that on September 18, 1995, Airborne
Freight Corporation sold $100,000,000 aggregate
principal amount of 7.35% Notes due September 15, 2005.
(2) Provided opinion of counsel regarding the legality of
issuance of $100,000,000 of notes of Airborne Freight
Corporation as well as guarantees of notes by certain
wholly-owned subsidiaries.
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: 11/14/95 /s/Roy C. Liljebeck
-------- -------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 11/14/95 /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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 14,137
<SECURITIES> 0
<RECEIVABLES> 247,226
<ALLOWANCES> 7,650
<INVENTORY> 31,004
<CURRENT-ASSETS> 320,513
<PP&E> 1,539,401
<DEPRECIATION> 708,556
<TOTAL-ASSETS> 1,173,033
<CURRENT-LIABILITIES> 235,909
<BONDS> 476,317
<COMMON> 21,366
3,948
0
<OTHER-SE> 374,289
<TOTAL-LIABILITY-AND-EQUITY> 1,173,033
<SALES> 0
<TOTAL-REVENUES> 1,636,421
<CGS> 0
<TOTAL-COSTS> 1,595,195
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,032
<INCOME-PRETAX> 20,194
<INCOME-TAX> 8,350
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,636
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
