UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended Commission file number
December 31, 1994 1-6512
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AIRBORNE FREIGHT CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 91-0837469
(State of Incorporation) (I.R.S. Employer Identification No.)
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Airborne Freight Corporation
3101 Western Avenue
P.O. Box 662
Seattle, WA 98111
(Address of principal executive offices)
Registrant's telephone number including area code: 206-285-4600
Securities registered pursuant to Section 12(b) of the Act:
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Name of each Exchange
Title of each class on which Registered
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Common Stock, Par Value New York Stock Exchange
$1.00 per share Pacific Stock Exchange
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures Due August 15, 2001
Rights to Purchase Series A New York Stock Exchange
Cumulative Preferred Stock
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.( )
As of February 27, 1995, 21,048,726 shares (net of 315,150 treasury
shares) of the registrant's Common Stock were outstanding and the aggregate
market value of the voting stock held by non-affiliates of the registrant
(based on the closing price on that date on the New York Stock Exchange)
was approximately $488,096,985.(1)
Documents Incorporated by Reference
Portions of the 1994 Annual Report to Shareholders are incorporated by
reference into Part I and Part II.
Portions of the Proxy Statement for the 1995 Annual Meeting of
Shareholders to be held April 25, 1995 are incorporated by reference into
Part III.
(1) Excludes value of shares of Common Stock held of record by directors
and executive officers at February 27, 1995. Includes shares held by
certain depository organizations. Exclusion of shares held by any person
should not be construed to indicate that such person possesses the power,
direct or indirect, to direct or cause the direction of the management or
policies of the registrant, or that such person is controlled by or is
under common control with the registrant.
AIRBORNE FREIGHT CORPORATION
1994 FORM 10-K ANNUAL REPORT
Table of Contents
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Part I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 4a. Executive Officers of the Registrant
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
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PART I
ITEM 1. BUSINESS
------------------
a) General Development of Business
-------------------------------
Airborne Freight Corporation (herein referred to as "Airborne Express"
or the "Company", which reference shall include its subsidiaries and their
assets and operations, unless the context clearly indicates otherwise) was
incorporated in Delaware on May 10, 1968. The Company is an air express
company and air freight forwarder that expedites shipments of all sizes to
destinations throughout the United States and most foreign countries.
The Company holds a certificate of registration issued by the United
States Patent and Trademark Office for the service mark AIRBORNE EXPRESS.
Most public presentation of the Company carries this name. The purpose of
using this trade name is to more clearly communicate to the market place
the primary nature of the business of the Company.
ABX Air, Inc., the Company's principal wholly-owned subsidiary (herein
referred to as "ABX"), was incorporated in Delaware on January 22, 1980.
ABX provides domestic express cargo service and cargo service to Canada.
The Company is the sole customer of ABX for this service. ABX also offers
limited charter service.
b) Financial Information about Industry Segments
---------------------------------------------
None
c) Narrative Description of Business
---------------------------------
Airborne Express provides door-to-door express delivery of small
packages and documents throughout the United States and to and from most
foreign countries. The Company also acts as an international and domestic
freight forwarder for shipments of any size. The Company's strategy is to
be the low cost provider of express services for high volume corporate
customers.
Domestic Operations
-------------------
The Company's domestic operations, supported by over 250 facilities,
primarily involve express door-to-door delivery of small packages and
documents weighing less than 100 pounds. Shipments consist primarily of
business documents and other printed matter, electronic and computer parts,
software, machine parts, health care items, films and videotapes, and other
items for which speed and reliability of delivery are important.
The Company's primary service is its overnight express product. This
product, which comprised approximately 63% of the Company's domestic
shipments during 1994, generally provides for before noon delivery on the
next business day to most metropolitan cities in the United States. The
Company also provides Saturday and holiday pickup and delivery service for
most cities.
The Company offers a deferred service product, Select Delivery Service
("SDS"), which provides for next afternoon or second day delivery. The SDS
product expands the Company's product offering and introduces new customers
to air express services. SDS service generally provides for shipments
weighing five pounds or less to be delivered on a next afternoon basis with
shipments weighing more than five pounds being delivered on a second day
basis. SDS shipments, which comprised approximately 37% of total domestic
shipments during 1994, are generally lower priced than the overnight
express product reflecting the less time sensitive nature of the shipments.
While the Company's domestic airline system is designed primarily to
handle express shipments, any available capacity is also utilized to carry
shipments which the Company would normally move on other carriers in its
role as an air freight forwarder.
Pickup and Delivery
-------------------
The Company accomplishes its door-to-door pickup and delivery service
using approximately 11,300 radio-dispatched delivery vans and trucks, of
which approximately 4,100 are owned by the Company. Independent
contractors under contract with the Company provide the balance of the
pickup and delivery services.
The Company's facilities are linked to FOCUS, a proprietary freight
tracking and message computer system which permits monitoring of overall
system performance and allows the Company to ascertain the status of a
specific shipment. FOCUS receives information in several ways including
drivers' use of hand-held scanners which read bar-coded information on
shipping documents. FOCUS provides many major customers direct access to
the status of their shipments 24 hours a day through the use of their own
computer systems.
Because convenience is an important factor in attracting business from
less frequent shippers, the Company has an ongoing program to place drop
boxes in convenient locations. The Company has approximately 8,500 boxes
in service.
Sort Facilities
---------------
The Company's main sort center is located in Wilmington, Ohio. As
express delivery volume has increased, the main sort center has been
expanded. The sort center currently has the capacity to handle 830,000
pieces during the primary 2-1/2 hour nightly sort operation. In 1995, the
Company plans to expand the nightly sort capacity to handle 865,000 pieces.
On average, approximately 689,000 pieces were sorted each weekday night at
the sort center during the fourth quarter of 1994. In addition to the sort
facilities, the Wilmington location consists of a Company-owned airport
which includes maintenance, storage, training and refueling facilities; and
operations and administrative offices.
The Company also conducts a daylight sort operation at Wilmington.
The day sort services SDS shipments weighing in excess of five pounds that
are consolidated at certain regional hub facilities and either flown or
trucked into or out of Wilmington.
The operation of the Wilmington facility is critical to the Company's
business. The inability to use the Wilmington airport, because of bad
weather or other factors, would have a serious adverse effect on the
Company's service. However, contingency plans, including landing at nearby
airports and transporting packages to and from the sort center by truck,
can be implemented to address temporary inaccessibility of the Wilmington
airport.
In addition to the main sort facility at Wilmington, ten regional hub
facilities have been established primarily to sort shipments originating
and having a destination within approximately a 300 mile radius of a
regional hub.
In the fourth quarter of 1994, approximately 61% and 16% of total
shipment weight was handled through the night sort and day sort operations
at Wilmington, respectively, with the remaining 23% being handled
exclusively by the regional hubs.
Shipment Routing
----------------
The logistical means of moving a shipment from its origin to
destination are determined by several factors. Shipments are routed
differently depending on shipment product type, weight, geographic
distances between origin and destination, and locations of Company stations
relative to the locations of sort facilities. Shipments generally are
moved between stations and sort facilities on either Company aircraft or
contracted trucks. Certain shipments are transported airport-to-airport on
commercial air carriers.
Overnight express shipments and SDS shipments weighing five pounds or
less are picked up by local stations and generally consolidated with other
stations' shipments at Company airport facilities. Shipments that are not
serviced through regional hubs are loaded on Company aircraft departing
each weekday evening from various points within the United States and
Canada. These aircraft may stop at other airports to permit additional
locations and feeder aircraft to consolidate their cargo onto the larger
aircraft before completing the flight to the Wilmington hub. The aircraft
are scheduled to arrive at Wilmington between approximately 11:30 p.m. and
3:00 a.m. at which time the shipments are sorted and reloaded. The
aircraft are scheduled to depart before 6:00 a.m. and return to their
applicable destinations in time to complete scheduled next business morning
or next afternoon service commitments. The Wilmington hub also receives
shipments via truck from selected stations in the vicinity of the
Wilmington hub for integration with the nightly sort process.
For the daylight sort operation, generally 5 aircraft return to
Wilmington from overnight service destinations on Tuesday through Thursday.
These aircraft, and trucks from six regional hubs, arrive at Wilmington
between 10:00 a.m. and noon, at which time shipments are sorted and
reloaded on the aircraft or trucks by 3:00 p.m. for departure and return to
their respective destinations.
The Company also performs weekend sort operations at Wilmington to
accommodate Saturday pickups and Monday deliveries of both overnight
express and SDS shipments. This sort is supported by 11 Company aircraft
and by trucks.
Aircraft
--------
The Company acquires and utilizes used aircraft manufactured in the
late 1960s and early 1970s. Upon acquisition, the aircraft are
substantially modified by the Company. At the end of 1994, the Company's
in-service fleet consisted of a total of 97 aircraft, including 29 DC-8s
(consisting of 10 series 61, 6 series 62 and 13 series 63), 57 DC-9s
(consisting of 2 series 10, 39 series 30 and 16 series 40), and 11 YS-11
turboprop aircraft. The Company owns the majority of the aircraft it
operates, but has completed sale-leaseback transactions with respect to six
DC-8 and six DC-9 aircraft. In addition, approximately 70 smaller aircraft
are chartered nightly to connect small cities with Company aircraft that
then operate to and from Wilmington.
At year end 1994, the nightly lift capacity of the system was about
3.1 million pounds versus approximately 2.8 million pounds and 2.4 million
pounds at the end of 1993 and 1992, respectively. Over the past several
years the Company's utilization of available lift capacity has exceeded
80%.
In response to increased public awareness regarding the operation of
older aircraft, the Federal Aviation Administration ("FAA") periodically
mandates additional maintenance requirements for certain aircraft,
including the type operated by the Company. Currently, the Company's DC-8
and DC-9 series aircraft are undergoing structural inspections for
corrosion as required by an Airworthiness Directive ("AD") issued by the
FAA. The inspections are required to be completed by July 1995 for DC-9
series aircraft, and September 1995 for DC-8 series aircraft. Inspections
and necessary repairs required by the AD have been completed on 42 DC-9
series aircraft and 25 DC-8 series aircraft as of December 31, 1994. The
Company anticipates completing the remaining inspections by the required
compliance dates without materially impacting operations or the financial
position of the Company. However, the FAA may, in the future, impose
additional requirements with respect to maintenance procedures and
practices for aircraft and engines of the type operated by the Company or
interpret existing rules in a manner which could have a material adverse
effect on the Company's operations and financial position.
In accordance with federal law and FAA regulations, only subsonic
turbojet aircraft classified as Stage 2 or 3 by the FAA may be operated in
the United States. Generally, Stage 3 aircraft produce less noise than a
comparable Stage 2 aircraft. As of December 31, 1994, 38 of the Company's
turbojet aircraft (20 DC-8 and 18 DC-9 aircraft) were Stage 3 aircraft, the
balance being Stage 2 aircraft.
In 1990, Congress passed the Airport Noise and Capacity Act of 1990
(the "Noise Act"). Among other things, the Noise Act generally requires
turbojet aircraft weighing in excess of 75,000 pounds and operating in the
United States (the type of DC-8 and DC-9 aircraft operated by the Company)
to comply with Stage 3 noise emission standards on or before December 31,
1999. The Company's YS-11 turboprop aircraft are not subject to these
requirements. In accordance with the Noise Act, the FAA has issued
regulations establishing interim compliance deadlines. These rules require
air carriers to reduce the base level of Stage 2 aircraft they operate 25%
by December 31, 1994; 50% by December 31, 1996; and 75% by December 31,
1998. As of December 31, 1994 the Company had reduced the base level of
its Stage 2 aircraft by approximately 35% and expects to meet or exceed the
compliance percentage at the second interim compliance deadline of December
31, 1996. In addition to FAA regulation, certain local airports also
regulate noise compliance. See "Business - Regulation".
The Company, in conjunction with several other companies, has
developed noise suppression technology known as hush kits for its DC-9
series aircraft which have been certified to meet FAA Stage 3 requirements.
Stage 3 requirements have been met on 18 DC-9 series aircraft. The capital
cost for Stage 3 hush kits is approximately $1.2 million for each DC-9
series aircraft. The Company has installed hush kits which satisfy Stage 3
compliance requirements on all of its DC-8-62 and DC-8-63 series aircraft
and one of its DC-8-61 series aircraft. The capital cost for these hush kits
and related hardware on the DC-8-62 and 63 series aircraft varied between
$750,000 and $1.4 million per aircraft. The capital cost to modify the
DC-8-61 aircraft to meet Stage 3 noise standards is approximately $4.0
million per aircraft.
International Operations
------------------------
The Company provides international express door-to-door delivery and a
variety of freight services. These services are provided in most foreign
countries on an inbound and outbound basis through a network of Airborne
offices and independent agents. Most international deliveries are
accomplished within 24 to 96 hours of pickup.
The Company's domestic stations are staffed and equipped to handle
international shipments to or from almost anywhere in the world. In
addition to its extensive domestic network, the Company operates its own
offices in the Far East, Australia, New Zealand, and the United Kingdom.
The Company's freight and express agents worldwide are connected to FOCUS,
Airborne's on-line communication network. The Company is capable of
providing its customers with immediate access to the status of shipments
via FOCUS almost anywhere in the world.
The Company's international air express service is intended for the
movement of non dutiable and certain dutiable shipments weighing less than
99 pounds. The Company's international air freight service handles heavier
weight shipments on either an airport-to-airport, door-to-airport or door-
to-door basis. In 1994, the Company began offering ocean service
capabilities for customers who want a lower cost shipping option.
The Company's strategy is to use a variable-cost approach in
delivering and expanding international services to its customers. This
strategy uses existing commercial airline lift capacity in connection with
the Company's domestic network to move shipments to and from overseas
destinations and origins. Additionally, exclusive service arrangements
with independent freight and express agents have been entered into to
accommodate shipments in locations not currently served by Company-owned
operations. The Company currently believes there are no significant
service advantages which would justify the operation of its own aircraft on
international routes, or making significant investment in additional
offshore facilities or ground operations. In order to expand its business
at a reasonable cost, the Company continues to explore possible joint
venture agreements, similar to its arrangement with Mitsui & Co., Ltd. in
Japan, which combine the Company's management expertise, domestic express
system and information systems with local business knowledge and market
reputation of suitable partners.
Customers and Marketing
-----------------------
The Company's primary domestic strategy focuses on express services
for high volume corporate customers. Most high volume customers have
entered into service agreements providing for specified rates or rate
schedules for express deliveries. As of December 31, 1994, the Company
serviced approximately 400,000 active customer shipping locations.
The Company determines prices for any particular domestic express
customer based on competitive factors, anticipated costs, shipment volume
and weight, and other considerations. The Company believes that it
generally offers prices that are competitive with, or lower than, prices
quoted by its principal competitors for comparable services.
The Company has historically marketed the overnight express service as
its primary domestic product. However, the Company believes its SDS
product represents an attractive opportunity to expand its customer product
offering and generate incremental revenues utilizing its existing network.
SDS is a lower yielding product than the Company's overnight product and
could result in conversion of certain shipments which may have otherwise
been handled on an overnight basis.
Internationally, the Company's marketing strategy is to target the
outbound express and freight shipments of U.S. corporate customers, and to
sell the inbound service of the Company's distribution capabilities in the
United States.
Both in the international and domestic markets, the Company believes
that its customers are most effectively reached by a direct sales force,
and accordingly, does not currently engage in mass media advertising.
Domestic sales representatives are responsible for selling both domestic
and international express shipments. In addition, the International
Division has its own dedicated direct sales organization for selling
international freight service.
The Company's sales force currently consists of approximately 300
domestic representatives and approximately 75 international specialists.
The Company's sales efforts are supported by the Marketing and
International Divisions, based at the Company headquarters. Senior
management is also active in marketing the Company's services to major
accounts.
Value-added services continue to be important factors in attracting
and retaining customers. Accordingly, the Company is automating more of
its operations to make the service easier for customers to use and to
provide them with valuable management information. The Company believes
that it is generally competitive with other express carriers in terms of
reliability, value-added services and convenience.
For many of its high volume customers, the Company offers a metering
device, called LIBRA II, which is installed at the customer's place of
business. With minimum data entry, the metering device weighs the package,
calculates the shipping charges, generates the shipping labels and provides
a daily shipping report. At year end 1994, the system was in use at
approximately 6,800 domestic customer locations and 500 international
customer locations. Use of LIBRA II not only benefits the customer
directly, but also lowers the Company's operating costs, since LIBRA II
shipment data is transferred into the Airborne FOCUS shipment tracking
system automatically, thus avoiding duplicate data entry.
"Customer Linkage", an electronic data interchange ("EDI") program
developed for Airborne's highest volume shippers, allows customers, with
their computers, to create shipping documentation at the same time they are
entering orders for their goods. At the end of each day, shipping
activities are transmitted electronically to the Airborne FOCUS system
where information is captured for shipment tracking and billing purposes.
Customer Linkage benefits the customer by eliminating repetitive data entry
and paperwork and also lowers the Company's operating costs by eliminating
manual data entry. EDI also includes electronic invoicing and payment
remittance processing. The Company also has available a software program
known as Quicklink, which significantly reduces programming time required
by customers to take advantage of linkage benefits.
In 1995, the Company plans to unveil "LIGHTSHIP-TRACKER", a PC-based
tracking software, which is the Company's first in a series of new software
products designed to improve customer productivity and provide convenient
access to the Company's various services. LIGHTSHIP-TRACKER allows customers,
working from their PCs, to view the status of and receive information
regarding their shipments through access to the Airborne FOCUS system.
The Company offers a number of special logistics programs to customers
through its Advanced Logistics Services Corp. ("ALS") subsidiary. This
subsidiary, established in 1993, operates the Company's Stock Exchange and
Hub Warehousing and other logistics programs. These programs provide
customers the ability to maintain inventories which can be managed either
by Company or customer personnel. Items inventoried at Wilmington can be
delivered utilizing either the Company's airline system or, if required,
commercial airlines on a next-flight-out basis. ALS' Central Print program
allows information to be sent electronically to customer computers located
at Wilmington where Company personnel monitor printed output and ship the
material according to customer instructions.
In addition, the Company's Sky Courier business provides expedited
next-plane-out, service at premium prices. Sky Courier also offers a
Regional Warehousing program where customer inventories are managed at any
of over 60 locations around the United States and Canada.
The Company has obtained ISO 9000 certification for its Chicago,
Philadelphia and London stations and its Seattle Headquarters. The ISO
9000 is a quality program developed by the International Standards
Organization ("ISO"), based in Geneva, Switzerland. This organization
provides a set of international standards on quality management and quality
assurance presently recognized in 92 countries. The certification is an
asset in doing business worldwide and provides evidence of the Company's
commitment to excellence and quality.
Competition
-----------
The market for the Company's services has been and is expected to
remain highly competitive. The principal competitive factors in both
domestic and international markets are price, the ability to provide
reliable pickup and delivery, and value-added services.
Federal Express continues to be the dominant competitor in the
domestic express business, followed by United Parcel Service. Airborne
Express currently ranks third in shipment volume behind these two companies
in the domestic express business. Other domestic express competitors
include the U.S. Postal Service's Express Mail Service and several other
transportation companies offering next morning or next-plane-out delivery
service. The Company also competes to some extent with companies offering
ground transportation services and with facsimile and other forms of
electronic transmission.
The Company believes it is important to maintain an active capital
expansion program to increase capacity, improve service and increase
productivity as its volume of shipments increases. However, the Company
has significantly less capital resources than its two primary competitors.
In the international markets, in addition to Federal Express and
United Parcel Service, the Company competes with DHL, TNT and other air
freight forwarders or carriers and most commercial airlines.
Employees
---------
As of December 31, 1994, the Company and its subsidiaries had
approximately 10,400 full-time employees and 7,000 part-time and casual
employees. Approximately 4,600 full-time employees (including the
Company's 560 pilots) and 3,100 part-time and casual employees are employed
under union contracts, primarily with locals of the International
Brotherhood of Teamsters and Warehousemen.
Labor Agreements
----------------
Most labor agreements covering the Company's ground personnel were
renegotiated in 1994 for a four-year term expiring in 1998. Several
contracts, which expired in 1994, remain unsettled although the Company
believes these contracts will be settled without experiencing any
significant disruption or work stoppage. The Company's pilots are covered
by a contract which becomes amendable on July 31, 1995.
Subsidiaries
------------
The Company has the following wholly-owned subsidiaries:
1. ABX Air, Inc., a Delaware corporation, is a certificated air
carrier which owns and operates the Company's domestic express
cargo service. Its wholly-owned subsidiaries are as follows:
a) Wilmington Air Park, Inc., a Ohio corporation, is the owner
of the Wilmington airport property (Airborne Air Park).
b) Airborne FTZ, Inc., a Ohio corporation, is the holder of a
foreign trade zone certificate at the Wilmington airport
property.
c) Aviation Fuel, Inc., a Ohio corporation, purchases and
sells aviation and other fuels.
d) Advanced Logistics Services Corp., a Ohio corporation,
provides customized warehousing, inventory management and
shipping services.
e) Sound Suppression, Inc., a Ohio corporation with no
current operating activities.
2. Awawego Delivery, Inc., a New York corporation, holds trucking
rights in New York and Connecticut.
3. Airborne Forwarding Corporation, a Delaware corporation doing
business as Sky Courier, provides expedited courier service.
4. Airborne Freight Limited, a New Zealand corporation, provides
air express and air freight services.
Regulation
----------
The Company's operations are subject to various regulations including
regulation by the United States Department of Transportation ("DOT"), the
FAA, the Interstate Commerce Commission, and various other federal, state,
local and foreign authorities.
The DOT, under federal transportation statutes, grants air carriers
the right to engage in domestic and international air transportation. The
DOT issues certificates to engage in air transportation and has the
authority to modify, suspend or revoke such certificates for cause,
including failure to comply with federal law or the DOT regulations. The
Company believes it possesses all necessary DOT-issued certificates to
conduct its operations.
The FAA regulates aircraft safety and flight operations generally,
including equipment, ground facilities, maintenance and communications.
The FAA issues operating certificates to carriers who possess the technical
competence to conduct air carrier operations. In addition, the FAA issues
certificates of airworthiness to each aircraft which meets the requirements
for aircraft design and maintenance. The Company believes it holds all
airworthiness and other FAA certificates required for the conduct of its
business, although the FAA has the power to suspend or revoke such
certificates for cause, including failure to comply with federal law.
The federal government generally regulates aircraft engine noise at
its source. However, local airport operators may, under certain
circumstances, regulate airport operations based on aircraft noise
considerations. The Noise Act provides that in the case of Stage 2
aircraft restrictions, the airport operator must notify air carriers of its
intention to propose rules and satisfy the requirements of federal statutes
before implementation of the rules or in the case of Stage 3 aircraft, the
airport operator must obtain the carriers' or the governments' approval of
the rule prior to its adoption. The Company believes the operation of its
aircraft either complies with or is exempt from compliance with currently
applicable local airport rules. However, if more stringent aircraft
operating regulations were adopted on a widespread basis, the Company might
be required to expend substantial sums, make schedule changes or take other
actions.
The Company's aircraft currently meet all known requirements for
emission levels. However, under the Clean Air Act, individual states or
the Federal Environmental Protection Agency (the "EPA") may adopt
regulations requiring the reduction in emissions for one or more localities
based on the measured air quality at such localities. The EPA has proposed
regulations for portions of California calling for emission reductions
through restricting the use of emission producing ground service equipment
or aircraft auxilary power units. There can be no assurance, that if such
regulations are adopted in the future or changes in existing laws or
regulations are promulgated, such laws or rules would not have a material
adverse effect on the Company.
Under currently applicable federal aviation law, the Company's airline
subsidiary could cease to be eligible to operate as an all-cargo carrier if
more than 25% of the voting stock of the Company were owned or controlled
by non-U.S. citizens or the airline were not effectively controlled by U.S.
citizens. Moreover, in order to hold an all-cargo air carrier certificate,
the president and at least two-thirds of the directors and officers of an
air carrier must be U.S. citizens. The Company has entered into a Rights
Agreement designed, in part, to discourage a single foreign person from
acquiring 20% or more, and foreign persons in the aggregate from acquiring
25% or more, of the Company's outstanding voting stock without the approval
of the Board of Directors. To the best of the Company's knowledge, foreign
stockholders do not control more than 25% of the outstanding voting stock.
Two of the Company's officers are not U.S. citizens.
The Company believes that its current operations are substantially in
compliance with the numerous regulations to which its business is subject;
however, various regulatory authorities have jurisdiction over significant
aspects of the Company's business, and it is possible that new laws or
regulations or changes in existing laws or regulations or the
interpretations thereof could have a material adverse effect on the
Company's operations.
Financial Information Regarding International and Domestic Operations
---------------------------------------------------------------------
Financial information relating to foreign and domestic operations for
each of the three years in the period ended December 31, 1994 is presented
in Note K (Segment Information) of the Notes to Consolidated Financial
Statements appearing in the 1994 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 2. PROPERTIES
--------------------
The Company leases general and administrative office facilities
located in Seattle, Washington.
At year end the Company maintained 254 domestic and 7 foreign
stations, most of which are leased. The majority of the facilities are
located at or near airports.
The Company owns the airport at the Airborne Air Park, in Wilmington,
Ohio. The airport currently consists of a runway, taxi-ways, aprons,
buildings serving as aircraft and equipment maintenance facilities, a sort
facility, storage facilities, a training center, and operations and
administrative offices. The Company has in progress a significant
expansion of the airpark which includes construction of a second runway,
taxiways and several other facilities. This expansion should be
substantially completed during 1995.
Information regarding collateralization of certain property and lease
commitments of the Company is set forth in Notes E and F of the Notes to
Consolidated Financial Statements appearing in the 1994 Annual Report to
Shareholders and is incorporated herein by reference.
The Company believes its existing facilities are adequate to meet
current needs.
ITEM 3. LEGAL PROCEEDINGS
---------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
None
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
----------------------------------------------
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Positions and Offices Presently
Name Age Held and Business Experience
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Robert S. Cline 57 Chairman and Chief Executive Officer (1984
to date); Vice Chairman and Chief Financial
Officer (1978 to 1984); Executive Vice
President and Chief Financial Officer (1973
to 1978); Senior Vice President, Finance
(1970 to 1973); Vice President, Finance
(1968 to 1970); Vice President, Finance,
Pacific Air Freight, Inc. (1966 to 1968)
Robert G. Brazier 57 President and Chief Operating Officer (1978
to date); Executive Vice President and Chief
Operating Officer (1973 to 1978); Senior
Vice President, Operations (1970 to 1973);
Vice President, Operations (1968 to 1970);
Vice President, Sales and Operations, Pacific
Air Freight, Inc. (1964 to 1968)
Roy C. Liljebeck 57 Chief Financial Officer (1984 to date);
Executive Vice President, Finance Division
(1979 to date); Senior Vice President (1973
to 1979); Treasurer (1968 to 1988)
Kent W. Freudenberger 54 Executive Vice President, Marketing Division
(1980 to date); Senior Vice President (1978
to 1980); Vice President (1973 to 1978)
Raymond T. Van Bruwaene 56 Executive Vice President, Field Services
Division (1980 to date); Senior Vice President
(1978 to 1980); Vice President (1973 to 1978)
John J. Cella 54 Executive Vice President, International
Division (1985 to date); Senior Vice President,
International Division (1982 to 1985); Vice
President, International Division (1981 to
1982); Vice President, Far East (1971 to 1981)
Carl D. Donaway 43 President and Chief Executive Officer, ABX Air,
Inc. (1992 to date); offices held in the
Company: Vice President, Business Analysis
(1992); Vice President, Customer Support (1990
to 1992); Director, Customer Support (1988 to
1990)
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
---------------------------------------------------------------
STOCKHOLDERS MATTERS
--------------------
The response to this Item is contained in the 1994 Annual Report to
Shareholders and the information contained therein is incorporated by
reference.
On February 27, 1995 there were 1,626 shareholders of record of the
Common Stock of the Company based on information provided by the Company's
transfer agent.
ITEM 6. SELECTED FINANCIAL DATA
---------------------------------
The response to this Item is contained in the 1994 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The response to this Item is contained in the 1994 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------------
The response to this Item is contained in the 1994 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The response to this Item is contained in part in the Proxy Statement
for the 1995 Annual Meeting of Shareholders under the captions "Election of
Directors" and "Exchange Act Compliance" and the information contained
therein is incorporated herein by reference.
The executive officers of the Company are elected annually at the
Board of Directors meeting held in conjunction with the annual meeting of
shareholders. There are no family relationships between any directors or
executive officers of the Company. Additional information regarding
executive officers is set forth in Part I, Item 4a.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Shareholders under the caption "Executive
Compensation" and the information contained therein is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Shareholders under the captions "Voting at the
Meeting" and "Stock Ownership of Management" and the information contained
therein is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The response to this Item is contained in the Proxy Statement for the
1995 Annual Meeting of Shareholders under the caption "Executive
Compensation" and the information contained therein is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. Financial Statements
------------------------------
The following consolidated financial statements of Airborne Freight
Corporation and its subsidiaries as contained in its 1994 Annual Report to
Shareholders are incorporated by reference in Part II, Item 8:
Consolidated Statements of Net Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)2. Financial Statement Schedules
-----------------------------------
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or are not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a)3. Exhibits
--------------
A) The following exhibits are filed with this report:
EXHIBIT NO. 3 Articles of Incorporation and By-laws
----------------------------------------------------
3(a) The Restated Certificate of Incorporation of the Company, dated
as of August 4, 1987 (incorporated herein by reference from Exhibit 3(a) to
the Company's Form 10-K for the year ended December 31, 1987).
3(b) The By-laws of the Company as amended to April 26, 1994
(incorporated herein by reference from Exhibit 3(b) to the Company's Form 8-
K dated April 26, 1994).
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
------------------------------------------------------------------
Including Indentures
--------------------
4(a) Indenture dated as of September 4, 1986, between the Company
and Peoples National Bank of Washington (now U.S. Bank of Washington), as
trustee (and succeeded by First Trust Washington), relating to $25 million
of the Company's 10% Senior Subordinated Notes due 1996 (incorporated by
reference from Exhibit 4(c) to Amendment No. 1 to the Company's
Registration Statement on Form S-3, No. 33-6043, filed with the Securities
and Exchange Commission on September 3, 1986).
4(b) Note Purchase Agreement dated September 3, 1986 among the
Company and the original purchasers of the Company's 10% Senior
Subordinated Notes due 1996 (incorporated by reference from Exhibit 4(d) to
Amendment No. 1 to the Company's Registration Statement on Form S-3, No. 33-
6043, filed with the Securities and Exchange Commission on September 3,
1986).
4(c) Indenture dated as of August 15, 1991, between the Company and
Bank of America National Trust and Savings Association, as Trustee, with
respect to the Company's 6-3/4% Convertible Subordinated Debentures due
August 15, 2001 (incorporated herein by reference from Exhibit 4(i) to
Amendment No. 1 to the Company's Registration Statement on Form S-3 No.
33-42044 filed with the Securities and Exchange Commission on August 15,
1991).
4(d) First Supplemental Trust Indenture dated as of June 30, 1994
between the Company and LaSalle National Bank, as Successor Trustee, with
respect to the Company's 6-3/4% Convertible Subordinated Debentures due
August 15, 2001.
4(e) Indenture dated as of December 3, 1992, between the Company and
Bank of New York, as trustee, relating to the Company's 8-7/8% Notes due
2002 (incorporated herein by reference from Exhibit 4(a) to Amendment No. 1
to the Company's Registration Statement on Form S-3, No. 33-54560 filed
with the Securities and Exchange Commission on December 4, 1992).
4(f) Rights Agreement, dated as of November 20, 1986 between the
Company and First Jersey National Bank (predecessor to First Interstate
Bank, Ltd.), as Rights Agent (incorporated by reference from Exhibit 1 to
the Company's Registration Statement on Form 8-A, dated November 28, 1986).
4(g) Certificate of Designation of Series A Participating Cumulative
Preferred Stock Setting Forth the Powers, Preferences, Rights,
Qualification, Limitations and Restrictions of Such Series of Preferred
Stock of the Company (incorporated by reference from Exhibit 2 to the
Company's Registration Statement on Form 8-A, dated November 28, 1986).
4(h) Form of Right Certificate relating to the Rights Agreement (see
4(f) above, incorporated by reference from Exhibit 3 to the Company's
Registration Statement on Form 8-A, dated November 28, 1986).
4(i) Letter dated January 5, 1990, from the Company to First
Interstate Bank, Ltd. ("FIB"), appointing FIB as successor Rights Agent
under the Rights Agreement dated as of November 20, 1986, between the
Company and The First Jersey National Bank (incorporated by reference from
Exhibit 4(c) to the Company's Form 10-K for the year ended December 31,
1989).
4(j) Amendment to Rights Agreement entered into as of January 24,
1990, between the Company and First Interstate Bank, Ltd. (incorporated
herein by reference from Exhibit 4(d) to the Company's Form 10-K for the
year ended December 31, 1989).
4(k) Third Amendment to Rights Agreement entered into as of November
6, 1991 between the Company and First Interstate Bank, Ltd. (incorporated
herein by reference from Exhibit 4(a) to the Company's Form 10-K for the
year ended December 31, 1991).
4(l) 6.9% Cumulative Convertible Preferred Stock Purchase Agreement
dated as of December 5, 1989, among the Company, Mitsui & Co., Ltd.,
Mitsui & Co. (U.S.A.), Inc., and Tonami Transportation Co., Ltd. (incor
porated herein by reference from Exhibit 4(b) to the Company's Form 10-K
for the year ended December 31, 1989).
4(m) Amendments to the above Stock Purchase Agreement irrevocably
waiving all demand registration rights and relinquishing the right of
Mitsui & Co., Ltd. to designate a representative to Airborne's Board of
Directors, and resignation of T. Kokai from said Board (incorporated herein
by reference from Amendment No. 1 to Schedule 13D of Mitsui & Co., Ltd.,
Intermodal Terminal, Inc. (assignee of Mitsui & Co. (USA) Inc.) and Tonami
Transportation Co., Ltd., filed with the Securities & Exchange Commission
on December 21, 1993).
4(n) Certificate of Designation of Preferences of Preferred Shares
of Airborne Freight Corporation, as filed on January 26, 1990, in the
Office of the Secretary of the State of Delaware (incorporated herein by
reference from Exhibit 4(a) to the Company's Form 10-K for the year ended
December 31, 1989).
EXHIBIT NO. 10 Material Contracts
---------------------------------
Executive Compensation Plans and Agreements
-------------------------------------------
10(a) 1979 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan, as amended through February 2, 1987
(incorporated by reference from Exhibit 10(d) to the Company's Form 10-K
for the year ended December 31, 1986).
10(b) 1983 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan, as amended through February 2, 1987
(incorporated by reference from Exhibit 10(c) to the Company's Form 10-K
for the year ended December 31, 1986).
10(c) 1989 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan (incorporated herein by reference from
Exhibit 10(d) to the Company's Form 10-K for the year ended December 31,
1989).
10(d) 1994 Airborne Freight Corporation Key Employee Stock Option
and Stock Appreciation Rights Plan (incorporated herein by reference from
the Addendum to the Company's Proxy Statement for the 1994 Annual Meeting
of Shareholders).
10(e) Airborne Freight Corporations Directors Stock Option Plan
(incorporated herein by reference from the Addendum to the Company's Proxy
Statement for the 1991 Annual Meeting of Shareholders).
10(f) Airborne Express Executive Deferral Plan dated January 1, 1992
(incorporated by reference from Exhibit 10(b) to the Company's Form 10-K
for the year ended December 31, 1991).
10(g) Airborne Express Supplemental Executive Retirement Plan dated
January 1, 1992 (incorporated by reference from Exhibit 10(c) to the
Company's Form 10-K for the year ended December 31, 1991).
10(h) Airborne Express 1994 Executive Management Incentive
Compensation Plan.
10(i) Airborne Express 1995-1999 Executive Incentive Compensation
Plan.
10(j) Employment Agreement dated December 15, 1983, as amended
November 20, 1986, between the Company and Mr. Robert G. Brazier, President
and Chief Operating Officer (incorporated by reference from Exhibit 10(a)
to the Company's Form 10-K for the year ended December 31, 1986).
Identical agreements exist between the Company and the other six executive
officers.
10(k) Employment Agreement dated November 20, 1986 between the
Company and Mr. Lanny H. Michael, then Vice President, Treasurer and
Controller (incorporated by reference from Exhibit 10(b) to the Company's
Form 10-K for the year ended December 31, 1986). Identical agreements
exist between the Company and 25 other officers of the Company. In
addition, the Company's principal subsidiary, ABX Air, Inc., has entered
into substantially identical agreements with seven of its officers.
Other Material Contracts
------------------------
10(l) $240,000,000 Revolving Loan Facility dated as of November 19, 1993
among the Company, as borrower, and Wachovia Bank of Georgia, N.A., ABN
AMRO Bank N.V., United States National Bank of Oregon, Seattle-First
National Bank, CIBC Inc., Continental Bank N.A., Bank of America National
Trust and Savings Association, The Bank of New York, NBD Bank, N.A., as
banks and Wachovia Bank of Georgia, N.A., as agent (incorporated herein by
reference from Exhibit 10(k) to the Company's Form 10-K for the year ended
December 31, 1993).
10(m) Letter dated December 5, 1989, to the Company from Mitsui &
Co., Ltd. ("Mitsui"), relating to Mitsui's commitment to provide the
Company and ABX Air, Inc., a $100 million aircraft financing facility, as
modified by that certain Supplement thereto entered into as of March 15,
1990 (incorporated herein by reference from Exhibit 10(b) to the Company's
Form 10-K for the year ended December 31, 1989).
10(n) Shareholders Agreement entered into as of February 7, 1990,
among the Company, Mitsui & Co., Ltd., and Tonami Transportation Co., Ltd.,
relating to joint ownership of Airborne Express Japan, Inc. (incorporated
herein by reference from Exhibit 10(c) to the Company's Form 10-K for the
year ended December 31, 1989).
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings
-------------------------------------------------------------
11 Statement re computation of earnings per share
EXHIBIT NO. 12 Statements Re Computation of Ratios
--------------------------------------------------
12 Statement re computation of ratio of senior long-term debt and
total long-term debt to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders
------------------------------------------------
13 Portions of the 1994 Annual Report to Shareholders of Airborne
Freight Corporation
EXHIBIT NO. 21 Subsidiaries of the Registrant
---------------------------------------------
21 The subsidiaries of the Company are listed in Part I of this
report on Form 10-K for the year ended December 31, 1994.
EXHIBIT NO. 23 Consents of Experts and Counsel
----------------------------------------------
23 Independent Auditors' Consent and Report on Schedules
EXHIBIT NO. 27 Financial Data Schedule
--------------------------------------
27 Financial Data Schedule
All other exhibits are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
-------------------
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRBORNE FREIGHT CORPORATION
By /S/ ROBERT S. CLINE
----------------------
Robert S. Cline
Chief Executive Officer
By /S/ ROBERT G. BRAZIER
------------------------
Robert G. Brazier
Chief Operating Officer
By /S/ ROY C. LILJEBECK
-----------------------
Roy C. Liljebeck
Chief Financial Officer
By /S/ LANNY H. MICHAEL
-----------------------
Lanny H. Michael
Treasurer and Controller
Date: March 29, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated:
/S/ WILLIAM SWINDELLS /S/ HAROLD M. MESSMER, JR.
------------------------ ------------------------
William Swindells (Director) Harold M. Messmer, Jr. (Director)
/S/ ROBERT G. BRAZIER /S/ RICHARD M. ROSENBERG
------------------------ ------------------------
Robert G. Brazier (Director) Richard M. Rosenberg (Director)
/S/ ROBERT S. CLINE
------------------------
Robert S. Cline (Director)
Date: March 29, 1995
AIRBORNE FREIGHT CORPORATION
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
----------- -------- -------- ---------- --------
<S> <C> <C> <C> <C>
DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
1. Allowance for doubtful accounts -
Year Ended December 31, 1994 $6,925 $12,631 $12,056 $7,500
Year Ended December 31, 1993 $6,801 $11,660 $11,536 $6,925
Year Ended December 31, 1992 $6,854 $ 9,574 $ 9,627 $6,801
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ------------ -------
<S> <C> <C>
(a)3. Exhibits
---------------
A) The following exhibits are filed with this report: ---
</TABLE>
EXHIBIT NO. 3 Articles of Incorporation and By-laws
----------------------------------------------------
<TABLE>
<S> <C> <C>
3(a) The Restated Certificate of Incorporation of ---
the Company, dated as of August 4, 1987
(incorporated herein by reference from Exhibit
3(a) to the Company's Form 10-K for the year
ended December 31, 1987).
3(b) The By-laws of the Company as amended to ---
April 26, 1994 (incorporated herein by reference
from Exhibit 3(b) to the Company's Form 8-K dated
April 26, 1994).
</TABLE>
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
------------------------------------------------------------------
Including Indentures
--------------------
<TABLE>
<S> <C> <C>
4(a) Indenture dated as of September 4, 1986, between ---
the Company and Peoples National Bank of Washington
(now U.S. Bank of Washington), as trustee
(and succeeded by First Trust Washington), relating
to $25 million of the Company's 10% Senior
Subordinated Notes due 1996 (incorporated by
reference from Exhibit 4(c) to Amendment No. 1
to the Company's Registration Statement on
Form S-3, No. 33-6043, filed with the Securities
and Exchange Commission on September 3, 1986).
4(b) Note Purchase Agreement dated September 3, 1986 ---
among the Company and the original purchasers of
the Company's 10% Senior Subordinated Notes due
1996 (incorporated by reference from Exhibit 4(d)
to Amendment No. 1 to the Company's Registration
Statement on Form S-3, No. 33-6043, filed with the
Securities and Exchange Commission on September 3, 1986).
4(c) Indenture dated as of August 15, 1991, between ---
the Company and Bank of America National Trust
and Savings Association, as Trustee, with respect to
the Company's 6-3/4% Convertible Subordinated
Debentures due August 15, 2001 (incorporated
herein by reference from Exhibit 4 (i) to Amendment
No. 1 to the Company's Registration Statement
on Form S-3 No. 33-42044 filed with the Securities
and Exchange Commission on August 15, 1991).
4(d) First Supplemental Trust Indenture dated as of ---
June 30, 1994 between the Company and LaSalle
National Bank, as Successor Trustee, with respect
to the Company's 6-3/4% Convertible Subordinated
Debentures due August 15, 2001.
4(e) Indenture dated as of December 3, 1992, between ---
the Company and Bank of New York, as trustee,
relating to the Company's 8-7/8% Notes due 2002
(incorporated herein by reference from Exhibit
4(a) to Amendment No. 1 to the Company's
Registration Statement on Form S-3, No. 33-54560
filed with the Securities and Exchange Commission
on December 4, 1992).
4(f) Rights Agreement, dated as of November 20, 1986 ---
between the Company and First Jersey National Bank
(predecessor to First Interstate Bank, Ltd.), as
Rights Agent (incorporated by reference from
Exhibit 1 to the Company's Registration Statement
on Form 8-A, dated November 28, 1986).
4(g) Certificate of Designation of Series A ---
Participating Cumulative Preferred Stock Setting
Forth the Powers, Preferences, Rights, Qualification,
Limitations and Restrictions of Such Series of
Preferred Stock of the Company (incorporated by
reference from Exhibit 2 to the Company's
Registration Statement on Form 8-A, dated
November 28, 1986).
4(h) Form of Right certificate relating to the Rights ---
Agreement (see 4(f) above, incorporated by
reference from Exhibit 3 to the Company's
Registration Statement on From 8-A, dated
November 28, 1986).
4(i) Letter dated January 5, 1990, from the Company ---
to First Interstate Bank, Ltd. ("FIB"),
appointing FIB as successor Rights Agent under the
Rights Agreement dated as of November 20, 1986,
between the Company and The First Jersey National
Bank (incorporated by reference from Exhibit 4(c) to
the Company's Form 10-K for the year ended
December 31, 1989).
4(j) Amendment to Rights Agreement entered into as of ---
January 24, 1990, between the Company and First
Interstate Bank, Ltd. (incorporated herein by
reference from Exhibit 4(d) to the Company's
Form 10-K for the year ended December 31, 1989).
4(k) Third Amendment to Rights Agreement entered into ---
as of November 6, 1991 between the Company and
First Interstate Bank, Ltd. (incorporated herein
by reference from Exhibit 4(a) to the Company's
Form 10-K for the year ended December 31, 1991).
4(l) 6.9% Cumulative Convertible Preferred Stock ---
Purchase Agreement dated as of December 5, 1989,
among the Company, Mitsui & Co., Ltd., Mitsui & Co.
(U.S.A.), Inc., and Tonami Transportation Co., Ltd.
(incorporated herein by reference from Exhibit 4(b)
to the Company's Form 10-K for the year ended
December 31, 1989).
4(l)(i) Amendments to the above Stock Purchase Agreement ---
irrevocably waiving all demand registration rights,
relinquishing the right of Mitsui & Co., Ltd. to
designate a representative to Airborne's Board of
Directors, and resignation of T. Kokai from said
Board (incorporated herein by reference from
Amendment No. 1 to Schedule 13D of Mitsui & Co., Ltd.,
Intermodal Terminal, Inc. (assignee of Mitsui & Co.
(U.S.A.), Inc.) and Tonami Transportation Co., Ltd.,
filed with the Securities & Exchange Commission on
December 21, 1993).
4(m) Certificate of Designation of Preferences of ---
Preferred Shares of Airborne Freight Corporation,
as filed on January 26, 1990, in the Office of the
Secretary of the State of Delaware (incorporated
herein by reference from Exhibit 4(a) to the Company's
Form 10-K for the year ended December 31, 1989).
</TABLE>
EXHIBIT NO. 10 Material Contracts
----------------------------------
Executive Compensation Plans and Agreements
-------------------------------------------
<TABLE>
<S> <C> <C>
10(a) 1979 Airborne Freight Corporation Key Employee Stock ---
Option and Stock Appreciation Rights Plan, as amended
through February 2, 1987 (incorporated by reference
from Exhibit 10(d) to the Company's Form 10-K for the
year ended December 31, 1986).
10(b) 1983 Airborne Freight Corporation Key Employee ---
Stock Option and Stock Appreciation Rights Plan,
as amended through February 2, 1987 (incorporated
by reference from Exhibit 10(c) to the Company's
Form 10-K for the year ended December 31, 1986).
10(c) 1989 Airborne Freight Corporation Key Employee ---
Stock Option and Stock Appreciation Rights Plan
(incorporated herein by reference from Exhibit
10(d) to the Company's Form 10-K for the year
ended December 31, 1989).
10(d) 1994 Airborne Freight Corporation Key Employee ---
Stock Option and Stock Appreciation Rights Plan
(incorporated herein by reference from the
Addendum to the Company's Proxy Statement for the
1994 Annual Meeting of Shareholders).
10(e) Airborne Freight Corporation Directors Stock ---
Option Plan (incorporated herein by reference from
the Addendum to the Company's Proxy Statement for
the 1991 Annual Meeting of Shareholders).
10(f) Airborne Express Executive Deferral Plan dated ---
January 1, 1992 (incorporated by reference from
Exhibit 10(b) to the Company's Form 10-K for the
year ended December 31, 1991).
10(g) Airborne Express Supplemental Executive Retirement ---
Plan dated January 1, 1992 (incorporated by
reference from Exhibit 10(c) to the Company's Form
10-K for the year ended December 31, 1991).
10(h) Airborne Express 1994 Executive Management ---
Incentive Compensation Plan.
10(i) Airborne Express 1995-1999 Executive Incentive ---
Compensation Plan.
10(j) Employment Agreement dated December 15, 1983, as ---
amended November 20, 1986, between the Company and
Mr. Robert G. Brazier, President and Chief Operating
Officer (incorporated by reference from Exhibit 10(a)
to the Company's Form 10-K for the year ended
December 31, 1986). Identical agreements exist
between the Company and the other six executive
officers.
10(k) Employment Agreement dated November 20, 1986 ---
between the Company and Mr. Lanny H. Michael, then
Vice President, Treasurer and Controller
(incorporated by reference from Exhibit 10(b)
to the Company's Form 10-K for the year ended
December 31, 1986). Identical agreements exist
between the Company and 25 other officers of the
Company. In addition, the Company's principal
subsidiary, ABX Air, Inc., has entered into
substantially identical agreements with seven of
its officers.
Other Material Contracts
------------------------
10(l) $240,000,000 Revolving Loan Facility dated as of ---
November 19, 1993 among the Company, as borrower,
and Wachovia Bank of Georgia, N.A., ABN AMRO
Bank N.V., United States National Bank of Oregon,
Seattle-First National Bank, CIBC Inc., Continental
Bank N.A., Bank of America National Trust and Savings
Association, The Bank of New York, NBD Bank, N.A., as
banks and Wachovia Bank of Georgia, N.A., as agent
(incorporated herein by reference from Exhibit 10(k)
to the Company's Form 10-K for the year ended
December 31, 1993).
10(m) Letter dated December 5, 1989, to the Company from ---
Mitsui & Co., Ltd. ("Mitsui"), relating to Mitsui's
commitment to provide the Company and ABX Air, Inc.,
a $100 million aircraft financing facility, as
modified by that certain Supplement thereto entered
into as of March 15, 1990 (incorporated herein by
reference from Exhibit 10(b) to the Company's Form
10-K for the year ended December 31, 1989).
10(n) Shareholders Agreement entered into as of ---
February 7, 1990, among the Company, Mitsui & Co.,
Ltd., and Tonami Transportation Co., Ltd., relating
to joint ownership of Airborne Express Japan, Inc.
(incorporated herein by reference from Exhibit 10(c)
to the Company's Form 10-K for the year ended
December 31, 1989).
</TABLE>
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings
--------------------------------------------------------------
<TABLE>
<S> <C> <C>
11 Statement re computation of earnings per share ---
</TABLE>
EXHIBIT NO. 12 Statements Re Computation of Ratios
--------------------------------------------------
<TABLE>
<S> <C> <C>
12 Statement re computation of ratio of senior ---
long-term debt and total long-term debt to
total capitalization
</TABLE>
EXHIBIT NO. 13 Annual Report to Security Holders
------------------------------------------------
<TABLE>
<S> <C> <C>
13 Portions of the 1994 Annual Report to Shareholders ---
of Airborne Freight Corporation
</TABLE>
EXHIBIT NO. 21 Subsidiaries of the Registrant
----------------------------------------------
<TABLE>
<S> <C> <C>
21 The subsidiaries of the Company are listed in ---
Part I of this report on Form 10-K for the year
ended December 31, 1994.
</TABLE>
EXHIBIT NO. 23 Consents of Experts and Counsel
-----------------------------------------------
<TABLE>
<S> <C> <C>
23 Independent Auditors' Consent and Report on ---
Schedules
</TABLE>
EXHIBIT NO. 27 Financial Data Schedule
---------------------------------------
<TABLE>
<S> <C> <C>
27 Financial Data Schedule ---
</TABLE>
All other exhibits are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
<TABLE>
<S> <C> <C>
(b) Reports on Form 8-K
---------------------------
None ---
</TABLE>
EXHIBIT 4 (d)
FIRST SUPPLEMENTAL TRUST INDENTURE
BETWEEN
AIRBORNE FREIGHT CORPORATION
AND
LASALLE NATIONAL BANK
as Trustee
DATED AS OF
June 30, 1993
RELATING TO
$115,000,000 CONVERTIBLE SUBORDINATED DEBENTURES
DUE AUGUST 15, 2001
-----------------------------------------------------------------
This document was prepared by
Foster Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
TABLE OF CONTENTS
ARTICLE I
RESCISSION AND DESIGNATION OF COMPANY OFFICES
<TABLE>
<S> <C> <C>
1.1 Rescission of Designation of Los Angeles and San Francisco 2
Offices
1.2 Designation of Additional Offices 3
1.3 Maintenance of New York Office 3
</TABLE>
ARTICLE II
AMENDMENT OF DEFINITIONS AND OTHER PROVISIONS
<TABLE>
<S> <C> <C>
2.1 Definitions Amended 3
2.2 Other Provisions Amended 3
</TABLE>
ARTICLE III
MISCELLANEOUS
<TABLE>
<S> <C> <C>
3.1 All Other Provisions of Indenture Apply 4
3.2 Execution in Several Counterparts 4
</TABLE>
FIRST SUPPLEMENTAL TRUST INDENTURE
THIS FIRST SUPPLEMENTAL TRUST INDENTURE (this "Supplemental
Indenture"), made and dated as of June 30, 1993, by and between Airborne
Freight Corporation (the "Company), a corporation duly organized and
existing under the laws of the State of Delaware, having its principal
office in Seattle, Washington, and LaSalle National Bank (the "Successor
Trustee"), a national banking association organized and existing under the
laws of the United States of America and having its principal place of
business in Chicago, Illinois, as successor trustee to Bank of America
National Trust and Savings Association (the "Resigning Trustee"),
W I T N E S S E T H:
WHEREAS, the Company and the Resigning Trustee entered into a Trust
Indenture (the "Indenture") dated as of August 15, 1991, pursuant to which
the Company issued its $115,000,000 aggregate principal amount 6 3/4%
Convertible Subordinated Debentures due August 15, 2001 (the "Securities"),
under which the Resigning Trustee serviced as trustee for the Securities;
and
WHEREAS, in accordance with Section 601(b) of the Indenture, the
Resigning Trustee provided notice to the Company of its resignation as
trustee for the Securities to become effective upon the acceptance of
appointment by a successor trustee; and
WHEREAS, the Company, the Resigning Trustee and the Successor Trustee
entered into an agreement dated June 16, 1993, and effective June 30, 1`993
(the "Tri-Party Agreement") whereby the Company accepted the resignation of
the Resigning Trustee and appointed the Successor Trustee, and the
Successor Trustee accepted its appointment as Trustee under the Indenture
and represented that it is qualified and eligible to serve as Trustee under
the Indenture; and
WHEREAS, Section 901 of the Indenture provides that the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental to the
Indenture, in form satisfactory to the Trustee, to cure any ambiguity,
correct inconsistencies or to make any other provisions with respect to
matters or questions arising under the Indenture which are not inconsistent
with the provisions of the Indenture, so long as the supplemental
indentures do no adversely affect the interests of the holders of the
Securities in any material respect; and
WHEREAS, Section 1002 of the Indenture provides that the Company will
maintain an office or agency in the Borough of Manhattan, the City of New
York, where the Securities may be presented or surrendered for payment or
for registration of transfer or exchange and where notices and demands to
or upon the Company with respect to the Securities and the Indenture may be
served; and
WHEREAS, Section 1002 of the Indenture further provides that the
Company may from time to time designate on or more other offices where the
Securities may be presented and notices and demands may be delivered, and
that the Company may from time to time rescind such designations; and
WHEREAS, the principal corporate trust offices in the Resigning
Trustee are located in Los Angeles and San Francisco, California, which
offices are designated in the Indenture as an additional offices of the
Company for various purposes described in the Indenture; and
WHEREAS, the Successor Trustee and the Company desire to rescind the
designation of the Resigning Trustee's offices in San Francisco and Los
Angeles, and to designate the principal corporate trust office of the
Successor Trustee as an additional office of the Company for certain
purposes described in the Indenture; and
WHEREAS, to make certain changes to the Indenture necessary to
implement the appointment of the Successor Trustee, the Company has
authorized the execution and delivery of this Supplemental Indenture by a
Board Resolution; and
WHEREAS, the Successor Trustee has determined that the amendments
contained in this Supplemental Indenture are consistent with the Indenture
and not adverse to the holders of the Securities; and
WHEREAS, all acts and proceedings required by law necessary to
constitute this Supplemental Indenture a valid and binding agreement for
the uses and purposes set forth herein in accordance with its terms, have
been done and taken, and the execution and delivery of this Supplemental
Indenture have been in all respects duly authorized;
NOW THEREFORE, the Successor Trustee and the Company agree as follows:
ARTICLE I
RESCISSION AND DESIGNATION OF COMPANY OFFICES
1.1 Recission of Designation of Los Angeles and San Francisco
Offices. In accordance with Section 1002 of the Indenture the Company
rescinds its designation of the principal corporate trust offices of the
Resigning Trustee in San Francisco and Los Angeles, California for all
purposes for which those offices are designated in the Indenture.
1.2 Designation of Additional Office. In accordance with Section
1002 of the Indenture the Company designates the Corporate Trust Office as
an additional office of the Company for all purposes for which the San
Francisco and Los Angeles offices are designated in the Indenture,
including surrender of Securities for payment.
1.3 Maintenance of New York Office. In accordance with Section 1002
of the Indenture the Company will maintain an office in the Borough of
Manhattan, The City of New York, where Securities may be surrendered for
transfer, exchange or conversion, and where notices and demands to or upon
the Company under the Indenture may be served.
ARTICLE II
AMENDMENT OF DEFINITIONS AND OTHER PROVISIONS
2.1 Definitions Amended. The following terms defined in Section 101
of the Indenture are amended to read as follows for all purposes of the
Indenture:
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in the City of
New York or the city in which the Corporate Trust Office is located are
authorized or obligated by law or executive order to close.
"Corporate Trust Office" means the principal office of the
Trustee.
All other capitalized terms used but no defined in this Supplemental
Indenture shall have the meanings assigned to them in the Indenture.
2.2 Other Provisions Amended. All references in the Indenture to the
offices or agencies of the Trustee or the Company located in Los Angeles or
San Francisco, California, shall be amended to refer to the Corporate Trust
Office of the Successor Trustee for all purposes of the Indenture,
including the reference to the office or agency of the Company in Section
203 of the Indenture specifying the Form of Reverse of the Security.
ARTICLE III
MISCELLANEOUS
3.1 All Other Provisions of Indenture Apply. Except as an to the
extent modified by this Supplemental Indenture, all provisions of the
Indenture shall remain in full force and effect with respect to all
Securities.
3.2 Execution in Several Counterparts. This Supplemental Indenture
may be executed in counterparts and each such counterpart shall for all
purposes be deemed to be an original, and all such counterparts, or as many
of them as the Company and the Successor Trustee shall preserve
undestroyed, shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be executed, and their respective seals to be affixed hereto
and attested, all as of the day and year first written above.
COMPANY: AIRBORNE FREIGHT CORPORATION
By /s/Lanny H. Michael
------------------------
Title: Sr. V.P. and Treasurer
TRUSTEE: LASALLE NATIONAL BANK
By /s/Georgia E. Tsirdas
------------------------
Title: Assistant Vice President
EXHIBIT 10 (h)
Airborne Express
1994
Executive Incentive Compensation Plan
Airborne Freight Corporation D/B/A
"Airborne Express"
EXECUTIVE INCENTIVE COMPENSATION PLAN
Effective as revised January 1, 1994
and annually thereafter.
SUMMARY PLAN DESCRIPTION
1. Purpose
The purpose of this Plan is to achieve Corporate goals by providing
incentive compensation to eligible key executives who through industry,
ability and exceptional service, contribute materially to the success of
Airborne Express.
2. Definitions
When used in the Plan, the following words and phrases shall have the
following meanings:
(a) Beneficiary - The beneficiary or beneficiaries designated to
receive the amount, if any, payable under the Plan upon the death of a
participant.
(b) Board - The Board of Directors of Airborne Freight Corporation.
(c) Compensation Committee - Members of the Board who are charged
with the responsibility of review and recommendations to the full Board on
matters relating to salaries of officers and all other forms of executive
and key management compensation and benefits.
(d) Plan - The Executive Incentive Compensation Plan.
(e) Plan Year - Each calendar year for which specific performance
targets are established for the Company.
(f) Eligible Employee or Participant - Any executive employee who is
in service at the end of the Plan year and who has been designated by the
Board as eligible to receive awards hereunder.
(g) Performance Measure - A specific objective measure to assess
individual or group success in achieving established goals. The plan
consists of two corporate performance measures and individual MBO sections
may consist of up to four additional performance measures.
(h) Target - The point at which performance equals 100% of the
stated objective and earns the bonus percentage established for a given
position.
(i) Attainment - The actual results of individual or group effort to
reach a performance goal, usually stated as a percentage of target.
(j) Threshold - The point below target at which incentive payout for
each performance measure begins. Some performance measures only pay
incentive if target is achieved.
(k) Maximum - The point above target that represents the maximum
payout level for a particular performance measure.
(l) Total Disability - Complete and permanent inability by reason of
illness or accident to perform the duties of the occupation at which a
Participant was employed by Airborne Express when such disability
commenced.
(m) Retirement - When an employee leaves active service and
qualifies under the company's regular or early retirement programs.
3. Allocation of Bonus Awards
Each Plan year bonus awards, if any, shall be allocated among eligible
employees, on the basis of their contributions to the successful management
of the total organization or of a subsidiary and in accordance with such
rules as the Board may prescribe.
Upon recommendations of the Compensation Committee, the Board shall
determine the award maximums, the allocation of the award between
individuals and the total organization and individual executive awards.
In determining the allocation of bonus awards among individual executives,
the Chairman and the President will consider Company performance and
individual performance goals.
The Compensation Committee shall have the right to approve different
performance objectives for each performance period. However, performance
objectives will not be changed during any performance period except as and
to the extent determined by the Board in the event of changes in accounting
practices or extraordinary or unanticipated circumstances which could have
a material effect on the achievement of the performance objectives.
4. Limitation on Allocation
The total amount allocated as a Bonus Award to an eligible employee shall
not exceed a fixed percentage of the employee's targeted award.
5. Form of Payment of Incentive Compensation
Incentive compensation awards shall be paid entirely in cash except when
otherwise authorized by the Board. Payments will be made as soon as
practicable after audited performance results are known, which should be on
or about March 1. Bonus award checks are prepared by Payroll and the
amounts are subject to tax withholding and Capital Accumulation Plan (CAP)
deductions.
If a participant dies before the end of the Plan year an amount equal to a
pro-rated portion thereof as of the date of death shall be paid in one lump
cash sum to the employee's beneficiary.
6. Designation of Beneficiaries
Each participant shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the
amount, if any, payable under the Plan upon the employee's death. A
participant may, from time to time, revoke or change his Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation. The last such designation received shall be controlling,
provided, however, that no designation, or change or revocation thereof,
shall be effective unless received by the Company prior to the
Participant's death, and in no event shall it be effective as of a date
prior to such receipt.
7. Absence of Valid Designation
If no such Beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
participant, or if such designation conflicts with the law, the
Participant's estate shall be deemed to have been designated a beneficiary
and shall receive the payment of the amount, if any, under the Plan upon
the participant's death. If the Compensation Committee is in doubt as to
the right of any person to receive such amount, the Compensation Committee
may direct retention of such amount, without liability for any interest
thereon, until the rights thereto are determined or the Compensation
Committee may pay such amount to any court of appropriate jurisdiction and
such payment shall be a complete discharge of the liability of the Plan and
of Airborne therefore.
ADMINISTRATION OF THE PLAN
8. Power and Authority
The Compensation Committee shall have full power and authority to construe,
interpret and administer the Plan. All decisions, actions or
interpretations of the Compensation Committee shall be final, conclusive
and binding upon all parties.
9. No Liability of Compensation Committee, Board Members or Officers
No members of the Compensation Committee, Board or Corporate officers shall
be personally liable by reason of any contract or other instrument executed
by them or on their behalf nor for any mistake or judgment made in good
faith, and Airborne shall indemnify and hold harmless each member of the
Board and each other officer, employee or director of Airborne to whom any
duty or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including
counsel fees) or liability (including any sum paid in settlement of a claim
with the approval of the Compensation Committee) arising out of any act or
omission to act in connection with the Plan unless arising out of such
person's own fraud or bad faith.
10. Right to Amend, Suspend or Terminate Plan
The Board reserves the right at any time to amend, suspend or terminate the
Plan in whole or in part and for any reasons and without the consent of any
Participant or Beneficiary; provided that no such amendment shall adversely
affect rights to receive any amount to which Participants or Beneficiaries
have become entitled prior to such amendment. Any amendment, modification,
suspension or termination of any provisions of the Plan may be made
retroactively.
GENERAL LIMITATIONS AND PROVISIONS
11. No Rights to Continued Employment or Bonus
Nothing contained in the Plan shall give any employee the right to be
retained in the employment of Airborne or affect the right of Airborne to
dismiss any employee. The adoption of the Plan shall not constitute a
contract between Airborne and any employee. No eligible employee shall
receive any right to be granted an award hereunder nor shall any such award
be considered as compensation under any employee benefit plan of Airborne
except as otherwise determined by Airborne.
12. No Right, Title, or Interest in Airborne Assets
The Participant shall have no right, title, or interest whatsoever in or to
any investments which Airborne may make to aid in meeting its obligations
under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a
fiduciary relationship between Airborne and any eligible employee or any
other person. To the extent that any person acquires a right to receive
payments from Airborne under this Plan, such right shall be no greater than
the right of an unsecured general creditor of Airborne.
13. Unfunded Plan: Governing Law
The Plan is intended to constitute an incentive compensation arrangement
for a select group of management or highly compensated personnel and all
rights thereunder shall be governed by and construed in accordance with the
laws of the State of Washington.
14. Executive Incentive Compensation Plan
The specific Executive Incentive Compensation Plan (EICP) for the current
Plan year is described in the next section (pages 6 -12).
Airborne Freight Corporation D/B/A
"Airborne Express"
EXECUTIVE INCENTIVE COMPENSATION PLAN (EICP)
Effective as revised January 1, 1994 and annually thereafter.
Airborne Express has adopted an executive incentive compensation program
which provides opportunities to top corporate executives to receive
additional compensation for their contribution toward achieving the
Company's performance goals as established by the Board.
1. PURPOSE
The purpose of this Plan is to increase the rate of growth of the Company -
in earnings, revenues, human resources, and strategic position - by
stimulating key executives to superior performance, and by attracting and
keeping in the employ of the Company people of outstanding experience and
ability.
2. ADMINISTRATION
(a) The Compensation Committee will have the power to interpret the
Plan and to make all determinations necessary or desirable for its
administration.
(b) The decision of the Compensation Committee on any question
concerning the interpretation or administration of the Plan will be final
and conclusive. Nothing in the Plan will be deemed to give any officer or
employee, or legal representatives or assigns, any right to participate in
the Plan except to such extent, as the Board may determine pursuant to the
provisions of the Plan.
3. ELIGIBILITY OF EMPLOYEES
(a) Eligibility of employees to participate in the Plan in any Plan
Year will be recommended through organizational channels and approved by
the Board.
(b) Eligible employees will be the Chief Executive Officer and those
executives of the Company who have a major impact on profits, growth,
contribute importantly to determining the Company's strategic position, or
who directs a major administrative division of the Company.
Positions eligible for the EICP include:
Chief Executive Officer (CEO)
President and Chief Operating Officer (COO)
Executive Vice Presidents
President, ABX Air, Inc.
(c) With approval of the Board, prior to June 30 of each Plan Year,
additional employees may be included in the Plan, with any award bonus pro-
rated as shall be determined by the Compensation Committee.
(d) Employees who retire in good standing during the year will be
eligible for a pro-rated bonus for the year in which they retire provided
they are on the active payroll on June 30th or later of the plan year.
(e) Employees who take a leave of absence will have their awards
calculated based on actual Airborne salary earnings for the calendar year.
Any disability insurance payments will not be included as earnings in
calculating bonus awards. Employees who are on a leave of absence for more
than 90 days and who continue to receive full or partial salary continuance
will have their awards adjusted. Any salary paid while on a leave of
absence period over 90 days will not be included in the base used to
calculate annual bonus awards.
(f) Bonus payments shall be made on or about March 1st following the
Plan year and after audited performance results.
(g) Bonus checks are prepared by Payroll and the amounts are subject
to tax withholding and Capital Accumulation Plan (CAP) withholding.
4. COMPANY PERFORMANCE TARGETS
The Company's performance used to determine the payout of bonuses will be
based on two factors -- pre-tax, pre-profit sharing net profit and percent
of sales revenue growth. Performance goals will be set as follows:
(a) Pre-tax net profit earnings is the major corporate target and
shall be the basis of 75% of the bonus allocation.
(b) An 80% threshold is set on targeted pre-tax earnings.
(c) A 150% maximum is set on targeted pre-tax earnings.
(d) Percent growth in sales revenues is the second major corporate
target and shall be the basis of 25% of the bonus allocation.
(e) An 80% threshold is set on targeted growth in sales revenue.
(f) The maximum is 150% of targeted growth in sales revenue.
5. QUALIFIERS AND DEFINITIONS ON PERFORMANCE TARGETS
(a) The bonus percentage is applied to the participant's salary paid
in the Plan (calendar) Year.
(b) No bonus will be paid for growth in sales revenue unless the
threshold net profit is achieved.
(c) To receive any award under EICP, an executive's individual
performance must be evaluated as at least competent by the Compensation
Committee.
6. BONUS AMOUNTS
Actual bonuses will be determined by applying the following percentages, or
a pro-rated portion thereof, times the participant's annual salary.
<TABLE>
<CAPTION>
Threshold Maximum
Position (80% of Target) Target (150% of Target)
-------- -------------- ------ ---------------
<S> <C> <C> <C>
CEO 10% 60% 133%
COO 10% 50% 111%
EVP'S 10% 35% 75%
</TABLE>
7. ALLOCATIONS
100% of the bonus award is allocated to corporate performance (as opposed
to individual MBO achievement) for all Executive Incentive Compensation
Plan (EICP) eligible positions. The EICP incentive payment percentages for
goal attainment are:
CEO
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 45.0% 15.0% 60.0%
150% 99.75% 33.25% 133.0%
</TABLE>
COO
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 37.5% 12.5% 50.0%
150% 83.25% 27.75% 111.0%
</TABLE>
EVP'S
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 26.25% 8.75% 35.0%
150% 56.25% 18.75% 75.0%
</TABLE>
8. There is an example incentive calculation for the EVP level on the
following page.
EICP EXAMPLE
1. Title: Executive Vice President
2. 100% Corporate Allocation
3. Salary: $200,000
4. Bonus opportunity as percent of salary:
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ --------
<S> <C> <C>
10% 35% 75%
</TABLE>
5. Allocation:
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ --------
<S> <C> <C> <C>
75% - Pre-Tax Net Profit 7.5% 26.25% 56.25%
25% - Growth in Revenue 2.5% 8.75% 18.75%
------------------------ ------ ------ ------
Total Bonus Opportunity 10.0% 35.00% 75.00%
</TABLE>
6. Assumed Facts:
* Profit Performance: 87%
* Revenue Performance: 104%
7. Calculations
A. Profit Bonus @ 87% Actual Performance
Performance = Bonus Percentage (from table)
87% = 14.06%
Bonus % X Annual Salary = Profit Bonus
14.06% X $200,000 = $28,120
B. Revenue Growth @ 104% Actual Performance
Performance = Bonus Percentage (from table)
104% = 9.55%
Bonus % X Annual Salary = Profit Bonus
9.55%X $200,000 = $19,100
C. Total Bonus Earned
Profit Bonus $28,120
Revenue Bonus $19,100
-------
$47,220
Executive Incentive Compensation Plan
Bonus Percentages
Corporate Attainment Plan
CEO
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
--------- --------- --------- ---------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 9.38% 81% 3.13%
82% 11.25% 82% 3.75%
83% 13.13% 83% 4.38%
84% 15.00% 84% 5.00%
85% 16.88% 85% 5.63%
86% 18.75% 86% 6.25%
87% 20.63% 87% 6.88%
88% 22.50% 88% 7.50%
89% 24.38% 89% 8.13%
90% 26.25% 90% 8.75%
91% 28.13% 91% 9.38%
92% 30.00% 92% 10.00%
93% 31.88% 93% 10.63%
94% 33.75% 94% 11.25%
95% 35.63% 95% 11.88%
96% 37.50% 96% 12.50%
97% 39.38% 97% 13.13%
98% 41.25% 98% 13.75%
99% 43.13% 99% 14.38%
Target 100% 45.00% 100% 15.00%
102% 47.19% 102% 15.73%
104% 49.38% 104% 16.46%
106% 51.57% 106% 17.19%
108% 53.76% 108% 17.92%
110% 55.95% 110% 18.65%
112% 58.14% 112% 19.38%
114% 60.33% 114% 20.11%
116% 62.52% 116% 20.84%
118% 64.71% 118% 21.57%
120% 66.90% 120% 22.30%
122% 69.09% 122% 23.03%
124% 71.28% 124% 23.76%
126% 73.47% 126% 24.49%
128% 75.66% 128% 25.22%
130% 77.85% 130% 25.95%
132% 80.04% 132% 26.68%
134% 82.23% 134% 27.41%
136% 84.42% 136% 28.14%
138% 86.61% 138% 28.87%
140% 88.80% 140% 29.60%
142% 90.99% 142% 30.33%
144% 93.18% 144% 31.06%
146% 95.37% 146% 31.79%
148% 97.56% 148% 32.52%
Maximum 150% 99.75% 150% 33.25%
</TABLE>
Note: Actual payouts will be calculated using formulas where % of
attainment is rounded to the nearest 1% and % of salary is rounded to the
nearest .01%.
Executive Incentive Compensation Plan
Bonus Percentages
Corporate Attainment Plan
COO
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
-------- -------- -------- --------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 9.00% 81% 3.00%
82% 10.50% 82% 3.50%
83% 12.00% 83% 4.00%
84% 13.50% 84% 4.50%
85% 15.00% 85% 5.00%
86% 16.50% 86% 5.50%
87% 18.00% 87% 6.00%
88% 19.50% 88% 6.50%
89% 21.00% 89% 7.00%
90% 22.50% 90% 7.50%
91% 24.00% 91% 8.00%
92% 25.50% 92% 8.50%
93% 27.00% 93% 9.00%
94% 28.50% 94% 9.50%
95% 30.00% 95% 10.00%
96% 31.50% 96% 10.50%
97% 33.00% 97% 11.00%
98% 34.50% 98% 11.50%
99% 36.00% 99% 12.00%
Target 100% 37.50% 100% 12.50%
102% 39.33% 102% 13.11%
104% 41.16% 104% 13.72%
106% 42.99% 106% 14.33%
108% 44.82% 108% 14.94%
110% 46.65% 110% 15.55%
112% 48.48% 112% 16.16%
114% 50.31% 114% 16.77%
116% 52.14% 116% 17.38%
118% 53.97% 118% 17.99%
120% 55.80% 120% 18.60%
122% 57.63% 122% 19.21%
124% 59.46% 124% 19.82%
126% 61.29% 126% 20.43%
128% 63.12% 128% 21.04%
130% 64.95% 130% 21.65%
132% 66.78% 132% 22.26%
134% 68.61% 134% 22.87%
136% 70.44% 136% 23.48%
138% 72.27% 138% 24.09%
140% 74.10% 140% 24.70%
142% 75.93% 142% 25.31%
144% 77.76% 144% 25.92%
146% 79.59% 146% 26.53%
148% 81.42% 148% 27.14%
Maximum 150% 83.25% 150% 27.75%
</TABLE>
Note: Actual payouts will be calculated using formulas where % of
attainment is rounded to the nearest 1% and % of salary is rounded to the
nearest .01%.
Executive Incentive Compensation Plan
Bonus Percent Lookup Table
Corporate Attainment (Only) Plan
Executive VP's
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
-------- -------- -------- --------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 8.44% 81% 2.81%
82% 9.37% 82% 3.13%
83% 10.31% 83% 3.44%
84% 11.25% 84% 3.75%
85% 12.19% 85% 4.06%
86% 13.13% 86% 4.38%
87% 14.06% 87% 4.69%
88% 15.00% 88% 5.00%
89% 15.94% 89% 5.31%
90% 16.88% 90% 5.63%
91% 17.81% 91% 5.94%
92% 18.75% 92% 6.25%
93% 19.69% 93% 6.56%
94% 20.63% 94% 6.88%
95% 21.56% 95% 7.19%
96% 22.50% 96% 7.50%
97% 23.44% 97% 7.81%
98% 24.38% 98% 8.13%
99% 25.31% 99% 8.44%
Target 100% 26.25% 100% 8.75%
102% 27.45% 102% 9.15%
104% 28.65% 104% 9.55%
106% 29.85% 106% 9.95%
108% 31.05% 108% 10.35%
110% 32.25% 110% 10.75%
112% 33.45% 112% 11.15%
114% 34.65% 114% 11.55%
116% 35.85% 116% 11.95%
118% 37.05% 118% 12.35%
120% 38.25% 120% 12.75%
122% 39.45% 122% 13.15%
124% 40.65% 124% 13.55%
126% 41.85% 126% 13.95%
128% 43.05% 128% 14.35%
130% 44.25% 130% 14.75%
132% 45.45% 132% 15.15%
134% 46.65% 134% 15.55%
136% 47.85% 136% 15.95%
138% 49.05% 138% 16.35%
140% 50.25% 140% 16.75%
142% 51.45% 142% 17.15%
144% 52.65% 144% 17.55%
146% 53.85% 146% 17.95%
148% 55.05% 148% 18.35%
Maximum 150% 56.25% 150% 18.75%
</TABLE>
Note: Actual Payouts will be calculated using Formulas where % of
attainment is rounded to nearest 1% and % of salary is rounded to the
nearest .01%.
EXHIBIT 10 (i)
Airborne Express
1995-1999
Executive Incentive Compensation Plan
Airborne Freight Corporation D/B/A
"Airborne Express"
EXECUTIVE INCENTIVE COMPENSATION PLAN
-------------------------------------
Effective January 1, 1995 - December 31, 1999
1. Purpose
The purpose of this Plan is to achieve Corporate goals by providing
incentive compensation to eligible key executives who through industry,
ability and exceptional service, contribute materially to the success of
Airborne Express.
2. Definitions
When used in the Plan, the following words and phrases shall have the
following meanings:
(a) Attainment - The actual results of effort to reach the Target
for a Performance Measure, usually stated as a percentage of Target.
(b) Beneficiary - The beneficiary or beneficiaries designated to
receive the amount, if any, payable under the Plan upon the death of a
Participant.
(c) Board - The Board of Directors of Airborne Freight Corporation.
(d) Compensation Committee - The Compensation Committee of the
Board.
(e) Maximum - The point above Target that represents the maximum
payout level for a particular Performance Measure.
(f) Net Profit - Pre-tax, pre-profit sharing net profit.
(g) Participant - Any employee eligible to receive awards under
section 4.
(h) Performance Measure - A specific objective measure to assess
success in achieving established goals. Permitted Performance Measures are
listed in section 5.
(i) Plan - The 1995-1999 Executive Incentive Compensation Plan.
(j) Plan Year - Each calendar year for which Performance Measures
and Targets are established for the Company.
(k) Retirement - When an employee leaves active service and
qualifies under the Company's regular or early retirement programs.
(l) Revenue Growth - Percentage growth in sales revenue over the
prior year.
(m) Target - The point at which performance equals 100% of the
stated objective.
(n) Threshold - The point below Target at which incentive payout for
each Performance Measure begins.
3. Administration
(a) The Compensation Committee will have the power to interpret the
Plan and to make all determinations necessary or desirable for its
administration.
(b) The decision of the Compensation Committee on any question
concerning the interpretation or administration of the Plan will be final
and conclusive. Nothing in the Plan will be deemed to give any officer or
employee, or legal representatives or assigns, any right to participate in
the Plan except to such extent as the Compensation Committee may determine
pursuant to the provisions of the Plan.
4. Eligibility
(a) Positions eligible for the EICP are:
Chairman of the Board
Chief Executive Officer
President
Chief Operating Officer
Executive Vice Presidents
Chief Financial Officer
President, ABX Air, Inc.
Division Heads
Except as otherwise provided below, Participants for a Plan Year must be
employed for the entire Plan Year.
(b) With approval of the Compensation Committee, prior to June 30 of
each Plan Year, additional employees may be included in the Plan, with any
award pro-rated as shall be determined by the Compensation Committee.
(c) Participants who retire in good standing during the year will be
eligible for a pro-rated award for the year in which they retire provided
they are on the active payroll on June 30th or later of the Plan Year.
(d) Participants who take a leave of absence will have their awards
calculated based on actual Airborne salary earnings for the calendar year.
Any disability insurance payments will not be included as earnings in
calculating awards. Participants who are on a leave of absence for more
than 90 days and who continue to receive full or partial salary continuance
will have their awards adjusted. Any salary paid while on a leave of
absence period over 90 days will not be included in the base used to
calculate awards.
5. Performance Measures
Unless otherwise determined by the Committee, bonuses will be based on two
Performance Measures -- Net Profit and Revenue Growth. In addition to or
in lieu of one or both of the preceding Performance Measures, the Committee
may select one or more of the following Performance Measures: earnings per
share, shipment growth, increase in stock price, return on assets or return
on equity. The Compensation Committee will set annual Targets for each
Performance Measure within 90 days after the beginning of each Plan Year
and such Targets may not be changed thereafter. The Targets may be
ratified by the Board. Unless within 90 days after the beginning of each
Plan Year the Committee selects Performance Measures in addition to or in
lieu of one or both of Net Profit and Revenue Growth, bonuses will be
allocated based on Attainment of Targets as follows:
(a) Net Profit earnings is the major corporate Performance Measure
and shall be the basis of 75% of the bonus allocation.
(b) An 80% Threshold is set on targeted Net Profit.
(c) A 150% Maximum is set on targeted Net Profit.
(d) Revenue Growth is the second major corporate Performance Measure
and shall be the basis of 25% of the bonus allocation.
(e) An 80% Threshold is set on targeted Revenue Growth.
(f) A 150% Maximum is set on targeted Revenue Growth.
6. Qualifiers on Performance Measures
(a) The bonus percentage is applied to the Participant's salary paid
in the Plan (calendar) Year.
(b) No bonus will be paid for Revenue Growth unless the Threshold
Net Profit is achieved.
(c) To receive any award under EICP, a Participant's individual
performance must be evaluated as at least competent by the Compensation
Committee.
(d) The Committee has the discretion to reduce or eliminate any
award.
7. Bonus Amounts
Actual bonuses will be determined by multiplying the following percentages,
or a pro-rated portion thereof, by the Participant's annual salary.
<TABLE>
<CAPTION>
Threshold Maximum
Position (80% of Target) Target (150% of Target)
-------- -------------- ------ ---------------
<S> <C> <C> <C>
CEO 10% 60% 133%
COO 10% 50% 111%
EVP'S 10% 35% 75%
</TABLE>
8. Allocations
Unless otherwise determined under section 5, the EICP incentive payment
percentages for Attainment of Performance Measures are:
CEO
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 45.0% 15.0% 60.0%
150% 99.75% 33.25% 133.0%
</TABLE>
COO
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 37.5% 12.5% 50.0%
150% 83.25% 27.75% 111.0%
</TABLE>
EVP'S
(100% Corporate)
<TABLE>
<CAPTION>
Percent of
Attainment Profit (75%) Revenue (25%) Total
---------- ------------ ------------- -----
<S> <C> <C> <C>
80% 7.5% 2.5% 10.0%
100% 26.25% 8.75% 35.0%
150% 56.25% 18.75% 75.0%
</TABLE>
9. Example
An example incentive calculation for the EVP level is shown on page 7.
10. Form of Payment
Awards shall be paid entirely in cash. Payments will be made as soon as
practicable after audited performance results are known and approved by the
Compensation Committee, which should be on or about March 1. Award checks
are prepared by the Payroll Department and the amounts are subject to tax
withholding and Capital Accumulation Plan (CAP) deductions.
If a Participant dies before the end of the Plan Year an amount equal to a
pro-rated portion thereof as of the date of death shall be paid in one lump
cash sum to the Participant's Beneficiary.
11. Limitation on Allocation
Notwithstanding any other provision of the Plan, in no circumstances will
the total amount allocated as an award to a Participant for any Plan Year
exceed $975,000.
12. Designation of Beneficiaries
Each Participant shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the
amount, if any, payable under the Plan upon the Participant's death. A
Participant may, from time to time, revoke or change his Beneficiary
designation without the consent of any prior Beneficiary by filing a new
designation. The last such designation received shall be controlling,
provided, however, that no designation, or change or revocation thereof,
shall be effective unless received by the Company prior to the
Participant's death, and in no event shall it be effective as of a date
prior to such receipt.
13. Absence of Valid Designation
If no such Beneficiary designation is in effect at the time of a
Participant's death, or if no designated Beneficiary survives the
Participant, or if such designation conflicts with the law, the Participant
shall be deemed to have designated the Participant's estate as the
Participant's Beneficiary and the Participant's estate shall receive the
payment of the amount, if any, under the Plan upon the Participant's death.
If the Compensation Committee is in doubt as to the right of any person to
receive such amount, the Compensation Committee may direct retention of
such amount, without liability for any interest thereon, until the rights
thereto are determined or the Compensation Committee may pay such amount to
any court of appropriate jurisdiction and such payment shall be a complete
discharge of the liability of the Plan and of Airborne Express therefore.
14. No Liability of Compensation Committee, Board Members or Officers
No members of the Compensation Committee, Board or Corporate officers shall
be personally liable by reason of any contract or other instrument executed
by them or on their behalf nor for any mistake or judgment made in good
faith, and Airborne shall indemnify and hold harmless each member of the
Board and each other officer, employee or director of Airborne Express to
whom any duty or power relating to the administration or interpretation of
the Plan may be allocated or delegated, against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement
of a claim with the approval of the Compensation Committee) arising out of
any act or omission to act in connection with the Plan unless arising out
of such person's own fraud or bad faith.
15. Right to Amend, Suspend or Terminate Plan
The Board reserves the right at any time to amend, suspend or terminate the
Plan in whole or in part and for any reasons and without the consent of any
Participant or Beneficiary; provided that no such amendment shall adversely
affect rights to receive any amount to which Participants or Beneficiaries
have become entitled prior to such amendment. Unless otherwise provided
herein, any amendment, modification, suspension or termination of any
provisions of the Plan may be made retroactively.
16. No Rights to Continued Employment or Bonus
Nothing contained in the Plan shall give any employee the right to be
retained in the employment of Airborne Express or affect the right of
Airborne Express to dismiss any employee. The adoption of the Plan shall
not constitute a contract between Airborne Express and any employee. No
Participant shall receive any right to be granted an award hereunder nor
shall any such award be considered as compensation under any employee
benefit plan of Airborne Express except as otherwise determined by Airborne
Express.
17. No Right, Title, or Interest in Assets
The Participant shall have no right, title, or interest whatsoever in or to
any investments which Airborne Express may make to aid in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action
taken pursuant to its provisions, shall create or be construed to create a
fiduciary relationship between Airborne Express and any Participant or any
other person. To the extent that any person acquires a right to receive
payments from Airborne Express under this Plan, such right shall be no
greater than the right of an unsecured general creditor of Airborne
Express.
18. Unfunded Plan: Governing Law
The Plan is intended to constitute an incentive compensation arrangement
for a select group of management or highly compensated personnel and all
rights thereunder shall be governed by and construed in accordance with the
laws of the State of Washington.
EICP EXAMPLE
------------
1. Title: Executive Vice President
2. 100% Corporate Allocation
3. Salary: $200,000
4. Bonus opportunity as percent of salary:
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ -------
<S> <C> <C>
10% 35% 75%
</TABLE>
5. Allocation:
<TABLE>
<CAPTION>
Threshold Target Maximum
--------- ------ -------
<S> <C> <C> <C>
75% - Net Profit 7.5% 26.25% 56.25%
25% - Revenue Growth 2.5% 8.75% 18.75%
------ ------ ------
Total Bonus Opportunity 10.0% 35.00% 75.00%
</TABLE>
6. Assumed Facts:
* Net Profit Performance: 87%
* Revenue Growth Performance: 104%
7. Calculations
A. Net Profit Bonus @ 87% Actual Performance
Performance = Bonus Percentage (from table)
87% = 14.06%
Bonus % X Annual Salary = Profit Bonus
14.06% X $200,000 = $28,120
B. Revenue Growth @ 104% Actual Performance
Performance = Bonus Percentage (from table)
104% = 9.55%
Bonus % X Annual Salary = Profit Bonus
9.55% X $200,000 = $19,100
C. Total Bonus Earned
Net Profit Bonus $28,120
Revenue Growth Bonus 19,100
-------
$47,220
Executive Incentive Compensation Plan
Bonus Percentages
Corporate Attainment Plan
CEO
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
--------- --------- --------- ---------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 9.38% 81% 3.13%
82% 11.25% 82% 3.75%
83% 13.13% 83% 4.38%
84% 15.00% 84% 5.00%
85% 16.88% 85% 5.63%
86% 18.75% 86% 6.25%
87% 20.63% 87% 6.88%
88% 22.50% 88% 7.50%
89% 24.38% 89% 8.13%
90% 26.25% 90% 8.75%
91% 28.13% 91% 9.38%
92% 30.00% 92% 10.00%
93% 31.88% 93% 10.63%
94% 33.75% 94% 11.25%
95% 35.63% 95% 11.88%
96% 37.50% 96% 12.50%
97% 39.38% 97% 13.13%
98% 41.25% 98% 13.75%
99% 43.13% 99% 14.38%
Target 100% 45.00% 100% 15.00%
102% 47.19% 102% 15.73%
104% 49.38% 104% 16.46%
106% 51.57% 106% 17.19%
108% 53.76% 108% 17.92%
110% 55.95% 110% 18.65%
112% 58.14% 112% 19.38%
114% 60.33% 114% 20.11%
116% 62.52% 116% 20.84%
118% 64.71% 118% 21.57%
120% 66.90% 120% 22.30%
122% 69.09% 122% 23.03%
124% 71.28% 124% 23.76%
126% 73.47% 126% 24.49%
128% 75.66% 128% 25.22%
130% 77.85% 130% 25.95%
132% 80.04% 132% 26.68%
134% 82.23% 134% 27.41%
136% 84.42% 136% 28.14%
138% 86.61% 138% 28.87%
140% 88.80% 140% 29.60%
142% 90.99% 142% 30.33%
144% 93.18% 144% 31.06%
146% 95.37% 146% 31.79%
148% 97.56% 148% 32.52%
Maximum 150% 99.75% 150% 33.25%
</TABLE>
Note: Actual payouts will be calculated using formulas where % of
attainment is rounded to the nearest 1% and % of salary is rounded to the
nearest .01%.
Executive Incentive Compensation Plan
Bonus Percentages
Corporate Attainment Plan
COO
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
-------- -------- -------- --------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 9.00% 81% 3.00%
82% 10.50% 82% 3.50%
83% 12.00% 83% 4.00%
84% 13.50% 84% 4.50%
85% 15.00% 85% 5.00%
86% 16.50% 86% 5.50%
87% 18.00% 87% 6.00%
88% 19.50% 88% 6.50%
89% 21.00% 89% 7.00%
90% 22.50% 90% 7.50%
91% 24.00% 91% 8.00%
92% 25.50% 92% 8.50%
93% 27.00% 93% 9.00%
94% 28.50% 94% 9.50%
95% 30.00% 95% 10.00%
96% 31.50% 96% 10.50%
97% 33.00% 97% 11.00%
98% 34.50% 98% 11.50%
99% 36.00% 99% 12.00%
Target 100% 37.50% 100% 12.50%
102% 39.33% 102% 13.11%
104% 41.16% 104% 13.72%
106% 42.99% 106% 14.33%
108% 44.82% 108% 14.94%
110% 46.65% 110% 15.55%
112% 48.48% 112% 16.16%
114% 50.31% 114% 16.77%
116% 52.14% 116% 17.38%
118% 53.97% 118% 17.99%
120% 55.80% 120% 18.60%
122% 57.63% 122% 19.21%
124% 59.46% 124% 19.82%
126% 61.29% 126% 20.43%
128% 63.12% 128% 21.04%
130% 64.95% 130% 21.65%
132% 66.78% 132% 22.26%
134% 68.61% 134% 22.87%
136% 70.44% 136% 23.48%
138% 72.27% 138% 24.09%
140% 74.10% 140% 24.70%
142% 75.93% 142% 25.31%
144% 77.76% 144% 25.92%
146% 79.59% 146% 26.53%
148% 81.42% 148% 27.14%
Maximum 150% 83.25% 150% 27.75%
</TABLE>
Note: Actual payouts will be calculated using formulas where % of
attainment is rounded to the nearest 1% and % of salary is rounded to the
nearest .01%.
Executive Incentive Compensation Plan
Bonus Percent Lookup Table
Corporate Attainment (Only) Plan
Executive VPs
<TABLE>
<CAPTION>
Net Profit Factor Revenue Growth Factor
(75% weight) (25% weight)
% Attnmt Percent % Attnmt Percent
(of Goal) of Salary (of Goal) of Salary
-------- -------- -------- --------
below 80% 0 below 80% 0
<S> <C> <C> <C> <C>
Threshold 80% 7.50% 80% 2.50%
81% 8.44% 81% 2.81%
82% 9.37% 82% 3.13%
83% 10.31% 83% 3.44%
84% 11.25% 84% 3.75%
85% 12.19% 85% 4.06%
86% 13.13% 86% 4.38%
87% 14.06% 87% 4.69%
88% 15.00% 88% 5.00%
89% 15.94% 89% 5.31%
90% 16.88% 90% 5.63%
91% 17.81% 91% 5.94%
92% 18.75% 92% 6.25%
93% 19.69% 93% 6.56%
94% 20.63% 94% 6.88%
95% 21.56% 95% 7.19%
96% 22.50% 96% 7.50%
97% 23.44% 97% 7.81%
98% 24.38% 98% 8.13%
99% 25.31% 99% 8.44%
Target 100% 26.25% 100% 8.75%
102% 27.45% 102% 9.15%
104% 28.65% 104% 9.55%
106% 29.85% 106% 9.95%
108% 31.05% 108% 10.35%
110% 32.25% 110% 10.75%
112% 33.45% 112% 11.15%
114% 34.65% 114% 11.55%
116% 35.85% 116% 11.95%
118% 37.05% 118% 12.35%
120% 38.25% 120% 12.75%
122% 39.45% 122% 13.15%
124% 40.65% 124% 13.55%
126% 41.85% 126% 13.95%
128% 43.05% 128% 14.35%
130% 44.25% 130% 14.75%
132% 45.45% 132% 15.15%
134% 46.65% 134% 15.55%
136% 47.85% 136% 15.95%
138% 49.05% 138% 16.35%
140% 50.25% 140% 16.75%
142% 51.45% 142% 17.15%
144% 52.65% 144% 17.55%
146% 53.85% 146% 17.95%
148% 55.05% 148% 18.35%
Maximum 150% 56.25% 150% 18.75%
</TABLE>
Note: Actual payouts will be calculated using formulas where % of
attainment is rounded to nearest 1% and % of salary is rounded to the
nearest .01%.
EXHIBIT 11
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
PRIMARY:
Net Earnings $37,941 $36,357 $ 2,397
======= ======= =======
Average Common Shares Outstanding 20,645 19,255 19,139
Effect of Dilutive Stock Options 356 341 284
------- ------- -------
Total Average Shares Outstanding 21,001 19,596 19,423
======= ======= =======
Primary Earnings Per Share $ 1.81 $ 1.86 $ .12
======= ======= =======
FULLY DILUTED:
Net Earnings $37,941 $36,357 $ 2,397
Redeemable Preferred Stock 894 2,760 --
Dividends
Convertible Debentures 4,331 -- --
------- ------- -------
Adjusted Net Earnings $43,166 $39,117 $ 2,397
======= ======= =======
Average Common Shares Outstanding 20,645 19,255 19,139
Effect of Dilutive Stock Options 356 552 304
Effect of Conversion of 3,239 -- --
Subordinated Debentures
Effect of Conversion of 559 1,710 --
Redeemable Preferred Stock
Dividends
------- ------- -------
Total Average Shares Outstanding 24,799 21,517 19,443
======= ======= =======
Fully Diluted Earnings Per Share $ 1.74 $ 1.82 $ .12
======= ======= =======
</TABLE>
EXHIBIT 12
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
RATIO OF SENIOR LONG-TERM DEBT AND TOTAL LONG-TERM
DEBT TO TOTAL CAPITALIZATION
<TABLE>
<CAPTION>
December 31, 1994
(Dollars in thousands)
<S> <C>
SENIOR LONG-TERM DEBT:
Revolving Credit Agreement $135,000
Money Market Lines of Credit 17,000
Senior Notes 100,000
Refunding Revenue Bonds 13,200
Note Payable to Vendor 12,300
Capital Lease Obligations and Other 4,370
--------
281,870
Less Current Portion 2,448
--------
Senior Long-Term Debt $279,422
========
TOTAL LONG-TERM DEBT:
Senior Long-Term Debt $279,422
Senior Subordinated Notes, net of current 3,580
portion
Convertible Subordinated Debentures 115,000
--------
Total Long-Term Debt $398,002
========
TOTAL CAPITALIZATION:
Long-Term Debt $398,002
Deferred Income Taxes 30,402
Redeemable Preferred Stock 5,000
Shareholders Equity, Net 387,398
--------
Total Capitalization $820,802
========
RATIO OF SENIOR LONG-TERM DEBT TO TOTAL 34.0%
CAPITALIZATION
========
RATIO OF TOTAL LONG-TERM DEBT TO TOTAL 48.5%
CAPITALIZATION
========
</TABLE>
EXHIBIT 13
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
COMMON STOCK & DIVIDEND INFORMATION
The Company's common stock is traded on the New York Stock Exchange
and the Pacific Stock Exchange under the symbol ABF. The following is a
summary of the cash dividends paid and the quarterly trading price ranges
of Airborne common stock on the New York Stock Exchange for 1994 and 1993:
<TABLE>
<CAPTION>
Quarter High Low Dividend
------- ---- --- --------
<S> <C> <C> <C>
1994:
Fourth $26.000 $18.000 $.075
Third 35.625 24.000 .075
Second 38.375 31.500 .075
First 39.875 33.125 .075
1993:
Fourth $35.250 $24.125 $.075
Third 25.625 19.125 .075
Second 26.500 20.875 .075
First 23.875 18.125 .075
</TABLE>
AIRBORNE EXPRESS
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues
Domestic $1,660,003 $1,484,787 $1,259,792 $1,144,791 $ 982,268
International 310,756 235,194 224,524 222,256 199,622
---------- ---------- ---------- ---------- ----------
Total 1,970,759 1,719,981 1,484,316 1,367,047 1,181,890
Operating Expenses 1,881,821 1,636,861 1,456,450 1,307,790 1,117,594
---------- ---------- ---------- ---------- ----------
Earnings From Operations 88,938 83,120 27,866 59,257 64,296
Interest, Net 24,663 24,093 18,779 10,842 8,857
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes64,275 59,027 9,087 48,415 55,439
Income Taxes 25,440 23,738 3,930 18,416 21,862
Net Earnings Before ---------- ---------- ---------- ---------- ----------
Changes in Accounting 38,835 35,289 5,157 29,999 33,577
Cumulative Effect of
Changes in Accounting -- 3,828 -- -- --
---------- ---------- ---------- ---------- ----------
Net Earnings 38,835 39,117 5,157 29,999 33,577
Preferred Stock Dividends 894 2,760 2,760 2,760 2,548
---------- ---------- ---------- ----------- ----------
Net Earnings Available
to Common Shareholders $ 37,941 $ 36,357 $ 2,397 $ 27,239 $ 31,029
========== ========== ========== ========== ==========
Net Earnings Per Common Share
Primary $ 1.81 $ 1.66* $ .12 $ 1.40 $ 1.76
========== ========== ========== ========== ==========
Fully Diluted $ 1.74 $ 1.64* $ .12 $ 1.40 $ 1.76
========== ========== ========== ========== ==========
Dividends Per Common Share$ .30 $ .30 $ .30 $ .30 $ .30
========== ========== ========== ========== ==========
Average Primary
Shares Outstanding 21,001 19,596 19,423 19,471 17,626
========== ========== ========== ========== ==========
FINANCIAL STRUCTURE:
Working Capital $ 66,871 $ 56,521 $ 50,276 $ 26,618 $ 31,215
Property and Equipment 766,346 733,963 730,937 613,149 419,873
Total Assets 1,078,506 1,002,866 964,739 823,647 613,534
Long-Term Debt 279,422 269,250 303,335 153,279 106,303
Subordinated Debt 118,580 122,150 125,720 129,290 17,860
Redeemable Preferred Stock 5,000 40,000 40,000 40,000 40,000
Shareholders' Equity 387,398 318,824 285,639 287,344 263,417
NUMBER OF SHIPMENTS:
Domestic 187,460 160,568 130,186 106,219 85,910
International 3,954 3,545 3,302 2,777 2,310
---------- ---------- ---------- ---------- ----------
Total 191,414 164,113 133,488 108,996 88,220
========== ========== ========== ========== ==========
</TABLE>
* Exclusive of the cumulative effect of adopting accounting standards for
income taxes and postretirement benefits.
Primary and fully diluted earnings per share inclusive of the changes
were $1.86 and $1.82, respectively.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in 1994 resulted in higher
operating income compared to 1993 and record net earnings. This
improvement was the result of strong overall shipment growth, robust
international revenue growth, lower per shipment operating costs, and a
relatively stable pricing environment.
These record earnings, however, were below expectations due to several
factors. The most significant of these factors was the shift in product
mix towards the lower yielding deferred service product, Select Delivery
Service (SDS), versus the higher yielding priority Overnight service
product. Other factors affecting performance were higher aircraft
maintenance costs related to compliance with aging aircraft requirements
and during the first quarter of the year, costs associated with meeting
service requirements during extreme winter weather in the northeast and
midwest U.S. and the earthquake in California.
Net earnings available to common shareholders in 1994 increased 17% to
$37.9 million, or $1.81 per primary share, compared to $32.5 million, or
$1.66 per share in 1993. Reflecting a net credit from certain changes in
accounting in 1993, net earnings available to common shareholders were
$36.4 million or $1.86 per share.
The following table is an overview of the Company's shipments, revenue
and weight trends for the last three years:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Number of Shipments (in thousands):
Domestic
Overnight
Letters 34,042 32,620 29,653
0-2 lbs. 44,302 41,390 37,103
3-99 lbs. 39,711 35,853 29,959
------- ------- -------
Total 118,055 109,863 96,715
Select Delivery Service
0-2 lbs. 43,212 31,640 21,552
3-99 lbs. 25,841 18,715 11,584
------- ------- -------
Total 69,053 50,355 33,136
100 lbs. and over 352 350 335
------- ------- -------
Total Domestic 187,460 160,568 130,186
------- ------- -------
International
Express 3,473 3,139 2,886
All Other 481 406 416
------- ------- -------
Total International 3,954 3,545 3,302
------- ------- -------
Total Shipments 191,414 164,113 133,488
======= ======= =======
Average Pounds Per Shipment:
Domestic 4.8 4.8 4.8
International 64.1 47.1 46.7
Average Revenue Per Pound:
Domestic $ 1.85 $ 1.94 $ 2.04
International $ 1.22 $ 1.41 $ 1.46
Average Revenue Per Shipment:
Domestic $ 8.84 $ 9.23 $ 9.68
International $78.59 $66.35 $68.00
</TABLE>
Total revenues increased 15% in 1994, 16% in 1993, and 9% in 1992.
Shipment volume grew to 191 million units in 1994 increasing 17%, compared
to a 23% increase in 1993 and 22.5% in 1992.
Domestic revenue increased 12% in 1994 on shipment growth of 17%.
This compares to revenue growth of 18% and 10% in 1993 and 1992,
respectively, and shipment growth of 23% in both years. Domestic shipment
growth in 1994 was impacted by a 37% growth rate of the Company's lower
yielding deferred service product, versus the more modest 7.5% growth rate
of the higher yielding priority overnight service product. As a result,
the overall domestic revenue growth rate was considerably lower than the
shipment growth rate. Although still very competitive, the domestic
pricing environment during 1994 has been relatively stable. The decline in
revenue per shipment was 4% in 1994 and 1993, compared to a 10% decline in
1992.
International revenue increased 32% in 1994 on shipment growth of
11.5% compared to revenue growth of 5% and 1% and shipment growth of 7% and
19% in 1993 and 1992, respectively. The international revenue growth rate
was significantly higher than shipment growth due to the growth rate of
higher yielding heavy weight international shipments. International
revenue per shipment and the average weight per shipment increased
significantly also as a result of the growth in higher yielding freight
shipments. The growth in international margins, however, was impacted
somewhat by higher transportation costs as the international carriers
raised rates on traffic moving out of the Far East to the U.S. primarily
during the latter part of the year.
OPERATING EXPENSES are affected by shipment volume, productivity
improvements, costs incurred to increase capacity and expand service, fuel
price volatility and discretionary items such as the level of marketing
expenditures. Operating expenses as a percentage of revenues were 95.5% in
1994 compared to 95.2% in 1993 and 98.1% in 1992. Measuring cost
performance on a per shipment basis, total operating expenses per shipment
declined to $9.83 in 1994 compared to $9.97 in 1993 and $10.91 in 1992. A
strong focus on cost control, productivity improvements and quality
improvement programs are primarily responsible for this favorable trend.
The Company achieved a 6.0% improvement in productivity in 1994, as
measured by shipments handled per paid employee hour, compared to 12.1%
improvement in 1993 and 9.7% in 1992.
Transportation purchased increased as a percentage of revenues to
34.0% in 1994 compared to 31.6% in 1993 and 32.7% in 1992. This expense
category consists primarily of commercial airline costs, farmed-out pick-up
and delivery and trucking costs. The increase in 1994 is primarily due to
higher international airline costs, for lift purchased directly from other
carriers, which rose significantly as a result of the increase in
international freight shipments and the increased carrier rates discussed
above.
Station and ground expense as a percentage of revenues was 30.2% in
1994 compared to 30.6% in 1993 and 31.1% in 1992. Productivity gains in
pick-up and delivery, customer service and hub operations have been
instrumental in partially offsetting the effect of increased costs incurred
to accommodate the growth in shipments and expand service while maintaining
service integrity. Shipment volume handled through ten regional sort
facilities currently approximates 39% of total domestic shipment weight
handled and has resulted in incrementally lower transportation and handling
costs.
Flight operations and maintenance expense as a percentage of revenues
was 14.2% in 1994 compared to 14.1% in 1993 and 14.9% in 1992. The effect
of comparatively lower average fuel costs in 1994 was offset by higher
aircraft maintenance costs, particularly in the third quarter of 1994 when
a higher than normal number of periodic maintenance checks were performed
at higher than standard cost. Aviation fuel consumption increased 15% to
123.8 million gallons in 1994. The increase in fuel consumption is a
result of additional Company operated aircraft placed in service during the
past year and to the disruption to air operations as a result of severe
winter weather and the California earthquake during the first quarter.
Average aviation fuel prices for 1994 approximated $.60 per gallon, $.05
per gallon lower than 1993, and $.09 per gallon lower than 1992.
General and administrative expense as a percentage of revenues was
7.4% in 1994 compared to 8.1% in 1993 and 1992. Sales and marketing
decreased to 2.7% of revenues in 1994 compared to 2.9% in 1993 and 3.2% in
1992. Productivity gains and controls on discretionary spending in these
two expense categories have been instrumental in offsetting the effect of
increased costs incurred to accommodate shipment growth and expand service
as well as inflationary cost increases. General and administrative expense
includes profit sharing expense of $4.8 million in 1994, compared to $5.7
million in 1993 and $.7 million in 1992.
Depreciation and amortization expense declined as a percentage of
revenues to 7.0% in 1994 compared to 7.8% in 1993 and 8.1% in 1992. The
total dollar amount of depreciation and amortization has continued to
increase over the last three years as a result of capital expenditures
incurred primarily to expand the airline operations.
INTEREST EXPENSE increased slightly in 1994 compared to 1993 as the
effect of a lower level of average outstanding borrowings was offset by
higher average interest rates for 1994. Interest capitalized in 1994 of
$2.1 million, was primarily related to the acquisition and modification of
aircraft and the airport expansion, and was comparable to the amount
capitalized in 1993 but lower than 1992.
INCOME TAXES for 1994 resulted in an effective tax rate of 39.6%
compared to 40.2% in 1993 and 43.2% in 1992. The effective tax rate for
1992 was high primarily due to the increase in the effective tax rate for
state and local taxes when applied to the lower level of earnings in 1992.
The Company anticipates that the effective tax rate for 1995 will be
comparable to 1994.
During 1994 it became apparent that the domestic market for priority
overnight service was maturing. Looking ahead, this segment of the
business is likely to grow at a slower rate than it did prior to 1994,
while the demand for deferred delivery service will result in a continued
high growth rate for that business. The Company sees this as a trend that
impacts the entire industry for the foreseeable future. The challenge will
be to continue to adjust the Company's operations to respond to this
changing mix of business, lowering the cost per shipment to improve margins
accordingly. Further, the strength of the U.S. and global economies will
have a major impact on the results of operations in 1995 and beyond.
FINANCIAL CONDITION:
CAPITAL EXPENDITURES and financing associated with those expenditures
have been the primary factors affecting the financial condition of the
Company over the last three years. Total capital expenditures net of
dispositions were $168 million in 1994 compared to $139 million in 1993 and
$252 million in 1992. A significant portion of these expenditures has been
related to the acquisition and modification of aircraft and related flight
equipment.
The Company acquired 4 DC-8 aircraft in 1994 and 7 aircraft were
placed into service during the year. At the end of 1994 the Company had 97
aircraft in service, consisting of 29 DC-8's, 57 DC-9's and 11 YS-11's. In
addition, there were 2 aircraft in modification status and 3 aircraft that
had not been modified. Other capital expenditures in 1994 included
vehicles for expansion and replacement, facilities and package handling
equipment related to servicing the increased shipment volume, airport
runway expansion, leasehold improvements for new or expanded facilities and
for computer equipment.
Capital expenditures will continue to be a significant factor
affecting financial condition in 1995. The Company anticipates 1995
capital expenditures of approximately $235 million. A significant portion
of the 1995 capital investment is for the acquisition of 8 additional
aircraft, the modification of aircraft to be placed in service, the
retrofitting of aircraft with Stage III hush kits, and the continued
expansion of the airport facility.
A total of 8 aircraft are expected to be placed in service in 1995.
Not all of these aircraft will be added to the scheduled fleet during the
year. Some of these aircraft will be assigned as fleet backup, and as
replacement aircraft for those rotated out of service for normal
maintenance, for Stage III hush kit retrofitting, and to perform FAA
service bulletin maintenance.
LIQUIDITY AND CAPITAL RESOURCES: Liquidity for financing capital
expenditures in 1994 came primarily from internally generated cash provided
from operations which approximated $183 million in 1994 compared to $174
million in 1993 and $122 million in 1992. In addition, any need for
liquidity during the year was provided by the revolving bank credit
agreement.
The revolving bank credit agreement has traditionally been used as a
major source of liquidity for periods of time between other financing
transactions that provide liquidity. The revolving bank credit is for a
total commitment of $240 million, subject to a maximum level of Company
indebtedness permitted by certain convenants in the agreement and other
loan agreements. The agreement is effective through May 31, 1997, with the
option to extend to May 31, 1999. The Company also has available $30
million under 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
December 31, 1994, a total of $152 million was owing under the revolving
bank credit and money market agreements.
The Company has an aircraft financing facility with Mitsui & Co.,
providing for a total commitment of $100 million to be used for the
financing of up to 80% of the value of aircraft acquired and modified by
the Company. The commitment is for a five-year period expiring in March
1995. No utilization of this facility has occurred and the Company intends
to let the commitment expire without being used.
In February 1994, the Company canceled a shelf registration for $100
million of debt securities which was due to expire in December 1994. This
represented the remaining unused portion of $200 million of debt securities
registered with the Securities and Exchange Commission in December of 1992.
The Company's ratio of senior long-term debt to total capitalization
was 34.0% and the ratio of total long-term debt to total capitalization was
48.5% at December 31, 1994, compared to 34.8% and 50.5%, respectively, at
December 31, 1993. Anticipated cash flow from 1995 operations should
provide the majority of the liquidity for projected 1995 capital
expenditures of $235 million. Although some additional financing will be
required in 1995, these ratios are not expected to change significantly
during 1995 from the 1994 year end level.
In management's opinion, the available capacity under the bank credit
agreements coupled with anticipated internally generated cash flow from
1995 operations should provide adequate flexibility for financing future
growth.
INFLATION:
Except for fuel costs, the rate of inflation has been relatively
constant over the past several years, and so has the impact of inflation on
the Company's results of operations and financial condition. The effects
of inflation have been considered in management's discussion where
considered pertinent.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
REVENUES:
Domestic $1,660,003 $1,484,787 $1,259,792
International 310,756 235,194 224,524
---------- ---------- ----------
1,970,759 1,719,981 1,484,316
OPERATING EXPENSES:
Transportation purchased 669,648 543,594 485,484
Station and ground operations 595,845 526,661 461,813
Flight operations and maintenance 279,457 242,120 221,197
General and administrative 145,698 139,955 119,989
Sales and marketing 53,473 50,591 47,335
Depreciation and amortization 137,700 133,940 120,632
---------- ---------- ----------
1,881,821 1,636,861 1,456,450
---------- ---------- ----------
EARNINGS FROM OPERATIONS 88,938 83,120 27,866
INTEREST, NET 24,663 24,093 18,779
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 64,275 59,027 9,087
INCOME TAXES 25,440 23,738 3,930
---------- ---------- ----------
NET EARNINGS BEFORE
CHANGES IN ACCOUNTING 38,835 35,289 5,157
CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING -- 3,828 --
---------- ---------- ----------
NET EARNINGS 38,835 39,117 5,157
PREFERRED STOCK DIVIDENDS 894 2,760 2,760
---------- ---------- ----------
NET EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS $ 37,941 $ 36,357 $ 2,397
========== ========== ==========
NET EARNINGS PER COMMON SHARE:
Primary -
Before changes in accounting $ 1.81 $ 1.66 $ .12
Cumulative effect of
changes in accounting -- .20 --
---------- ---------- ----------
Primary earnings per
common share $ 1.81 $ 1.86 $ .12
========== ========== ==========
Fully Diluted -
Before changes in accounting $ 1.74 $ 1.64 $ .12
Cumulative effect of
changes in accounting -- .18 --
---------- ---------- ----------
Fully diluted earnings per
common share $ 1.74 $ 1.82 $ .12
========== ========== ==========
DIVIDENDS PER COMMON SHARE $ .30 $ .30 $ .30
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
(In thousands)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 10,318 $ 7,134
Trade accounts receivable, less
allowance of $7,500,000 and $6,925,000 221,788 190,787
Spare parts and fuel inventory 28,071 27,224
Deferred income tax assets 12,458 11,163
Prepaid expenses 20,701 18,815
---------- ----------
TOTAL CURRENT ASSETS 293,336 255,123
PROPERTY AND EQUIPMENT, NET 766,346 733,963
EQUIPMENT DEPOSITS and OTHER ASSETS 18,824 13,780
---------- ----------
TOTAL ASSETS $1,078,506 $1,002,866
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 117,194 $ 95,684
Salaries, wages and related taxes 43,858 37,885
Accrued expenses 59,053 55,545
Income taxes payable 342 3,638
Current portion of debt 6,018 5,850
---------- ----------
TOTAL CURRENT LIABILITIES 226,465 198,602
LONG-TERM DEBT 279,422 269,250
SUBORDINATED DEBT 118,580 122,150
DEFERRED INCOME TAX LIABILITIES 30,402 24,219
OTHER LIABILITIES 31,239 29,821
REDEEMABLE PREFERRED STOCK 5,000 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 21,285,924 and 19,688,731 21,286 19,689
Additional paid-in capital 184,369 149,156
Retained earnings 182,714 150,950
---------- ----------
388,369 319,795
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
387,398 318,824
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,078,506 $1,002,866
========== ==========
</TABLE>
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 38,835 $ 39,117 $ 5,157
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 127,835 122,533 110,206
Provision for aircraft engine overhauls 9,865 11,407 10,426
Deferred income taxes 4,888 1,513 (9,930)
Cumulative effect of changes in accounting -- (3,828) --
Other 1,418 3,461 5,949
-------- -------- --------
CASH PROVIDED BY OPERATIONS 182,841 174,203 121,808
Change in:
Receivables (31,001) (27,335) (16,158)
Inventories and prepaid expenses (2,733) (1,080) (5,635)
Accounts payable 22,866 15,266 16
Accrued expenses, salaries and
taxes payable 6,185 18,614 5,167
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 178,158 179,668 105,198
INVESTING ACTIVITIES:
Additions to property and equipment (170,453)(139,319)(252,733)
Disposition of property and equipment 2,196 231 1,068
Expenditures for engine overhauls (6,839) (3,665) (1,933)
Other (1,294) (2,261) 206
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (176,390)(145,014)(253,392)
FINANCING ACTIVITIES:
Proceeds (payments) on bank notes, net 47,000 (26,100) 30,700
Principal payments on debt (40,230) (5,667) (6,273)
Redemption of redeemable preferred stock (1,000) -- --
Proceeds from common stock issuance 2,839 2,608 1,641
Dividends paid (7,193) (8,540) (8,503)
Proceeds from debt issuance -- -- 132,786
-------- -------- --------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 1,416 (37,699) 150,351
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 3,184 (3,045) 2,157
CASH AT BEGINNING OF YEAR 7,134 10,179 8,022
-------- -------- --------
CASH AT END OF YEAR $ 10,318 $ 7,134 $ 10,179
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year -
Interest, net of capitalized $ 24,788 $ 25,027 $ 18,620
Income taxes 23,795 21,781 13,910
Noncash investing and financing activities -
Conversion of redeemable preferred stock 34,000 -- --
Notes payable and other vendor obligations -- 13,846 23,402
</TABLE>
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly own subsidiaries. Intercompany balances and
transactions are eliminated in consolidation.
CASH
The Company has a cash management system under which a cash overdraft
exists for uncleared checks in the Company's primary disbursement accounts.
The cash amount in the accompanying financial statements represents
balances in other accounts prior to being transferred to the primary
disbursement accounts. Uncleared checks of $36,085,000 and $24,728,000 are
included in accounts payable at December 31, 1994 and 1993, respectively.
SPARE PARTS AND FUEL INVENTORY
Spare parts are stated at average cost and fuel inventory is stated at
cost on first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment, including rotable aircraft parts, are stated
at cost. The cost and accumulated depreciation of property and equipment
disposed of are removed from the accounts and any gain or loss reflected in
earnings from operations.
For financial reporting purposes, depreciation of property and
equipment is provided on a straight-line basis over the asset's useful life
or lease term as follows:
<TABLE>
<CAPTION>
<S> <C>
Flight equipment 7 to 10 years
Buildings and leasehold improvements 5 to 25 years
Package handling and ground support equipment 3 to 8 year
Vehicles and other equipment 3 to 8 year
</TABLE>
Flight equipment carry residual values ranging from 10% to 15% of
asset cost. All other property and equipment have no assigned residual
values.
Major engine overhauls for DC-9 aircraft are accrued in advance of the
next scheduled overhaul based upon engine usage. Provision for engine
overhauls is included in depreciation and amortization expense. Major
engine overhauls as well as ordinary engine maintenance and repairs for
DC-8 aircraft are performed by a third-party service provider under a
contract expiring in 2004. Service costs under the contract are based upon
an hourly rate for engine usage and are charged to expense in the period
utilization occurs. Major engine overhauls for YS-11 aircraft and
expenditures for ordinary maintenance and repairs are charged to expense as
incurred.
CAPITALIZED INTEREST
Interest incurred during the construction period of certain facilities
and on aircraft purchase and modification costs are capitalized as an
additional cost of the asset until the date the asset is placed in service.
Capitalized interest was $2,127,000, $2,094,000 and $2,466,000 for 1994,
1993 and 1992, respectively.
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes. Deferred income taxes are provided for temporary differences
between the timing of reporting certain revenues and expenses for financial
versus tax purposes. Deferred taxes are measured using provisions of
currently enacted tax laws. Tax credits are accounted for as a reduction
of income taxes in the year in which the credit originates.
EARNINGS PER SHARE
Primary earnings per common share are based upon the weighted average
number of common shares outstanding during the period plus dilutive common
equivalent shares applicable to the assumed exercise of outstanding stock
options. The weighted average number of shares outstanding were
21,001,000, 19,596,000 and 19,423,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. Fully diluted earnings per
share includes the potential dilution for stock options and, when material,
conversion of the 6.9% redeemable cumulative convertible preferred stock
and conversion of the 6.75% convertible subordinated debentures. Net
earnings are adjusted for the assumed elimination of preferred stock
dividends and interest expense, net of income tax, on the debentures, as
applicable.
REVENUE RECOGNITION
Domestic revenues and most domestic operating expenses are recognized
when shipments are picked up from the customer. International revenues and
direct air carrier expenses are recognized in the period when shipments are
tendered to a carrier for transport to a foreign destination. Domestic and
international delivery costs are recognized in the period incurred. The
net revenue resulting from existing recognition policies does not
materially differ from that which would be recognized on a delivery date
basis.
ACCOUNTING CHANGES
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" and SFAS
No. 106 "Employers Accounting for Postretirement Benefits Other than
Pensions" effective January 1, 1993. SFAS No. 109 required the change from
the deferral method of accounting for income taxes to the asset and
liability method which recognizes taxes at currently enacted rates. The
result of this change, recorded cumulatively, was an increase to 1993 net
earnings of $5,506,000 or $.28 per primary common share. The provisions of
SFAS No. 106 require expected postretirement healthcare benefit costs be
accrued over the applicable employee service period instead of as claims
are incurred. The effect of immediate recognition of the postretirement
transition obligation of $2,543,000 was a decrease in 1993's net earnings
of $1,678,000 or $.08 per primary share, net of a deferred tax benefit of
$865,000.
RECLASSIFICATIONS
Certain amounts for prior years have been reclassified in the
consolidated financial statements to conform to the classification used in
1994.
NOTE B - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
<S> <C> <C>
Flight equipment $ 931,368 $ 849,174
Land, buildings and leasehold improvements 158,515 127,857
Package handling and ground support equipment 114,399 109,288
Vehicles and other equipment 176,184 152,686
--------- ---------
1,380,466 1,239,005
Accumulated depreciation and amortization (614,120) (505,042)
--------- ---------
$ 766,346 $ 733,963
========= =========
</TABLE>
NOTE C - ACCRUED EXPENSES:
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
<S> <C> <C>
Aircraft leases $13,994 $13,258
Insurance 13,263 14,684
Retirement plans 10,846 10,716
Property and other taxes 8,465 8,059
Interest 4,381 4,032
Other 8,104 4,796
------- -------
$59,053 $55,545
======= =======
</TABLE>
NOTE D - INCOME TAXES:
Deferred income tax assets and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
<S> <C> <C>
Insurance $ 4,548 $ 5,648
Employee benefits 2,752 1,293
Bad debts, sales reserves and other 5,158 4,222
-------- --------
Current deferred income tax assets 12,458 11,163
-------- --------
Depreciation and amortization 63,235 53,492
Alternative Minimum Tax credit (22,777) (19,647)
Aircraft engine overhaul accrual (8,446) (7,169)
Capitalized interest 5,126 4,784
Insurance (6,059) (5,135)
Pension and other (677) (2,106)
-------- --------
Noncurrent net deferred income tax liabilities 30,402 24,219
-------- --------
Net deferred income tax liabilities $ 17,944 $ 13,056
======== ========
</TABLE>
Income taxes consist of the following(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $17,384 $19,671 $12,602
State 3,080 2,500 1,103
Foreign 88 54 155
------- ------- -------
20,552 22,225 13,860
Deferred:
Alternative Minimum Tax credit (3,129) (4,846) (10,246)
Aircraft engine overhaul accrual (1,276) (2,760) (3,070)
Employee benefits (1,001) (407) (797)
Depreciation and amortization 9,743 8,165 8,196
Federal tax increase -- 738 --
Other 551 623 (4,013)
------- ------- -------
4,888 1,513 (9,930)
------- ------- -------
$25,440 $23,738 $ 3,930
======= ======= =======
</TABLE>
The following table summarizes the major differences between the actual
income tax provision and taxes computed at the Federal statutory rate (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
<S> <C> <C> <C>
Taxes computed at statutory rate of 35%,
(34% for 1992) $22,496 $20,659 $3,090
State and foreign income taxes,
net of Federal benefit 2,073 1,703 777
Tax effect of nondeductible expense 874 502 461
Effect of Federal tax increase -- 738 --
Tax credits and other (3) 136 (398)
------- ------- ------
$25,440 $23,738 $3,930
======= ======= ======
</TABLE>
NOTE E - LONG-TERM AND SUBORDINATED DEBT:
Long-term debt and subordinated debt consist of the following:
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
(In thousands)
<S> <C> <C>
LONG-TERM DEBT:
Revolving credit notes payable to banks,
effective rate of 6.2% on December 31, 1994 $135,000 $105,000
Money market lines of credit, effective
rate of 6.7% on December 31, 1994 17,000 --
Notes payable, variable rate,
paid April 1994, secured by flight equipment -- 34,000
Senior notes, 8.875%, due December 2002 100,000 100,000
Refunding revenue bonds, effective rate
of 5.7% on December 31, 1994, due June 2011 13,200 13,200
Note payable to vendor due January 1995 12,300 12,468
Capital lease obligations and other 4,370 6,862
-------- --------
281,870 271,530
Less current portion 2,448 2,280
-------- --------
$279,422 $269,250
======== ========
SUBORDINATED DEBT:
Convertible subordinated debentures, 6.75%,
due August 2001 $115,000 $115,000
Senior subordinated notes, 10%,
sinking fund payments of $3,570,000 due
June 1995, and $3,580,000 due June 1996 7,150 10,720
-------- --------
122,150 125,720
Less current portion 3,570 3,570
-------- --------
$118,580 $122,150
======== ========
</TABLE>
The Company has a revolving bank credit agreement providing for a
total commitment of $240,000,000. Interest rates for borrowings are
generally determined by maturities selected and prevailing market
conditions. The revolving credit agreement is for an initial period
expiring May 31, 1997, with options to extend the maturity to May 31, 1999.
The Company was in compliance with covenants of the current and previous
revolving credit agreements during 1994, 1993 and 1992, including net worth
restrictions which limit the payment of dividends ($99,986,000 of retained
earnings was not restricted at December 31, 1994).
The Company has available $30,000,000 of financing under uncommitted
money market lines of credit with several banks. These facilities bear
interest at rates that vary with the banks' cost of funds and are typically
less than the prevailing bank prime rate. These credit lines are used in
conjunction with the revolving credit agreement to facilitate settlement
and accommodate short-term borrowing fluctuations.
Note payable to vendor consists of a non-interest bearing financing
provided through a purchase agreement with a vendor for the acquisition of
an aircraft.
The Company has classified the borrowings outstanding under the money
market lines of credit and note payable to vendor as long-term. These
amounts will be refinanced under the revolving credit agreement.
The Company's tax-exempt airport facilities refunding bonds carry no
sinking fund requirements and bear interest at weekly adjustable rates.
The average interest rate on these borrowings was 2.88% during 1994.
Payment of principal and interest is secured by an irrevocable bank letter
of credit that is collateralized by a mortgage on certain airport
properties which have a net carrying value of $38,156,000 at
December 31, 1994.
The Company's 6.75% convertible subordinated debentures require no
sinking fund payments prior to maturity. The debentures may be redeemed at
the option of the Company at a redemption price of 104.9% declining ratably
on an annual basis each August to par at maturity. The debentures are
convertible into the Company's common stock at a conversion price of $35.50
per share, subject to adjustment in certain events. The Company has
reserved 3,239,437 shares of common stock for such conversion.
The Company has an aircraft financing facility with Mitsui & Co.,
Ltd., providing for a total commitment of $100,000,000. The commitment
expires in March 1995 and no portion of the commitment had been utilized at
December 31, 1994. The Company intends to let the commitment expire
without being used.
At December 31, 1994, the present value of future minimum lease
payments for capital lease obligations was $2,496,000 net of $234,000
representing interest payable. Property and equipment includes capital
leases of $8,034,000 and related accumulated depreciation and amortization
includes $5,981,000.
The scheduled annual principal payments on long-term senior and
subordinated debt and capital lease obligations for the next five years,
assuming no extension of the revolving credit notes, is $6,018,000,
$5,502,000 and $164,300,000 for 1995 through 1997, respectively. No
payments are scheduled for 1998 and 1999.
The following table summarizes the fair value information regarding the
Company's principal long-term debt arrangements (in thousands):
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Senior notes $100,000 $ 99,940 $100,000 $107,690
Convertible subordinated debentures 115,000 105,225 115,000 128,168
</TABLE>
Fair value for the senior notes and convertible subordinated
debentures is based on quoted market prices for the same issues. The
carrying value of the Company's remaining long-term financial debt
instruments approximate fair value primarily because of the frequency of
the repricing of the instrument.
NOTE F - COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company is obligated under various long-term operating lease
agreements for certain equipment and for a substantial portion of its
facilities. These leases expire at various dates through 2016. Rental
expense for 1994, 1993 and 1992 was $89,975,000, $81,138,000 and
$76,414,000, respectively.
Rental commitments under long-term operating leases at December 31, 1994
total $430,660,000 and are payable as follows (in thousands):
<TABLE>
<CAPTION>
Facilities Equipment
---------- ---------
<S> <C> <C>
1995 $ 44,981 $ 24,831
1996 43,563 25,289
1997 39,644 21,387
1998 36,956 17,340
1999 33,038 15,171
2000 and beyond 123,264 5,196
</TABLE>
PURCHASE COMMITMENTS
Under various agreements the Company is committed to purchase 20
aircraft consisting of 7 DC-8, and 13 DC-9 aircraft to be acquired at
various dates through 1997. The Company also has commitments to purchase
37 Stage III hush kits for its DC-9 aircraft at various dates through 1998.
At December 31, 1994, deposits of $3,500,000 had been made toward these
purchases. Additional deposits and payments for these acquisitions will
approximate $44,100,000, $60,900,000, $23,500,000 and $7,200,000, for 1995
through 1998, respectively.
CONTINGENCIES
In the normal course of business, the Company has various legal claims
and other contingent matters outstanding. Management believes that any
ultimate liability arising from these actions would not have a material
adverse effect on the Company's financial condition or results of
operations as of and for the year ended December 31, 1994.
NOTE G - POSTRETIREMENT PLANS:
PENSIONS
The Company has trusteed retirement plans for all employees not
covered by multi-employer plans to which the Company contributes under
terms of various collective bargaining agreements. The Company retirement
plans consist of defined contribution profit sharing and capital
accumulation plans and defined benefit minimum monthly retirement income
plans.
The capital accumulation plans are funded by both voluntary employee
salary deferrals of up to 16% of annual compensation and by employer
matching contributions of 35% of employee salary deferrals up to 6% of
annual compensation. The Company matching contribution expense was
$3,635,000, $2,926,000 and $2,242,000 for 1994, 1993 and 1992,
respectively.
Contributions to the profit sharing plans are made at the discretion
of the Board of Directors. However, a basic formula has been followed for
contributions of 7% of earnings before taxes up to a specific profit level
plus 14% of earnings in excess of that level. The Company's profit sharing
expense was $4,838,000, $5,672,000 and $684,000 for 1994, 1993 and 1992,
respectively. The profit sharing plans hold 450,831 of the Company's
common stock at December 31, 1994, representing 2.1% of outstanding shares.
The profit sharing plans are expected to be the primary retirement
benefit. However, the minimum monthly retirement income plans guarantee a
minimum level of monthly pension income for those not accruing sufficient
balances in the profit sharing plans. The Company's funding of the plans
is equal to the amounts required by ERISA.
Net minimum monthly plan pension expense included the following components
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period $4,185 $2,934 $2,203
Interest cost on projected benefit obligation 2,149 1,525 1,395
Actual return on plan assets 69 (865) (559)
Net amortization and deferral (240) 595 464
------ ------ ------
Net pension expense $6,163 $4,189 $3,503
====== ====== ======
</TABLE>
The following is a summary of the minimum monthly plan funded status (in
thousands):
<TABLE>
<CAPTION>
December 31 1994 1993
----------- ---- ----
<S> <C> <C>
Projected benefit obligation for
service rendered to date $31,126 $27,612
Plan assets at fair market value,
primarily marketable securities 16,396 8,930
------- -------
Projected benefit obligation
in excess of plan assets 14,730 18,682
Unrecognized prior service cost (1,009) (1,788)
Unrecognized net losses from past
experience different from that assumed (3,259) (4,520)
Unrecognized net transition obligation (177) (207)
------- -------
Pension liability included in
consolidated balance sheets $10,285 $12,167
======= =======
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $13,287,000 and $9,421,000,
respectively $15,623 $ 9,838
======= =======
</TABLE>
Assumptions used in determining pension obligations were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate 8% 7% 8%
Rate of compensation increase 5% 6% 6%
Long-term rate of return on assets 8% 8% 8%
</TABLE>
The Company also has a non-qualified, unfunded supplemental retirement
plan for certain key executives which provides defined retirement benefits
that supplement those provided by the Company's other retirement plans.
Pension expense for this plan was $1,042,000, $550,000 and $638,000 in
1994, 1993 and 1992, respectively. The plan's projected benefit obligation
and accumulated benefit obligation were $2,373,000 and $367,000 as of
December 31, 1994, of which $2,212,000 was accrued in Other Liabilities on
the Consolidated Balance Sheet.
The Company additionally contributes to several multi-employer defined
benefit pension plans covering substantially all employees under collective
bargaining agreements. Total expense of these plans was $19,056,000,
$16,676,000 and $14,358,000 for 1994, 1993 and 1992, respectively.
HEALTH CARE BENEFITS
The Company provides postretirement health care benefits for employees
and qualifying dependents who have met certain eligibility requirements and
who are not covered by other plans to which the Company contributes, such
as collectively bargained plans. The Company's plan is currently unfunded.
The accumulated postretirement benefit obligation was $3,919,000 and
$3,654,000 at December 31, 1994 and 1993, respectively, of which $4,057,000
and $3,192,000 has been accrued in Other Liabilities on the Consolidated
Balance Sheet. Postretirement benefit expense was $865,000 and $649,000
for 1994 and 1993, respectively.
The assumed health care cost trend rate used in measuring benefit
costs was 12% for 1994, decreasing each successive year to a 6% annual
growth rate in 1999, and thereafter. A one-percentage-point increase or
decrease in the assumed health care cost trend rate for each year would not
have a material effect on the accumulated postretirement benefit obligation
or cost as of or for the year ended December 31, 1994. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 8% and 7% at December 31, 1994 and 1993, respectively.
The Company also contributes to multi-employer defined benefit welfare
plans covering substantially all employees under collective bargaining
agreements. Portions of the these contributions, which cannot be
disaggregated, relate to postretirement benefits for plan participants.
Total expense of these plans was $22,955,000 and $19,741,000 for 1994 and
1993.
NOTE H - PREFERRED STOCK:
The Company has outstanding 100,000 shares of 6.9% redeemable
cumulative convertible preferred stock, at par value of $50 per share at
December 31, 1994. The shares are convertible into the Company's common
stock at a conversion price of $23.393 per share, subject to certain
antidilutive provisions. The Company has reserved 213,739 shares of common
stock for such conversion. Shares which are not converted to common stock
may be redeemed, in whole or in part, at the option of the Company, at a
redemption price of 103.45% and declining ratably on an annual basis to par
on December 1999. In December 1994, at the request of the holders, the
Company redeemed 20,000 shares at a par value of $1,000,000. The holders
have the option of requiring the Company to redeem, at par value, 6,000
shares annually and 40,000 shares cumulatively through December 2004. In
December 2004, the Company is required to redeem all outstanding shares at
par value plus accrued dividends.
In March 1994, the holders exercised the right to convert 680,000
preferred shares with a par value of $34,000,000, into the Company's common
stock. The transaction resulted in the issuance of 1,453,427 common
shares.
The nonvoting preferred shares are senior to common shares both as to
accumulated dividends and liquidation preferences. Dividends are payable
quarterly.
Fair value of the preferred shares is estimated at $4,400,000 and
$60,000,000 as of December 31, 1994 and 1993, respectively. Estimated fair
value is computed assuming the stock was converted, at the option of the
holder, to the Company's common shares utilizing the December 31, 1994 and
1993 closing market prices of the Company's common stock of $20.50 and
$35.125 per share.
NOTE I - SHAREHOLDERS' EQUITY:
Changes in shareholders' equity consist of the following (in thousands):
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------ ------- -------- -------
<S> <C> <C> <C> <C>
BALANCE at JANUARY 1, 1992 $19,341 $145,264 $123,719 $ (980)
Net earnings available
to common shareholders 2,397
Common stock dividends paid (5,743)
Exercise of stock options 174 1,467
-------- -------- -------- --------
BALANCE at DECEMBER 31, 1992 19,515 146,731 120,373 (980)
Net earnings available
to common shareholders 36,357
Common stock dividends paid (5,780)
Exercise of stock options 174 2,425 9
-------- -------- -------- -------
BALANCE at DECEMBER 31, 1993 19,689 149,156 150,950 (971)
Net earnings available
to common shareholders 37,941
Conversion of redeemable
preferred stock 1,453 32,513
Common stock dividends paid (6,177)
Exercise of stock options 144 2,700
-------- -------- -------- -------
BALANCE at DECEMBER 31, 1994 $21,286 $184,369 $182,714 $ (971)
======== ======== ======== =======
</TABLE>
NOTE J - STOCK OPTIONS:
Under shareholder approved option plans, officers, directors and key
employees may be granted options to purchase the Company's common stock at
the fair market value on the date of grant. Options granted become
exercisable over a period of six months to three years following the date
of grant and expire ten years from the date of grant. A summary of the
Company's employee stock option plans is as follows:
<TABLE>
<CAPTION>
Shares Option Price
Granted Per Share
------- ---------
<S> <C> <C>
Outstanding at December 31, 1991 1,154,041 $ 4.56-$22.13
Granted 162,295 $28.50
Exercised (214,890) $ 4.56-$18.50
Canceled (16,090) $12.75-$28.50
--------- -------------
Outstanding at December 31, 1992 1,085,356 $ 4.56-$28.50
Granted 202,955 $22.50
Exercised (189,725) $ 6.63-$28.50
Canceled (28,325) $ 6.63-$28.50
--------- -------------
Outstanding at December 31, 1993 1,070,261 $ 6.63-$28.50
Granted 134,820 $36.13-$37.75
Exercised (150,000) $ 6.63-$28.50
Canceled (13,260) $18.50-$37.75
--------- -------------
Outstanding at December 31, 1994 1,041,821 $ 6.63-$37.75
========= =============
Exercisable at December 31, 1994 655,853 $ 6.63-$36.13
========= =============
Available for grants in future periods 1,992,503
=========
</TABLE>
NOTE K - SEGMENT INFORMATION:
Substantially all of the Company's revenues are derived from domestic
and international transportation and/or forwarding of air freight and
express shipments. Domestic is defined as any shipment with an origin and
destination within the U.S., Puerto Rico or Canada. A substantial portion
of international revenue originates in the U.S. ($234,607,000 in 1994,
$181,491,000 in 1993, and $179,135,000 in 1992).
The determination of operating income of domestic and international
operations requires that certain costs incurred in the U.S. be allocated to
international operations.
<TABLE>
<CAPTION>
Year Ended December 31 1994 1993 1992
---------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues:
Domestic $1,660,003 $1,484,787 $1,259,792
International 310,756 235,194 224,524
---------- ---------- ----------
$1,970,759 $1,719,981 $1,484,316
========== ========== ==========
Earnings from Operations:
Domestic $ 83,787 $ 76,441 $ 21,156
International 5,151 6,679 6,710
Interest, net (24,663) (24,093) (18,779)
---------- ---------- ----------
Earnings Before Income Taxes $ 64,275 $ 59,027 $ 9,087
========== ========== ==========
Identifiable Assets:
Domestic $1,027,115 $ 965,721 $ 928,592
International 51,391 37,145 36,147
---------- ---------- ----------
$1,078,506 $1,002,866 $ 964,739
========== ========== ==========
</TABLE>
NOTE L - QUARTERLY RESULTS (Unaudited):
The following is a summary of unaudited quarterly results of operations (in
thousands except per share data):
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1994 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $466,552 $484,542 $489,744 $529,921
Earnings from Operations 17,786 27,725 19,698 23,729
Net Earnings Available
to Common Shareholders 6,416 12,960 8,040 10,525
Net Earnings per Common Share
Primary $.32 $.61 $.38 $.50
Fully Diluted .32 .57 .38 .48
1993
----
Revenues $398,766 $419,881 $434,223 $467,111
Earnings from Operations 11,936 16,294 26,142 28,748
Net Earnings Before
Changes in Accounting 3,626 6,282 11,066 14,315
Net Earnings Available
to Common Shareholders 6,773 5,594 10,371 13,619
Net Earnings per Common Share
Before Changes in Accounting
Primary $.15 $.29 $.53 $.69
Fully Diluted .15 .29 .52 .66
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Airborne Freight Corporation
Seattle, Washington
We have audited the accompanying consolidated balance sheets of
Airborne Freight Corporation and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of net earnings and cash
flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of
December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, as of
January 1, 1993 the Company adopted Statement of Financial Accounting
Standards NO. 109, "Accounting for Income Taxes" and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
DELOITTE & TOUCHE LLP
February 10, 1995
Seattle, Washington
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
Airborne Freight Corporation
Seattle, Washington
We consent to the incorporation by reference in Registration
Statement Nos. 33-3713, 2-67161, 33-39720, and 33-51651 on Form S-8
of our report dated February 10, 1995, on the consolidated
financial statements of Airborne Freight Corporation and
subsidiaries appearing on page 16 of the Company's 1994 Annual
Report to Shareholders and incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1994. We also
consent to the incorporation of the following report on schedule in
such Registration Statements.
In the course of our audit of the consolidated financial statements
referred to in our report, we also audited the schedule listed in
the accompanying Index at Item 14(a)2. This schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audit. In our opinion, such
schedule presents fairly, in all material respects, when read in
conjunction with the related consolidated financial statements, the
information therein set forth.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<CASH> 10,318
<SECURITIES> 0
<RECEIVABLES> 229,288
<ALLOWANCES> 7,500
<INVENTORY> 28,071
<CURRENT-ASSETS> 293,336
<PP&E> 1,380,466
<DEPRECIATION> 614,120
<TOTAL-ASSETS> 1,078,506
<CURRENT-LIABILITIES> 226,465
<BONDS> 398,002
<COMMON> 21,286
5,000
0
<OTHER-SE> 366,112
<TOTAL-LIABILITY-AND-EQUITY> 1,078,506
<SALES> 0
<TOTAL-REVENUES> 1,970,759
<CGS> 0
<TOTAL-COSTS> 1,881,821
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,663
<INCOME-PRETAX> 64,275
<INCOME-TAX> 25,440
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,835
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.74
</TABLE>
