SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(State of incorporation or organization)
91-0837469
---------------------------------
(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
------------------------------
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: XXX No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share
Outstanding (net of 315,150 treasury shares)
as of June 30, 1995 21,050,336 shares
-----------------
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Domestic $452,631 $407,657 $ 894,808 $ 804,541
International 93,309 76,885 181,048 146,553
-------- -------- ---------- ---------
545,940 484,542 1,075,856 951,094
OPERATING EXPENSES:
Transportation purchased 196,726 162,534 385,511 317,532
Station and ground operations 170,812 144,931 335,926 290,141
Flight operations and maintenance 79,311 65,454 157,372 131,236
General and administrative 37,019 36,552 74,513 72,268
Sales and marketing 16,250 14,037 31,881 27,332
Depreciation and amortization 34,846 33,309 69,648 67,074
-------- -------- ---------- ---------
534,964 456,817 1,054,851 905,583
-------- -------- ---------- ---------
EARNINGS FROM OPERATIONS 10,976 27,725 21,005 45,511
INTEREST, NET 6,964 6,069 13,689 12,010
-------- -------- ---------- ---------
EARNINGS BEFORE INCOME TAXES 4,012 21,656 7,316 33,501
INCOME TAXES 1,750 8,593 3,174 13,438
-------- -------- ---------- ---------
NET EARNINGS 2,262 13,063 4,142 20,063
PREFERRED STOCK DIVIDENDS 68 103 139 687
-------- -------- ---------- ---------
NET EARNINGS AVAILABLE
TO COMMON SHAREHOLDERS $ 2,194 $ 12,960 $ 4,003 $ 19,376
======== ======== ========== =========
NET EARNINGS PER COMMON SHARE:
Primary - $ .10 $ .61 $ .19 $ .93
======== ======== ========== =========
Fully Diluted - $ .10 $ .57 $ .19 $ .89
======== ======== ========== =========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .15 $ .15
======== ======== ========== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30 December 31
------- -----------
ASSETS
------ 1995 1994
---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 14,451 $ 10,318
Trade accounts receivable,
less allowance of $7,550 and $7,500 219,887 221,788
Spare parts and fuel inventory 30,845 28,071
Deferred income tax assets 13,040 12,458
Prepaid expenses 20,865 20,701
---------- ----------
TOTAL CURRENT ASSETS 299,088 293,336
PROPERTY AND EQUIPMENT, NET 806,832 766,346
EQUIPMENT DEPOSITS and OTHER ASSETS 18,557 18,824
---------- ----------
TOTAL ASSETS $1,124,477 $1,078,506
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 111,649 $ 117,194
Salaries, wages and related taxes 45,299 43,858
Accrued expenses 59,889 59,053
Income taxes payable 348 342
Current portion of debt 6,152 6,018
---------- ----------
TOTAL CURRENT LIABILITIES 223,337 226,465
LONG-TERM DEBT 334,397 279,422
SUBORDINATED DEBT 115,000 118,580
DEFERRED INCOME TAX LIABILITIES 29,806 30,402
OTHER LIABILITIES 28,374 31,239
REDEEMABLE PREFERRED STOCK 3,948 5,000
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares,
no shares issued
Common stock, par value $1 per share -
Authorized 60,000,000 shares
Issued 21,365,486 and 21,285,924 shares 21,366 21,286
Additional paid-in capital 185,661 184,369
Retained earnings 183,559 182,714
---------- ----------
390,586 388,369
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
389,615 387,398
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,124,477 $1,078,506
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
----------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 4,142 $ 20,063
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 64,689 62,119
Provision for aircraft engine overhauls 4,959 4,955
Deferred income taxes (1,178) 301
Other (2,791) (2,920)
-------- --------
CASH PROVIDED BY OPERATIONS 69,821 84,518
Change in:
Receivables 1,901 (13,544)
Inventories and prepaid expenses (2,938) 3,620
Accounts payable (5,545) 12,218
Accrued expenses, salaries & taxes payable 2,283 2,437
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,522 89,249
INVESTING ACTIVITIES:
Additions to property and equipment (106,098) (94,267)
Dispositions of property and equipment 340 755
Expenditures for engine overhauls (3,922) (3,064)
Other (257) (889)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (109,937) (97,465)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net 68,600 47,000
Principal payments on debt (17,071) (38,838)
Proceeds from common stock issuance 320 2,803
Dividends paid (3,301) (3,838)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 48,548 7,127
-------- --------
NET INCREASE (DECREASE) IN CASH 4,133 (1,089)
CASH AT JANUARY 1 10,318 7,134
-------- --------
CASH AT JUNE 30 $ 14,451 $ 6,045
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
(Unaudited)
NOTE A--SUMMARY OF FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements included herein are unaudited
but include all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to
the 1995 presentation.
NOTE B--LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
June 30 December 31
------- -----------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $219,000 $135,000
Notes payable 1,600 17,000
Senior notes 100,000 100,000
Revenue bonds 13,200 13,200
Other debt 3,169 16,670
-------- --------
336,969 281,870
Subordinated debt:
Senior subordinated notes 3,580 7,150
Convertible subordinated debentures 115,000 115,000
-------- --------
118,580 122,150
-------- --------
Total long-term debt 455,549 404,020
Less current portion 6,152 6,018
-------- --------
$449,397 $398,002
======== ========
</TABLE>
NOTE C--EARNINGS PER COMMON SHARE:
Primary earnings per common share are based upon the weighted average
number of common shares outstanding during the interim period plus dilutive
common equivalent shares applicable to the assumed exercise of outstanding
stock options.
Fully diluted earnings per share for the three and six months ended
June 30, 1995 are the same as primary earnings per share. Fully diluted
earnings per share for the three and six month period ended June 30, 1994,
assumes conversion of the Company's redeemable preferred stock and
convertible subordinated debentures as well as the dilutive common
equivalent shares applicable to the assumed exercise of stock options. Net
earnings as adjusted for the elimination of preferred stock dividends and
interest expense, net of applicable taxes, relative to the assumed
conversion was $14,128,000 and $22,193,000 for the three and six month
periods, respectively.
<TABLE>
Average shares outstanding used in earnings per share computations
were as follows:
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Primary 21,178 21,404 21,182 20,788
Fully Diluted 21,180 24,900 21,182 24,900
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the second quarter of 1995
resulted in significantly lower operating income and net earnings compared
to the second quarter of 1994. During the second quarter of 1995, the
Company experienced similar pressures on the average weight and revenue per
domestic shipment as were experienced in the first quarter of 1995,
although the downward trend stabilized during the second quarter.
Net earnings available to common shareholders for the second quarter
of 1995 were $2.2 million, or $.10 per share, compared to $13.0 million, or
$.61 per share, for the second quarter of 1994. Net earnings were $4.0
million, or $.19 per share for the first six months of 1995, compared to
$19.4 million, or $.93 per share for the corresponding period in 1994.
Earnings per share on a fully diluted basis for the second quarter of
1995 and 1994 were $.10 and $.57, respectively, and for the first six
months of 1995 were $.19 compared to $.89 for the corresponding period in
1994.
<TABLE>
The following table sets forth selected shipment and revenue data for
the periods indicated:
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30 June 30
-------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 9,017 8,498 18,147 16,974
0-2 Lbs. 12,208 11,002 24,221 21,790
3-99 Lbs. 10,509 9,670 20,981 19,298
------ ------ ------- ------
31,734 29,170 63,349 58,062
Select Delivery Service
0-2 Lbs. 14,558 10,132 28,461 19,698
3-99 Lbs. 8,143 6,024 15,819 11,806
------ ------ ------- ------
22,701 16,156 44,280 31,504
100 Lbs. & over 81 90 162 176
------ ------ ------- ------
Total Domestic 54,516 45,416 107,791 89,742
------ ------ ------- ------
International
Express 1,013 859 1,949 1,663
All Other 142 122 272 234
------ ------ ------- ------
Total International 1,155 981 2,221 1,897
------ ------ ------- ------
Total Shipments 55,671 46,397 110,012 91,639
====== ====== ======= ======
Average Pounds per Shipment:
Domestic 4.5 4.8 4.5 4.7
International 62.5 64.9 65.0 63.2
Average Revenue per Pound:
Domestic $ 1.80 $ 1.87 $ 1.81 $ 1.89
International $ 1.30 $ 1.20 $ 1.26 $ 1.21
Average Revenue per
Shipment:
Domestic $ 8.27 $ 8.98 $ 8.28 $ 8.97
International $80.79 $78.37 $81,52 $77.26
</TABLE>
Total shipments increased 20% in the second quarter of 1995 compared
to an increase of 16% in the second quarter of 1994. Domestic and
international shipments increased 20% and 18%, respectively, during this
period of 1995 compared to 16% and 11%, respectively, for the corresponding
period of 1994. Domestic shipments increased 20% and international
shipments increased 17% in the first half of 1995 compared to 17% and 10%,
respectively, for the corresponding period in 1994.
The growth in domestic shipments continued to be aided by strong
growth in the Company's deferred service product, Select Delivery Service
(SDS). For the first six months of 1995, SDS shipments increased 41%
compared to an increase of 35% for 1994, accounting for over 41% of total
domestic shipments in the first six months of 1995. Domestic overnight
shipment growth was 9% for the first six months of 1995 and 1994,
respectively.
Domestic revenues increased 11% in both the second quarter and the
first six months of 1995, compared to 12% and 13%, respectively, for the
corresponding periods in 1994. Revenue growth during the first half of
1995 was negatively impacted by a decline in the average weight per
domestic shipment to 4.5 pounds compared to 4.7 pounds in the first half of
1994. This decline in average weight per shipment in combination with the
trend of a higher growth rate in lower yielding SDS shipments, resulted in
a decrease in the average revenue per domestic shipment of approximately
7.7% to $8.28 per shipment in the first six months of 1995 compared to
$8.97 in the corresponding period of 1994. During the second quarter of
1995 the Company experienced similar pressures on the average weight and
average revenue per domestic shipment as were experienced in the first
quarter of 1995. However, the downward trends stabilized during the second
quarter.
The growth in international shipments during the first half of 1995
was aided by the relatively balanced growth in higher yielding freight as
well as express shipments. International revenues increased 21% in the
second quarter of 1995 compared to 37% in 1994, and for the first half of
1995 and 1994 increased 24% and 35%, respectively. International revenue
per shipment and the average weight per shipment increased during the first
half of 1995 compared to the corresponding 1994 period, as a result of the
continued strong unit growth in higher yielding freight shipments.
Going forward, the Company intends to take a more aggressive pricing
approach to enhance domestic revenue yields. Pricing for new business will
be monitored closely. Also, pricing for existing business will be
increased where not covered by existing contracts and where market
conditions will allow.
Operating expenses as a percentage of revenues were 98.0% for the
first six months of 1995 compared to 95.2% in the first six months of 1994
and 95.5% for all of 1994. Operating cost per shipment handled decreased
3% to $9.59 for the first six months 1995 compared to the first six months
of 1994. The operating cost per shipment for the second quarter of 1995
decreased 2.4% to $9.61, compared to the second quarter of 1994, but was
slightly higher than the first quarter of 1995 cost per shipment of $9.57.
The Company experienced a 6% improvement in productivity for the second
quarter of 1995, compared to the second quarter of 1994, as measured by
shipments handled per paid employee hour while productivity improvement for
the first half of the year was approximately 8% over the corresponding
period of 1994. However, operating expenses were negatively impacted
during the first half of 1995 primarily due to an increase in costs in the
transportation purchased category. Comparisons of certain operating
expense components are discussed below.
Transportation purchased increased as a percentage of revenues to
35.8% in the first six months of 1995 compared to 33.4% in 1994. This
increase was primarily due to additional commercial airline costs resulting
from the growth in international freight shipments discussed above and to
higher cartage costs related to contract pickup, delivery and trucking
operations.
Station and ground expense as a percentage of revenues in the first
six months of 1995 was 31.2% compared to 30.5% in the first six months of
1994. Productivity gains achieved were offset by costs incurred to
maintain service integrity.
Flight operations and maintenance expense as a percentage of revenues
during the first six months of 1995 was 14.6%, compared to 13.8% in the
first six months of 1994. The average aviation fuel price for the first
half of 1995 was $.59 per gallon, which was also the average price per
gallon in the corresponding period of 1994. Aviation fuel consumption
increased to 67.9 million gallons in the first half of 1995, a 14% increase
compared to the first half of 1994. The increase in fuel consumption is a
result of additional Company operated aircraft placed in service since the
first half in 1994. The Company incurred higher aircraft maintenance costs
during the first six months of 1995 compared to the corresponding period of
1994. The Company anticipates that aircraft maintenance costs will be
somewhat lower in the third and fourth quarters of this year compared to
the first two quarters of 1995.
The increased number of aircraft in service also accounted for the
increase in depreciation and amortization expense which, as a percentage of
revenues in the first half of 1995 was 6.5%, compared to 7.1% for the
corresponding period in 1994.
General and administrative and sales and marketing expenses on a
combined basis decreased as a percentage of revenues in the first half of
1995 compared to 1994. This was primarily the result of continuing
productivity gains and a strong focus on all discretionary spending.
Interest expense in the first half of 1995 was higher than the
corresponding period in 1994. This increase was the result of higher
average outstanding borrowings combined with higher effective interest
rates.
The Company's effective tax rate was 43.4% in the first six months of
1995 compared to 40.1% in the first six months of 1994 and 39.6% for all of
1994. The higher effective tax rate for the first half of 1995 was the
result of certain taxes and nondeductible expenses that are not directly
related to the level of earnings.
LIQUIDITY AND CAPITAL RESOURCES:
Capital expenditures and associated financing continued to be the
primary factors affecting the financial condition of the Company. The
Company anticipates total capital expenditures to approximate $230 million
in 1995, of which a significant portion is related to the acquisition and
modification of aircraft. During the first half of 1995, total capital
expenditures net of dispositions were $106 million. The principal sources
of liquidity for financing capital expenditures during the first half of
1995 were cash provided by operations and financing under the Company's
bank lines of credit.
The Company's unsecured revolving bank credit agreement has
traditionally been used as a major source of liquidity for periods between
other financing transactions. The Company also has available $65 million
under unsecured uncommitted money market lines of credit with several
banks, used in conjunction with the revolving credit agreement to
facilitate settlement and accommodate short-term borrowing fluctuations.
At June 30, 1995, a total of $220.6 million was outstanding under the
revolving bank credit and money market credit lines.
The Company filed a registration statement for $100 million of debt
securities with the Securities Exchange Commission on July 27, 1995.
Management intends to complete the issuance of ten year notes under this
shelf registration during the third quarter of 1995. The net proceeds from
this transaction are intended to be used to pay down the Company's bank
lines of credit.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1995
operations and other sources of intended borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1995.
PART II. OTHER INFORMATION
--------------------------
Item 5. Other Information.
A Form S-3 registration statement was filed with the Securities and
Exchange Commission on July 27, 1995 for Debt Securities in the amount of
$100,000,000.
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 8/11/95 /s/Roy C. Liljebeck
------------------------- -------------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 8/11/95 /s/Lanny H. Michael
------------------------- -------------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 14,451
<SECURITIES> 0
<RECEIVABLES> 227,437
<ALLOWANCES> 7,550
<INVENTORY> 30,845
<CURRENT-ASSETS> 299,088
<PP&E> 1,483,272
<DEPRECIATION> 676,440
<TOTAL-ASSETS> 1,124,477
<CURRENT-LIABILITIES> 223,337
<BONDS> 449,397
<COMMON> 21,366
3,948
0
<OTHER-SE> 368,249
<TOTAL-LIABILITY-AND-EQUITY> 1,124,477
<SALES> 0
<TOTAL-REVENUES> 1,075,856
<CGS> 0
<TOTAL-COSTS> 1,054,851
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,689
<INCOME-PRETAX> 7,316
<INCOME-TAX> 3,174
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,003
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
