UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-K/A
Amendment #1 to Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
<TABLE>
<S> <C>
For the fiscal year ended Commission file number
December 31, 1994 1-6512
</TABLE>
----------------------------------
AIRBORNE FREIGHT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 91-0837469
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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:
<TABLE>
<S> <C>
Name of each Exchange
Title of each class on which Registered
------------------- -------------------
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
</TABLE>
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
Amendment #1 to 1994 Form 10-K
The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of
its Annual Report on Form 10-K dated December 31, 1994, as
set forth in the pages attached hereto:
Item 14(a)3: Exhibits
Exhibit 13 - Annual Report to Security Holders: 1994
Annual Report to Shareholders of Airborne Freight
Corporation has been amended to include Note M -
Supplemental Guarantor Information.
Exhibit 23 - Consents of Experts and Counsel: Independent
auditors' consent to the application of their
opinion to Form 10-K/A.
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.
<TABLE>
<CAPTION>
AIRBORNE FREIGHT CORPORATION
---------------------------------
<S> <C>
Date: September 1, 1995 /s/Roy C. Liljebeck
----------------- ---------------------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: September 1, 1995 /s/Lanny H. Michael
----------------- ---------------------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
AIRBORNE FREIGHT CORPORATION
1994 Form 10-K Annual Report
<TABLE>
<CAPTION>
Index to Exhibits
Exhibit Number
--------------
<S> <C>
13.1 Amended 1994 Annual Report to Shareholders
of Airborne Freight Corporation
23.1 Independent Auditor's Consent
</TABLE>
EXHIBIT 13.1
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 Taxes 64,275 59,027 9,087 48,415 55,439
Income Taxes 25,440 23,738 3,930 18,416 21,862
---------- ---------- ---------- ---------- ----------
Net Earnings Before Changes 38,835 35,289 5,157 29,999 33,577
in Accounting
Cumulative Effect of Changes in -- 3,828 -- -- --
Accounting
---------- ---------- ---------- ---------- ----------
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 $ 37,941 $ 36,357 $ 2,397 $ 27,239 $ 31,029
Common Shareholders
========== ========== ========== ========== ==========
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 21,001 19,596 19,423 19,471 17,626
Outstanding
========== ========== ========== ========== ==========
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 279,457 242,120 221,197
maintenance
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 38,835 35,289 5,157
IN ACCOUNTING
CUMULATIVE EFFECT OF CHANGES IN -- 3,828 --
ACCOUNTING
---------- ---------- ----------
NET EARNINGS 38,835 39,117 5,157
PREFERRED STOCK DIVIDENDS 894 2,760 2,760
---------- ---------- ----------
NET EARNINGS AVAILABLE TO $ 37,941 $ 36,357 $ 2,397
COMMON SHAREHOLDERS
========== ========== ==========
NET EARNINGS PER COMMON SHARE:
Primary -
Before changes in accounting $ 1.81 $ 1.66 $ .12
Cumulative effect of changes -- .20 --
in accounting
---------- ---------- ----------
Primary earnings per common $ 1.81 $ 1.86 $ .12
share
========== ========== ==========
Fully Diluted -
Before changes in accounting $ 1.74 $ 1.64 $ .12
Cumulative effect of changes -- .18 --
in accounting
---------- ---------- ----------
Fully diluted earnings per $ 1.74 $ 1.82 $ .12
common share
========== ========== ==========
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 221,788 190,787
allowance of $7,500,000 and $6,925,000
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 9,865 11,407 10,426
overhauls
Deferred income taxes 4,888 1,513 (9,930)
Cumulative effect of changes in -- (3,828) --
accounting
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 6,185 18,614 5,167
taxes payable
-------- -------- --------
NET CASH PROVIDED BY OPERATING 178,158 179,668 105,198
ACTIVITIES
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 1,416 (37,699) 150,351
ACTIVITIES
-------- -------- --------
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 34,000 -- --
stock
Notes payable and other vendor -- 13,846 23,402
obligations
</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 $22,496 $20,659 $3,090
35%, (34% for 1992)
State and foreign income taxes, net 2,073 1,703 777
of Federal benefit
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, $135,000 $105,000
effective rate of 6.2% on December 31, 1994
Money market lines of credit, effective rate of 17,000 --
6.7% on December 31, 1994
Notes payable, variable rate, paid April 1994, -- 34,000
secured by flight equipment
Senior notes, 8.875%, due December 2002 100,000 100,000
Refunding revenue bonds, effective rate of 5.7% 13,200 13,200
on December 31, 1994, due June 2011
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 $115,000 $115,000
August 2001
Senior subordinated notes, 10%, sinking fund 7,150 10,720
payments of $3,570,000 due June 1995, and
$3,580,000 due June 1996
-------- --------
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 115,000 105,225 115,000 128,168
debentures
</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 $31,126 $27,612
date
Plan assets at fair market value, primarily marketable 16,396 8,930
securities
------- -------
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 (3,259) (4,520)
from that assumed
Unrecognized net transition obligation (177) (207)
------- -------
Pension liability included in consolidated balance $10,285 $12,167
sheets
======= =======
Actuarial present value of accumulated benefit $15,623 $ 9,838
obligation, including vested benefits of $13,287,000
and $9,421,000, respectively
======= =======
</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 2,397
common shareholders
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 36,357
common shareholders
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 37,941
common shareholders
Conversion of redeemable 1,453 32,513
preferred stock
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 6,416 12,960 8,040 10,525
Common Shareholders
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 3,626 6,282 11,066 14,315
Accounting
Net Earnings Available to 6,773 5,594 10,371 13,619
Common Shareholders
Net Earnings per Common Share
Before Changes in Accounting
Primary $.15 $.29 $.53 $.69
Fully Diluted .15 .29 .52 .66
</TABLE>
NOTE M - SUPPLEMENTAL GUARANTOR INFORMATION:
In connection with the proposed shelf offering by Airborne Freight
Corporation (the "Company") of $100,000,000 of unsecured Senior Notes
("Notes") certain of its subsidiaries (collectively, "Guarantors") will
fully and unconditionally guarantee, on a joint and several basis, the
Company's obligations to pay principal, premium, if any, and interest with
respect to the Notes. The Guarantors are ABX Air, Inc. ("ABX") and
Airborne Forwarding Corporation ("AFC"), which are wholly-owned by the
Company, and Airborne FTZ, Inc. ("FTZ") and Wilmington Air Park, Inc.
("WAP"), which are wholly-owned subsidiaries of ABX. Non-guarantor
subsidiaries' assets, liabilities, revenues and net earnings are
inconsequential both individually and on a combined basis in comparison
to the Company's consolidated financial statement totals.
Summarized financial information of the guarantors on a combined basis
is presented below, management does not consider disclosure of separate
subsidiary financial statements for each guarantor to be material.
Summarized information is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Sheet Information:
December 31, 1994 1993
<S> <C> <C>
Current Assets $ 37,576 $ 33,286
Property & Equipment 683,002 658,254
Other Noncurrent Assets 8,994 4,712
Current Liabilities 78,054 63,101
Long-term Debt 15,122 51,782
Other Noncurrent Liabilities 64,440 56,047
Intercompany Payable 445,777 422,547
</TABLE>
<TABLE>
<CAPTION>
Earnings Statement Information:
Year Ended December 31, 1994 1993 1992
<S> <C> <C> <C>
Revenues - Intercompany $591,501 $529,290 $422,759
Revenues - Third-party 32,872 21,945 16,456
Operating Expenses 572,629 494,118 425,377
Earnings from Operations 51,744 57,117 13,838
Net Earnings 23,404 25,153 8,145
</TABLE>
ABX is a certificated air carrier which owns and operates the domestic
express cargo services for which the Company is the sole customer. ABX
also offers air charter services on a limited basis to third-party
customers. FTZ owns certain aircraft parts inventory which it sells
primarily to ABX, with limited sales to third-party customers. FTZ is also
the holder of a foreign trade zone certificate at Wilmington airport
property. WAP is the owner of the Wilmington airport property which
includes the Company's main sort facility, aircraft maintenance facilities,
runway and related airport facilities and airline administrative and
training facilities. ABX is the only occupant and customer of WAP. AFC,
d.b.a. Sky Courier, provides expedited courier services and regional
logistics warehousing primarily to third-party customers.
Investment balances and revenues between Guarantor subsidiaries have
been eliminated for purposes of presenting the above summarized financial
information.
Intercompany revenues and net earnings recorded by ABX, FTZ, and WAP
are controlled by the Company and are based on various discretionary
factors. Intercompany payable amounts represent net amounts due the
Company by its Guarantor subsidiaries. The Company provides the Guarantor
subsidiaries with substantially all cash necessary to fund operating and
capital expenditure requirements. Federal income taxes allocated to the
Guarantors have been computed assuming the subsidiaries filed a separate
return. No state income taxes have been allocated to the Guarantor
subsidiaries.
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
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
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, 33-51651 and 33-58905 on Form S-8 and
Registration Statement No. 33-31629 on Form S-3 of our report dated
February 10, 1995, on the consolidated financial statements of Airborne
Freight Corporation and subsidiaries appearing in Form 10-K/A for the year
ended December 31, 1994.
DELOITTE & TOUCHE LLP
Seattle, Washington
September 1, 1995
