SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1996
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(State of incorporation or organization)
91-0837469
---------------------------------
(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
------------------------------
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: XXX No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share
Outstanding (net of 315,150 treasury shares)
as of September 30, 1996 21,134,281 shares
-----------------
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Domestic $522,040 $468,275 $1,552,216 $1,363,083
International 89,987 92,290 280,118 273,338
-------- -------- ---------- ----------
612,027 560,565 1,832,334 1,636,421
OPERATING EXPENSES:
Transportation purchased 201,744 196,566 611,483 582,077
Station and ground operations 194,688 171,649 580,351 507,575
Flight operations and maintenance 97,301 81,738 285,043 239,110
General and administrative 44,937 39,767 136,102 114,280
Sales and marketing 14,694 14,490 45,172 46,371
Depreciation and amortization 42,239 36,134 121,224 105,782
-------- -------- ---------- ----------
595,603 540,344 1,779,375 1,595,195
-------- -------- ---------- ----------
EARNINGS FROM OPERATIONS 16,424 20,221 52,959 41,226
INTEREST, NET 8,343 7,343 24,875 21,032
-------- -------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 8,081 12,878 28,084 20,194
INCOME TAXES 3,370 5,176 11,370 8,350
-------- -------- ---------- ----------
NET EARNINGS 4,711 7,702 16,714 11,844
PREFERRED STOCK DIVIDENDS 69 69 205 208
-------- -------- ---------- ----------
NET EARNINGS AVAILABLE $ 4,642 $ 7,633 $ 16,509 $ 11,636
TO COMMON SHAREHOLDERS ======== ======== ========== ==========
NET EARNINGS PER COMMON SHARE $ .22 $ .36 $ .78 $ .55
======== ======== ========== ==========
DIVIDENDS PER COMMON SHARE $ .075 $ .075 $ .225 $ .225
======== ======== ========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION> September 30 December 31
------------ -----------
ASSETS 1996 1995
------ ---- ----
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,765 $ 17,906
Trade accounts receivable, less 261,286 259,408
allowance of $7,990 and $7,750
Spare parts and fuel inventory 35,221 33,792
Deferred income tax assets 16,116 16,135
Prepaid expenses 21,219 24,887
---------- ----------
TOTAL CURRENT ASSETS 344,607 352,128
PROPERTY AND EQUIPMENT, NET 866,514 842,703
EQUIPMENT DEPOSITS and OTHER ASSETS 23,864 22,553
---------- ----------
TOTAL ASSETS $1,234,985 $1,217,384
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 115,870 $ 136,987
Salaries, wages and related taxes 49,915 49,106
Accrued expenses 74,205 66,679
Income taxes payable 971 1,967
Current portion of debt 474 5,790
---------- ----------
TOTAL CURRENT LIABILITIES 241,435 260,529
LONG-TERM DEBT 386,061 364,621
SUBORDINATED DEBT 115,000 115,000
DEFERRED INCOME TAX LIABILITIES 39,950 38,242
OTHER LIABILITIES 29,953 28,729
REDEEMABLE PREFERRED STOCK 3,948 3,948
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 21,449,431 and 21,397,865 shares 21,449 21,398
Additional paid-in capital 186,465 185,947
Retained earnings 211,695 199,941
---------- ----------
419,609 407,286
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
418,638 406,315
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,234,985 $1,217,384
========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
----------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 16,714 $ 11,844
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 112,186 98,224
Provision for aircraft engine overhauls 9,038 7,558
Deferred income taxes 1,727 766
Other 1,363 (2,470)
-------- --------
CASH PROVIDED BY OPERATIONS 141,028 115,922
Change in:
Receivables (1,878) (17,788)
Inventories and prepaid expenses 2,239 (4,190)
Accounts payable (21,117) 4,433
Accrued expenses, salaries 7,339 4,594
and taxes payable -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 127,611 102,971
INVESTING ACTIVITIES:
Additions to property and equipment (135,491) (167,541)
Disposition of property and equipment 141 904
Expenditures for engine overhauls (10,218) (6,060)
Other (916) 520
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (146,484) (172,177)
FINANCING ACTIVITIES:
Proceeds from bank note borrowings, net 21,700 (12,100)
Proceeds from debt issuance -- 107,461
Principal payments on debt (5,576) (17,693)
Proceeds from common stock issuance 569 306
Dividends paid (4,961) (4,949)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,732 73,025
-------- --------
NET INCREASE (DECREASE) IN CASH (7,141) 3,819
CASH AT JANUARY 1 17,906 10,318
-------- --------
CASH AT SEPTEMBER 30 $ 10,765 $ 14,137
======== ========
See notes to consolidated financial statements.
</TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(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 1996 presentation.
NOTE B--LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
September 30 December 31
------------ ------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $140,000 $115,000
Notes payable 25,000 28,300
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 8,335 10,331
-------- --------
386,535 366,831
Subordinated debt:
Senior subordinated notes -- 3,580
Convertible subordinated debentures 115,000 115,000
-------- --------
115,000 118,580
-------- --------
Total long-term debt 501,535 485,411
Less current portion 474 5,790
-------- --------
$501,061 $479,621
======== ========
</TABLE>
NOTE C--EARNINGS PER COMMON SHARE:
Primary earnings per common share are based upon the weighted average
number of common shares outstanding during the interim period plus dilutive
common equivalent shares applicable to the assumed exercise of outstanding
stock options. Fully diluted earnings per share for the three and nine
months ended September 30, 1996 and 1995 are the same as primary earnings
per share.
<TABLE>
Average shares outstanding used in earnings per share computations were as
follows:
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 21,253 21,196 21,299 21,186
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the third quarter of 1996 resulted
in lower operating income and net earnings compared to the third quarter of
1995. Domestic business growth began to slow late in the second quarter of
this year and continued through the third quarter. This slow down in
growth had a negative impact on the third quarter operating results.
Net earnings available to common shareholders for the third quarter of 1996
were $4.6 million, or $0.22 per share, compared to $7.6 million, or $0.36
per share for the third quarter of 1995. Net earnings were $16.5 million,
or $0.78 per share for the first nine months of 1996, compared to $11.6
million, or $0.55 per share for the corresponding period in 1995.
<TABLE>
The following table sets forth selected shipment and revenue data for the
comparative periods indicated:
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ----------------
September 30 September 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 9,570 9,393 28,717 27,540
0-2 Lbs. 14,406 12,689 42,409 36,910
3-99 Lbs. 12,546 11,211 37,175 32,192
------- ------- ------- -------
36,522 33,293 108,301 96,642
Select Delivery Service
0-2 Lbs. 17,574 14,933 52,515 43,394
3-99 Lbs. 8,799 8,310 27,658 24,129
------- ------- ------- -------
26,373 23,243 80,173 67,523
100 Lbs. and over 73 78 221 240
------- ------- ------- -------
Total Domestic 62,968 56,614 188,695 164,405
------- ------- ------- -------
International
Express 1,124 1,037 3,311 2,986
All Other 127 140 423 412
------- ------- ------- -------
Total International 1,251 1,177 3,734 3,398
------- ------- ------- -------
Total Shipments 64,219 57,791 192,429 167,803
======= ======= ======= =======
Average Pounds per Shipment:
Domestic 4.4 4.5 4.5 4.5
International 51.8 61.2 55.8 63.7
Average Revenue per Pound:
Domestic $ 1.84 $ 1.80 $ 1.82 $ 1.81
International $ 1.38 $ 1.29 $ 1.33 $ 1.27
Average Revenue per Shipment:
Domestic $ 8.26 $ 8.24 $ 8.20 $ 8.27
International $ 71.93 $ 78.41 $ 75.02 $ 80.44
</TABLE>
Total shipments increased 11.1% in the third quarter of 1996 compared to an
increase of 20.5% in the third quarter of 1995. Domestic and international
shipments increased 11.2% and 6.3%, respectively, during 1996 compared to
20.6% and 16.4%, respectively, for the corresponding period of 1995.
Domestic shipments increased 14.8% and international shipments increased
9.9% in the first nine months of 1996 compared to 20.3% and 16.9%,
respectively, in the first nine months of 1995.
The growth in domestic shipments slowed considerably during the third
quarter of 1996 compared to the first half of the year. This was the
result of lower growth rates in both the Company's overnight express
product and its deferred service product, which increased 9.7% and 13.5%,
respectively, in the third quarter of 1996, compared to 12.6% and 34.5%,
respectively, in the third quarter of 1995. The Company attributes the
slower growth to a slowdown in business activity in some of its key
customer segments. For the first nine months of 1996, overnight shipments
increased 12.1% and deferred shipments increased 18.7% compared to
increases in the corresponding period of 1995 of 10.3% and 38.4%,
respectively.
Domestic revenues increased 11.5% in the third quarter of 1996 and 13.9%
for the first nine months of 1996 compared to 12.7% and 11.7% for the
comparable periods in 1995, respectively. The Company experienced a
milestone during the second and third quarters of 1996 relative to domestic
revenue growth that has not occurred in several years. The percentage
growth in domestic revenue was relatively equal to the percentage growth in
domestic shipments rather than lagging shipment growth. Also, the average
revenue per domestic shipment increased during the third quarter of 1996 to
$8.26 compared to $8.24 in the third quarter of 1995 and compared to $8.25
in the second quarter of 1996. Improved domestic revenue trends reflect
the extra focus placed on enhancing yields beginning in the third quarter
of 1995, and these efforts are ongoing.
International business activity slowed in the third quarter of 1996.
However, some of this slowing has been intentional, as the Company has
chosen to be less price aggressive in pursuing some heavy weight freight
business. International revenues decreased 2.5% in the third quarter of
1996 compared to an increase of 24.2% in 1995, and for the first nine
months of 1996 and 1995 increased 2.5% and 23.7%, respectively.
International revenue per shipment and the average weight per shipment
decreased as a result of the lower unit growth in higher yielding freight
shipments in the first nine months of 1996 compared to 1995. However,
gross margins on international business improved 6.3% over the first nine
months of 1995.
Operating expenses as a percentage of revenues were 97.3% for the first
nine months of 1996 compared to 96.4% in the first nine months of 1995 and
96.9% for all of 1995. Operating cost per shipment handled decreased 2.7%
to $9.25 for the first nine months of 1996 compared to the first nine
months of 1995. The operating cost per shipment for the third quarter of
1996 decreased to $9.27, compared to $9.35 in the third quarter of 1995.
With the slower shipment growth rate, the Company was not as effective at
lowering the operating cost per shipment compared to last year's third
quarter, achieving only a 1% improvement. Productivity improvement for the
first nine months of the year was approximately 3.2% over the corresponding
period of 1995 as measured by shipments handled per paid employee hour.
The Company experienced only a 1.0% improvement in productivity for the
third quarter of 1996, compared to the third quarter of 1995. Comparisons
of certain operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 33.4% in
the first nine months of 1996 compared to 35.6% in 1995. This decrease was
primarily due to two factors. Commercial airline costs were lower as a
percentage of total revenues due to the lower growth in international
freight shipments. Also, the suspension of the Federal Aviation Excise Tax
on January 1, 1996 resulted in the avoidance of costs in the first eight
months of 1996 of $14.7 million compared to the corresponding period of
1995 when approximately $13.6 million of costs related to this tax were
incurred. The Aviation Excise Tax became effective again on August 27,
1996.
Station and ground expense as a percentage of revenues was 31.7% in the
first nine months of 1996 compared to 31.0% in the first nine months of
1995. This category of expense was negatively impacted by the weather
during the first quarter of 1996.
Flight operations and maintenance expense as a percentage of revenues
during the first nine months of 1996 was 15.6%, compared to 14.6% in the
first nine months of 1995. This category of cost was negatively impacted
during the first nine months of 1996 by severe weather in the first quarter
and higher jet fuel costs. The average aviation fuel price for the first
three quarters of 1996 was $0.72 per gallon (including the $0.043 per
gallon Federal Excise Tax implemented October 1, 1995) compared to $0.59
per gallon in the corresponding period of 1995. Aviation fuel consumption
increased to 118.9 million gallons in the first nine months of 1996, a
15.4% increase compared to the first nine months of 1995. The increase in
fuel consumption is a result of additional Company operated aircraft placed
in service since the third quarter of 1995 and the impact of the severe
weather in the first quarter of 1996.
The increased number of aircraft in service also accounted for a large
portion of the increase in depreciation and amortization expense in the
first half of 1996.
General and administrative and sales and marketing expenses on a combined
basis as a percentage of revenues in the first nine months of 1996 was 9.9%
compared to 9.8% in the comparable period of 1995. Any inflationary
pressure on costs has effectively been offset as the result of continuing
productivity gains and a strong focus on all discretionary spending.
Interest expense in the first nine months of 1996 was higher than the same
period in 1995 due to higher average outstanding borrowings and to the
lower level of capitalized interest in the 1996 period.
The Company's effective tax rate was 40.5% in the first nine months of 1996
compared to 41.3% in the first nine months of 1995 and 39.9% for all of
1995. The higher effective tax rate for the first half of 1995 compared to
1996 was a result of certain taxes that are not directly related to the
level of earnings, resulting in a higher rate in periods of lower earnings.
LIQUIDITY AND CAPITAL RESOURCES:
Capital expenditures and associated financing continue to be the primary
factors affecting the financial condition of the Company. The Company has
decreased planned capital expenditures for 1996 to reflect slower shipment
growth, and anticipates total capital expenditures will approximate $190 to
$200 million in 1996. During the first nine months of 1996, total capital
expenditures net of dispositions were $135 million. The principal sources
of liquidity for financing capital expenditures during the first nine
months of 1996 were cash provided by operations and financing under the
Company's bank lines of credit.
The Company's $250 million unsecured revolving bank credit agreement has
traditionally been used as a major source of liquidity for periods between
other financing transactions. The Company also has available $65 million
under unsecured uncommitted money market lines of credit with several
banks, used in conjunction with the revolving credit agreement to
facilitate settlement and accommodate short-term borrowing fluctuations.
At September 30, 1996, a total of $165.0 million was outstanding under the
revolving bank credit and money market credit lines.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1996
operations and other sources of borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1996.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports or Form 8-K.
(a) Exhibits
Exhibit No. 27 - Financial Data Schedule
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 11/13/96 /s/Roy C. Liljebeck
-------- -------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 11/13/96 /s/Lanny H. Michael
-------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,765
<SECURITIES> 0
<RECEIVABLES> 269,276
<ALLOWANCES> 7,990
<INVENTORY> 35,221
<CURRENT-ASSETS> 344,607
<PP&E> 1,711,118
<DEPRECIATION> 844,604
<TOTAL-ASSETS> 1,234,985
<CURRENT-LIABILITIES> 241,435
<BONDS> 501,061
0
3,948
<COMMON> 21,449
<OTHER-SE> 397,189
<TOTAL-LIABILITY-AND-EQUITY> 1,234,985
<SALES> 0
<TOTAL-REVENUES> 1,832,334
<CGS> 0
<TOTAL-COSTS> 1,779,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,875
<INCOME-PRETAX> 28,084
<INCOME-TAX> 11,370
<INCOME-CONTINUING> 16,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,509
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
