UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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For the fiscal year ended Commission file number
December 31, 1995 1-6512
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AIRBORNE FREIGHT CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 91-0837469
(State of Incorporation) (I.R.S. Employer Identification No.)
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Airborne Freight Corporation
3101 Western Avenue
P.O. Box 662
Seattle, WA 98111
(Address of principal executive offices)
Registrant's telephone number including area code: 206-285-4600
Securities registered pursuant to Section 12(b) of the Act:
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Name of each Exchange
Title of each class on which Registered
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Common Stock, Par Value New York Stock Exchange
$1.00 per share Pacific Stock Exchange
6 3/4% Convertible Subordinated New York Stock Exchange
Debentures Due August 15, 2001
Rights to Purchase Series A New York Stock Exchange
Cumulative Preferred Stock
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Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.(X)
As of February 26, 1996, 21,124,239 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 $571,987,939.(1)
Documents Incorporated by Reference
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference into Part I and Part II.
Portions of the Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held April 23, 1996 are incorporated by reference into
Part III.
(1) Excludes value of shares of Common Stock held of record by non-
employee directors and executive officers at February 26, 1996.
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
1995 FORM 10-K ANNUAL REPORT
Table of Contents
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Page
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Part I 1
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 4a. Executive Officers of the Registrant 11
Part II 13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 13
Part III 14
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners
and Management 14
Item 13. Certain Relationships and Related Transactions 14
Part IV 15
Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 15
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PART I
ITEM 1. BUSINESS
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a) General Development of Business
--------------------------------
Airborne Freight Corporation (herein referred to as "Airborne Express"
or the "Company", which reference shall include its subsidiaries and their
assets and operations, unless the context clearly indicates otherwise) was
incorporated in Delaware on May 10, 1968. The Company is an air express
company and air freight forwarder that expedites shipments of all sizes to
destinations throughout the United States and most foreign countries.
The Company holds a certificate of registration issued by the United
States Patent and Trademark Office for the service mark AIRBORNE EXPRESS.
Most public presentation of the Company carries this name. The purpose of
using this trade name is to more clearly communicate to the market place
the primary nature of the business of the Company.
ABX Air, Inc., the Company's principal wholly-owned subsidiary (herein
referred to as "ABX"), was incorporated in Delaware on January 22, 1980.
ABX provides domestic express cargo service and cargo service to Canada.
The Company is the sole customer of ABX for this service. ABX also offers
limited charter service.
b) Financial Information about Industry Segments
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None
c) Narrative Description of Business
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Airborne Express provides door-to-door express delivery of small
packages and documents throughout the United States and to and from most
foreign countries. The Company also acts as an international and domestic
freight forwarder for shipments of any size. The Company's strategy is to
be the low cost provider of express services for high volume corporate
customers.
Domestic Operations
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The Company's domestic operations, supported by approximately 265
facilities, primarily involve express door-to-door delivery of shipments
weighing less than 100 pounds. Shipments consist primarily of business
documents and other printed matter, electronic and computer parts,
software, machine parts, health care items, films and videotapes, and other
items for which speed and reliability of delivery are important.
The Company's primary service is its overnight express product. This
product, which comprised approximately 58% of the Company's domestic
shipments during 1995, generally provides for before noon delivery on the
next business day to most metropolitan cities in the United States. The
Company also provides Saturday and holiday pickup and delivery service for
most cities.
During the last five years, the Company has also offered a deferred
service product, Select Delivery Service ("SDS"), which provided for next
page 1
afternoon or second day delivery. SDS service shipments weighing five
pounds or less were delivered on a next afternoon basis with shipments
weighing more than five pounds delivered on a second day basis. SDS
shipments, which comprised approximately 42% of total domestic shipments
during 1995, are lower priced than the overnight express product reflecting
the less time sensitive nature of the shipments.
In early 1996, the Company began phasing in two new levels of deferred
service to replace its SDS product. The services, Next Afternoon Service
and Second Day Service, will expand the Company's deferred service options.
Next Afternoon Service will be available for shipments weighing five pounds
or less and Second Day Service will be offered for shipments of all
weights. Next Afternoon Service rates will be higher than Second Day
Service rates.
While the Company's domestic airline system is designed primarily to
handle express shipments, any available capacity is also utilized to carry
shipments which the Company would normally move on other carriers in its
role as an air freight forwarder.
Communications System
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FOCUS (Freight On-line Control and Update System) is a proprietary
communications system which provides real time information for purposes of
tracking and providing the status of customer's shipments as well as
monitoring the performance of the Company's operational systems. The
Company's facilities and international agents are linked to FOCUS and
provide inputs to the system, in part through the driver's use of hand-held
scanners which read bar-codes on the shipping documents, with information
necessary to determine the status and location of customer shipments 24
hours a day. FOCUS also allows for direct customer access to shipment
information through the use of their own computer systems.
FOCUS also provides the Company's personnel with important information
for use in coordinating its operational activities. Information regarding
Company-operated aircraft arrivals and departures, weather, and
documentation requirements for shipments destined to foreign locations are
several examples of the information maintained by FOCUS.
Pickup and Delivery
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The Company accomplishes its door-to-door pickup and delivery service
using approximately 12,800 radio-dispatched delivery vans and trucks, of
which approximately 4,500 are owned by the Company. Independent
contractors under contract with the Company provide the balance of the
pickup and delivery services.
Because convenience is an important factor in attracting business from
less frequent shippers, the Company has an ongoing program to place drop
boxes in convenient locations. The Company has approximately 9,800 boxes
in service.
page 2
Sort Facilities
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The Company's main sort center is located in Wilmington, Ohio. As
express delivery volume has increased, the main sort center has been
expanded. In 1995, the sort center was expanded and currently has the
capacity to handle approximately 980,000 pieces during the primary 2-1/2
hour nightly sort operation. On average, approximately 835,000 pieces were
sorted each weekday night at the sort center during the fourth quarter of
1995. In addition to the sort facilities, the Wilmington location consists
of a Company-owned airport which includes maintenance, storage, training
and refueling facilities; and operations and administrative offices.
The Company also conducts a day sort operation at Wilmington. The day
sort serviced SDS shipments weighing in excess of five pounds that are
consolidated at certain regional hub facilities and either flown or trucked
into or out of Wilmington. Beginning in 1996, the Company plans to have
the day sort handle shipments weighing five pounds or less that are
designated for Second Day Service.
The operation of the Wilmington facility is critical to the Company's
business. The inability to use the Wilmington airport, because of bad
weather or other factors, would have a serious adverse effect on the
Company's service. However, contingency plans, including landing at nearby
airports and transporting packages to and from the sort center by truck,
can be implemented to address temporary inaccessibility of the Wilmington
airport.
In addition to the main sort facility at Wilmington, ten regional hub
facilities have been established primarily to sort shipments originating
and having a destination within approximately a 300 mile radius of a
regional hub.
In the fourth quarter of 1995, approximately 59% and 16% of total
shipment weight was handled through the night sort and day sort operations
at Wilmington, respectively, with the remaining 25% being handled
exclusively by the regional hubs.
Shipment Routing
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The logistical means of moving a shipment from its origin to
destination are determined by several factors. Shipments are routed
differently depending on shipment product type, weight, geographic
distances between origin and destination, and locations of Company stations
relative to the locations of sort facilities. Shipments generally are
moved between stations and sort facilities on either Company aircraft or
contracted trucks. A limited number of shipments are transported airport-
to-airport on commercial air carriers.
Overnight express shipments and deferred service shipments weighing
five pounds or less are picked up by local stations and generally
consolidated with other stations' shipments at Company airport facilities.
Shipments that are not serviced through regional hubs are loaded on Company
aircraft departing each weekday evening from various points within the
United States and Canada. These aircraft may stop at other airports to
permit additional locations and feeder aircraft to consolidate their cargo
onto the larger aircraft before completing the flight to the Wilmington
hub. The aircraft are scheduled to arrive at Wilmington between
approximately 11:30 p.m. and 3:00 a.m. at which
page 3
time the shipments are sorted and reloaded. The aircraft are scheduled to
depart before 6:00 a.m. and return to their applicable destinations in time
to complete scheduled next business morning or deferred service
commitments. The Wilmington hub also receives shipments via truck from
selected stations in the vicinity of the Wilmington hub for integration
with the nightly sort process.
For the day sort operation, generally eight aircraft return to
Wilmington from overnight service destinations on Tuesday through Thursday.
These aircraft, and trucks from six regional hubs, arrive at Wilmington
between 10:00 a.m. and noon, at which time shipments are sorted and
reloaded on the aircraft or trucks by 3:00 p.m. for departure and return to
their respective destinations.
The Company also performs weekend sort operations at Wilmington to
accommodate Saturday pickups and Monday deliveries of both overnight
express and deferred service shipments. This sort is supported by 13
Company aircraft and by trucks.
Aircraft
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The Company currently utilizes used aircraft manufactured in the late
1960s and early 1970s. Upon acquisition, the aircraft are substantially
modified by the Company. At the end of 1995, the Company's in-service
fleet consisted of a total of 105 aircraft, including 33 McDonnell Douglas
DC-8s (consisting of 11 series 61, 6 series 62 and 16 series 63), 61 DC-9s
(consisting of 2 series 10, 41 series 30 and 18 series 40), and 11 YS-11
turboprop aircraft. The Company owns the majority of the aircraft it
operates, but has completed sale-leaseback transactions with respect to six
DC-8 and six DC-9 aircraft. In addition, approximately 70 smaller aircraft
are chartered nightly to connect small cities with Company aircraft that
then operate to and from Wilmington.
In December 1995, the Company announced an agreement to purchase 12
used Boeing 767-200's between the years 1997 and 2000 and its plans to
pursue the acquisition of 10 to 15 additional used 767-200's between the
years 2000 and 2004. This newer generation of aircraft should increase
operating efficiency and allow the Company to meet anticipated demand for
additional lift capacity. There are no plans to retire any aircraft as a
result of the acquisitions.
At year end 1995, the nightly lift capacity of the system was about
3.5 million pounds versus approximately 3.1 million pounds and 2.8 million
pounds at the end of 1994 and 1993, respectively. Over the past several
years the Company's utilization of available lift capacity has exceeded
80%.
In response to increased public awareness regarding the operation of
older aircraft, the Federal Aviation Administration ("FAA") periodically
mandates additional maintenance requirements for certain aircraft,
including the type operated by the Company. In 1995, the Company completed
a significant inspection and maintenance program pertaining to corrosion as
required by an Airworthiness Directive issued by the FAA. The FAA could,
in the future, impose additional maintenance requirements for aircraft and
engines of the type operated by the Company or interpret existing rules in
a manner which could have a material effect on the Company's operations and
financial position.
page 4
In accordance with federal law and FAA regulations, only subsonic
turbojet aircraft classified as Stage 2 or 3 by the FAA may be operated in
the United States. Generally, Stage 3 aircraft produce less noise than a
comparable Stage 2 aircraft.
In 1990, Congress passed the Airport Noise and Capacity Act of 1990
(the "Noise Act"). Among other things, the Noise Act generally requires
turbojet aircraft weighing in excess of 75,000 pounds and operating in the
United States (the type of DC-8 and DC-9 aircraft operated by the Company)
to comply with Stage 3 noise emission standards on or before December 31,
1999. The Company's YS-11 turboprop aircraft are not subject to these
requirements. In accordance with the Noise Act, the FAA has issued
regulations establishing interim compliance deadlines. These rules require
air carriers to reduce the base level of Stage 2 aircraft they operate 50%
by December 31, 1996; and 75% by December 31, 1998. As of December 31,
1995 the Company had reduced the base level of its Stage 2 aircraft by
approximately 41% and expects to meet or exceed the compliance percentage
at the interim compliance deadline of December 31, 1996. As of December
31, 1995, 49 of the Company's turbojet aircraft (23 DC-8 and 26 DC-9
aircraft) were Stage 3 aircraft, the balance being Stage 2 aircraft. In
addition to FAA regulation, certain local airports also regulate noise
compliance. See "Business - Regulation".
The Company, in conjunction with several other companies, has
developed noise suppression technology known as hush kits for its DC-9
series aircraft which have been certified to meet FAA Stage 3 requirements.
Stage 3 requirements have been met on 26 DC-9 series aircraft. The capital
cost for Stage 3 hush kits is approximately $1.2 million for each DC-9
series aircraft. The Company has installed hush kits which satisfy Stage 3
compliance requirements on all of its DC-8-62 and DC-8-63 series aircraft
and one of its DC-8-61 series aircraft. The estimated capital cost for
these hush kits and related hardware on the DC-8-62 and 63 series aircraft
is approximately $1.6 million per aircraft. The capital cost to modify the
DC-8-61 aircraft to meet Stage 3 noise standards is approximately $4.0
million per aircraft.
International Operations
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The Company provides international express door-to-door delivery and a
variety of freight services. These services are provided in most foreign
countries on an inbound and outbound basis through a network of Airborne
offices and independent agents. Most international deliveries are
accomplished within 24 to 96 hours of pickup.
The Company's domestic stations are staffed and equipped to handle
international shipments to or from almost anywhere in the world. In
addition to its extensive domestic network, the Company operates its own
offices in the Far East, Australia, New Zealand, and the United Kingdom.
The Company's freight and express agents worldwide are connected to FOCUS,
Airborne's on-line communication network, through which the Company can
provide its customers with immediate access to the status of shipments
almost anywhere in the world.
The Company's international air express service is intended for the
movement of non dutiable and certain dutiable shipments weighing less than
99 pounds. The Company's international air freight service handles heavier
page 5
weight shipments on either an airport-to-airport, door-to-airport or door-
to-door basis. The Company also offers ocean service capabilities for
customers who want a lower cost shipping option.
The Company's strategy is to use a variable-cost approach in
delivering and expanding international services to its customers. This
strategy uses existing commercial airline lift capacity in connection with
the Company's domestic network to move shipments to and from overseas
destinations and origins. Additionally, service arrangements with
independent freight and express agents have been entered into to
accommodate shipments in locations not currently served by Company-owned
operations. The Company currently believes there are no significant
service advantages which would justify the operation of its own aircraft on
international routes, or making significant investment in additional
offshore facilities or ground operations. In order to expand its business
at a reasonable cost, the Company continues to explore possible joint
venture agreements, similar to its arrangement with Mitsui & Co., Ltd. in
Japan, which combine the Company's management expertise, domestic express
system and information systems with local business knowledge and market
reputation of suitable partners.
Customers and Marketing
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The Company's primary domestic strategy focuses on express services
for high volume corporate customers. Most high volume customers have
entered into service agreements providing for specified rates or rate
schedules for express deliveries. As of December 31, 1995, the Company
serviced approximately 430,000 active customer shipping locations.
The Company determines prices for any particular domestic express
customer based on competitive factors, anticipated costs, shipment volume
and weight, and other considerations. The Company believes that it
generally offers prices that are competitive with, or lower than, prices
quoted by its principal competitors for comparable services.
Internationally, the Company's marketing strategy is to target the
outbound express and freight shipments of U.S. corporate customers, and to
sell the inbound service of the Company's distribution capabilities in the
United States.
Both in the international and domestic markets, the Company believes
that its customers are most effectively reached by a direct sales force,
and accordingly, does not currently engage in mass media advertising.
Domestic sales representatives are responsible for selling both domestic
and international express shipments. In addition, the International
Division has its own dedicated direct sales organization for selling
international freight service.
The Company's sales force currently consists of approximately 300
domestic representatives and approximately 70 international specialists.
The Company's sales efforts are supported by the Marketing and
International Divisions, based at the Company headquarters. Senior
management is also active in marketing the Company's services to major
accounts.
page 6
Value-added services continue to be important factors in attracting
and retaining customers. Accordingly, the Company is automating more of
its operations to make the service easier for customers to use and to
provide them with valuable management information. The Company believes
that it is generally competitive with other express carriers in terms of
reliability, value-added services and convenience.
For many of its high volume customers, the Company offers a metering
device, called LIBRA II, which is installed at the customer's place of
business. With minimum data entry, the metering device weighs the package,
calculates the shipping charges, generates the shipping labels and provides
a daily shipping report. At year end 1995, the system was in use at
approximately 8,200 domestic customer locations and 700 international
customer locations. Use of LIBRA II not only benefits the customer
directly, but also lowers the Company's operating costs, since LIBRA II
shipment data is transferred into the Airborne FOCUS shipment tracking
system automatically, thus avoiding duplicate data entry.
"Customer Linkage", an electronic data interchange ("EDI") program
developed for Airborne's highest volume shippers, allows customers, with
their computers, to create shipping documentation at the same time they are
entering orders for their goods. At the end of each day, shipping
activities are transmitted electronically to the Airborne FOCUS system
where information is captured for shipment tracking and billing purposes.
Customer Linkage benefits the customer by eliminating repetitive data entry
and paperwork and also lowers the Company's operating costs by eliminating
manual data entry. EDI also includes electronic invoicing and payment
remittance processing. The Company also has available a software program
known as Quicklink, which significantly reduces programming time required
by customers to take advantage of linkage benefits.
In 1995, the Company unveiled "LIGHTSHIP-TRACKER", a PC-based tracking
software, which is the first in a series of planned new software products
designed to improve customer productivity and provide convenient access to
the Company's various services. LIGHTSHIP-TRACKER allows customers,
working from their PCs, to view the status of and receive information
regarding their shipments through access to the Airborne FOCUS system.
The Company offers a number of special logistics programs to customers
through its Advanced Logistics Services Corp. ("ALS") subsidiary. This
subsidiary operates the Company's Stock Exchange and Hub Warehousing and
other logistics programs. These programs provide customers the ability to
maintain inventories which can be managed either by Company or customer
personnel. Items inventoried at Wilmington can be delivered utilizing
either the Company's airline system or, if required, commercial airlines on
a next-flight-out basis. ALS' Central Print program allows information to
be sent electronically to customer computers located at Wilmington where
Company personnel monitor printed output and ship the material according to
customer instructions.
In addition, the Company's Sky Courier business provides expedited
next-plane-out service at premium prices. Sky Courier also offers a
Regional Warehousing program where customer inventories are managed at any
of over 60 locations around the United States and Canada.
page 7
The Company has obtained ISO 9000 certification for its Chicago,
Philadelphia and London stations and its Seattle Headquarters. ISO 9000 is
a program developed by the International Standards Organization ("ISO"),
based in Geneva, Switzerland. This organization provides a set of
international standards on quality management and quality assurance
presently recognized in 92 countries. The certification is an asset in
doing business worldwide and provides evidence of the Company's commitment
to excellence and quality.
Competition
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The market for the Company's services has been and is expected to
remain highly competitive. The principal competitive factors in both
domestic and international markets are price, the ability to provide
reliable pickup and delivery, and value-added services.
Federal Express continues to be the dominant competitor in the
domestic express business, followed by United Parcel Service. Airborne
Express ranks third in shipment volume behind these two companies in the
domestic express business. Other domestic express competitors include the
U.S. Postal Service's Express Mail Service and several other transportation
companies offering next morning or next-plane-out delivery service. The
Company also competes to some extent with companies offering ground
transportation services and with facsimile and other forms of electronic
transmission.
The Company believes it is important to maintain an active capital
expansion program to increase capacity, improve service and increase
productivity as its volume of shipments increases. However, the Company
has significantly less capital resources than its two primary competitors.
In the international markets, in addition to Federal Express and
United Parcel Service, the Company competes with DHL, TNT and other air
freight forwarders or carriers and most commercial airlines.
Employees
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As of December 31, 1995, the Company and its subsidiaries had
approximately 11,500 full-time employees and 8,000 part-time and casual
employees. Approximately 5,400 full-time employees (including the
Company's 660 pilots) and 3,400 part-time and casual employees are employed
under union contracts, primarily with locals of the International
Brotherhood of Teamsters and Warehousemen.
Labor Agreements
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Most labor agreements covering the Company's ground personnel were
recently renegotiated for four-year terms expiring in 1998. The Company's
pilots are covered by a contract which became amendable on July 31, 1995.
Negotiations with the pilots are ongoing and the Company believes the
contract will be amended without experiencing any work disruption.
page 8
Subsidiaries
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The Company has the following wholly-owned subsidiaries:
1. ABX Air, Inc., a Delaware corporation, is a certificated air
carrier which owns and operates the Company's domestic express
cargo service. Its wholly-owned subsidiaries are as follows:
a) Wilmington Air Park, Inc., an Ohio corporation, is the owner
of the Wilmington airport property (Airborne Air Park).
b) Airborne FTZ, Inc., an Ohio corporation, is the holder of a
foreign trade zone certificate at the Wilmington airport
property and owns and manages the Company's expendable
aircraft parts inventory.
c) Aviation Fuel, Inc., an Ohio corporation, purchases and
sells aviation and other fuels.
d) Advanced Logistics Services Corp., an Ohio corporation,
provides customized warehousing, inventory management and
shipping services.
e) Sound Suppression, Inc., an Ohio corporation with nocurrent
operating activities.
2. Awawego Delivery, Inc., a New York corporation, holds trucking
rights in New York and Connecticut.
3. Airborne Forwarding Corporation, a Delaware corporation doing
business as Sky Courier, provides expedited courier service.
4. Airborne Freight Limited, a New Zealand corporation, provides air
express and air freight services.
Regulation
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The Company's operations are regulated by the United States Department
of Transportation ("DOT"), the FAA, and various other federal, state, local
and foreign authorities.
The DOT, under federal transportation statutes, grants air carriers
the right to engage in domestic and international air transportation. The
DOT issues certificates to engage in air transportation and has the
authority to modify, suspend or revoke such certificates for cause,
including failure to comply with federal law or the DOT regulations. The
Company believes it possesses all necessary DOT-issued certificates to
conduct its operations.
The FAA regulates aircraft safety and flight operations generally,
including equipment, ground facilities, maintenance and communications.
The FAA issues operating certificates to carriers who possess the technical
competence to conduct air carrier operations. In addition, the FAA issues
certificates of airworthiness to each aircraft which meets the requirements
for aircraft design and maintenance. The Company believes it holds all
page 9
airworthiness and other FAA certificates required for the conduct of its
business, although the FAA has the power to suspend or revoke such
certificates for cause, including failure to comply with federal law.
The federal government generally regulates aircraft engine noise at
its source. However, local airport operators may, under certain
circumstances, regulate airport operations based on aircraft noise
considerations. The Noise Act provides that in the case of Stage 2
aircraft restrictions, the airport operator must notify air carriers of its
intention to propose rules and satisfy the requirements of federal statutes
before implementation of the rules or in the case of Stage 3 aircraft, the
airport operator must obtain the carriers' or the governments' approval of
the rule prior to its adoption. The Company believes the operation of its
aircraft either complies with or is exempt from compliance with currently
applicable local airport rules. However, if more stringent aircraft
operating regulations were adopted on a widespread basis, the Company might
be required to expend substantial sums, make schedule changes or take other
actions.
The Company's aircraft currently meet all known requirements for
emission levels. However, under the Clean Air Act, individual states or
the Federal Environmental Protection Agency (the "EPA") may adopt
regulations requiring the reduction in emissions for one or more localities
based on the measured air quality at such localities. The EPA has proposed
regulations for portions of California calling for emission reductions
through restricting the use of emission producing ground service equipment
or aircraft auxiliary power units. There can be no assurance, that if such
regulations are adopted in the future or changes in existing laws or
regulations are promulgated, such laws or rules would not have a material
adverse effect on the Company.
Under currently applicable federal aviation law, the Company's airline
subsidiary could cease to be eligible to operate as an all-cargo carrier if
more than 25% of the voting stock of the Company were owned or controlled
by non-U.S. citizens or the airline were not effectively controlled by U.S.
citizens. Moreover, in order to hold an all-cargo air carrier certificate,
the president and at least two-thirds of the directors and officers of an
air carrier must be U.S. citizens. The Company has entered into a Rights
Agreement designed, in part, to discourage a single foreign person from
acquiring 20% or more, and foreign persons in the aggregate from acquiring
25% or more, of the Company's outstanding voting stock without the approval
of the Board of Directors. To the best of the Company's knowledge, foreign
stockholders do not control more than 25% of the outstanding voting stock.
Two of the Company's officers are not U.S. citizens.
The Company believes that its current operations are substantially in
compliance with the numerous regulations to which its business is subject;
however, various regulatory authorities have jurisdiction over significant
aspects of the Company's business, and it is possible that new laws or
regulations or changes in existing laws or regulations or the
interpretations thereof could have a material adverse effect on the
Company's operations.
Financial Information Regarding International and Domestic Operations
- ----------------------------------------------------------------------
Financial information relating to foreign and domestic operations for
each of the three years in the period ended December 31, 1995 is presented in
page 10
Note K (Segment Information) of the Notes to Consolidated Financial
Statements appearing in the 1995 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 2. PROPERTIES
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The Company leases general and administrative office facilities
located in Seattle, Washington.
At year end the Company maintained approximately 265 domestic and 7
foreign stations, most of which are leased. The majority of the facilities
are located at or near airports.
The Company owns the airport at the Airborne Air Park, in Wilmington,
Ohio. The airport currently consists of two runways, taxi-ways, aprons,
buildings serving as aircraft and equipment maintenance facilities, a sort
facility, storage facilities, a training center, and operations and
administrative offices. In 1995, the Company completed a significant
expansion of the airpark which included construction of a second runway,
taxiways and several other facilities.
The Company believes its existing facilities are adequate to meet
current needs.
Information regarding collateralization of certain property and lease
commitments of the Company is set forth in Notes E and F of the Notes to
Consolidated Financial Statements appearing in the 1995 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
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None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------
None
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
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<CAPTION>
Positions and Offices Presently
Name Age Held and Business Experience
- ---- --- --------------------------------
<S> <C> <C>
Robert S. Cline 58 Chairman and Chief Executive Officer (1984
to date); Vice Chairman and Chief Financial
Officer (1978 to 1984); Executive Vice
President and Chief Financial Officer (1973
to 1978); Senior Vice President, Finance
(1970 to 1973); Vice President, Finance
(1968 to 1970); Vice President, Finance,
Pacific Air Freight, Inc. (1966 to 1968)
page 11
Robert G. Brazier 58 President and Chief Operating Officer (1978
to date); Executive Vice President and
Chief Operating Officer (1973 to 1978);
Senior Vice President, Operations (1970 to
1973); Vice President, Operations (1968 to
1970); Vice President, Sales and
Operations, Pacific Air Freight, Inc. (1964
to 1968)
Roy C. Liljebeck 58 Chief Financial Officer (1984 to date);
Executive Vice President, Finance Division
(1979 to date); Senior Vice President (1973
to 1979); Treasurer (1968 to 1988)
Kent W. Freudenberger 55 Executive Vice President, Marketing
Division (1980 to date); Senior Vice
President (1978 to 1980); Vice President
(1973 to 1978)
Raymond T. Van Bruwaene 57 Executive Vice President, Field Services
Division (1980 to date); Senior Vice
President (1978 to 1980); Vice President
(1973 to 1978)
John J. Cella 55 Executive Vice President, International
Division (1985 to date); Senior Vice
President, International Division (1982 to
1985); Vice President, International Divi
sion (1981 to 1982); Vice President, Far
East (1971 to 1981)
Carl D. Donaway 44 President and Chief Executive Officer, ABX
Air, Inc. (1992 to date); offices held in
the Company: Vice President, Business
Analysis (1992); Vice President, Customer
Support (1990 to 1992); Director, Customer
Support (1988 to 1990)
</TABLE>
page 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ----------------------------------------------------------------
STOCKHOLDERS MATTERS
- ---------------------
The response to this Item is contained in the 1995 Annual Report to
Shareholders and the information contained therein is incorporated by
reference.
On February 26, 1996 there were 1,496 shareholders of record of the
Common Stock of the Company based on information provided by the Company's
transfer agent.
ITEM 6. SELECTED FINANCIAL DATA
- ----------------------------------
The response to this Item is contained in the 1995 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ----------------------
The response to this Item is contained in the 1995 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------------------------------------------------------
The response to this Item is contained in the 1995 Annual Report to
Shareholders and the information contained therein is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------
FINANCIAL DISCLOSURE
- ---------------------
None
page 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------------------------------------------------------------
The response to this Item is contained in part in the Proxy Statement
for the 1996 Annual Meeting of Shareholders under the captions "Election of
Directors" and "Exchange Act Compliance" and the information contained
therein is incorporated herein by reference.
The executive officers of the Company are elected annually at the
Board of Directors meeting held in conjunction with the annual meeting of
shareholders. There are no family relationships between any directors or
executive officers of the Company. Additional information regarding
executive officers is set forth in Part I, Item 4a.
ITEM 11. EXECUTIVE COMPENSATION
- ---------------------------------
The response to this Item is contained in the Proxy Statement for the
1996 Annual Meeting of Shareholders under the caption "Executive
Compensation" and the information contained therein is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------------------------------------------------------------------------
The response to this Item is contained in the Proxy Statement for the
1996 Annual Meeting of Shareholders under the captions "Voting at the
Meeting" and "Stock Ownership of Management" and the information contained
therein is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ---------------------------------------------------------
The response to this Item is contained in the Proxy Statement for the
1996 Annual Meeting of Shareholders under the caption "Executive
Compensation" and the information contained therein is incorporated herein
by reference.
page 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a)1. Financial Statements
---------------------
The following consolidated financial statements of Airborne Freight
Corporation and its subsidiaries as contained in its 1995 Annual Report to
Shareholders are incorporated by reference in Part II, Item 8:
Consolidated Statements of Net Earnings
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
<TABLE>
<S> <C> <C>
(a)2. Financial Statement Schedules Page
------------------------------ ----
Schedule II - Valuation and Qualifying Accounts 22
</TABLE>
All other schedules are omitted because they are not applicable or are not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
(a)3. Exhibits
- ---------------
A) The following exhibits are filed with this report:
EXHIBIT NO. 3 Articles of Incorporation and By-laws
- -----------------------------------------------------
3(a) The Restated Certificate of Incorporation of the Company, dated
as of August 4, 1987 (incorporated herein by reference from
Exhibit 3(a) to the Company's Form 10-K for the year ended
December 31, 1987).
3(b) The By-laws of the Company as amended to April 26, 1994
(incorporated herein by reference from Exhibit 3(b) to the
Company's Form 8-K dated April 26, 1994).
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
- -------------------------------------------------------------------
Including Indentures
- ---------------------
4(a) Indenture dated as of September 4, 1986, between the Company
and Peoples National Bank of Washington (now U.S. Bank of
Washington), as trustee (and succeeded by First Trust
Washington), relating to $25 million of the Company's 10%
Senior Subordinated Notes due 1996 (incorporated by reference
from Exhibit 4(c) to Amendment No. 1 to the Company's
page 15
Registration Statement on Form S-3, No. 33-6043, filed with the
Securities and Exchange Commission on September 3, 1986).
4(b) Note Purchase Agreement dated September 3, 1986 among the
Company and the original purchasers of the Company's 10%
Senior Subordinated Notes due 1996 (incorporated by reference
from Exhibit 4(d) to Amendment No. 1 to the Company's
Registration Statement on Form S-3, No. 33-6043, filed with
the Securities and Exchange Commission on September 3, 1986).
4(c) Indenture dated as of August 15, 1991, between the Company and
Bank of America National Trust and Savings Association, as
Trustee, with respect to the Company's 6-3/4% Convertible
Subordinated Debentures due August 15, 2001 (incorporated
herein by reference from Exhibit 4(i) to Amendment No. 1 to
the Company's Registration Statement on Form S-3 No. 33-42044
filed with the Securities and Exchange Commission on
August 15, 1991).
4(d) First Supplemental Trust Indenture dated as of June 30, 1994
between the Company and LaSalle National Bank, as Successor
Trustee, with respect to the Company's 6-3/4% Convertible
Subordinated Debentures due August 15, 2001.
4(e) Indenture dated as of December 3, 1992, between the Company and
Bank of New York, as trustee, relating to the Company's 8-7/8%
Notes due 2002 (incorporated by reference from Exhibit 4(a) to
Amendment No. 1 to the Company's Registration Statement on
Form S-3, No. 33-54560 filed with the Securities and Exchange
Commission on December 4, 1992).
4(f) First Supplemental Indenture dated as of September 15, 1995,
between the Company and Bank of New York, as trustee, relating
to the Company's 7.35% Notes due 2005 (incorporated by
reference from Exhibit 4(b) to Amendment No. 1 to the
Company's Registration Statement on Form S-3, No. 33-61329,
filed with the Securities and Exchange Commission on September
5, 1995).
4(g) Rights Agreement, dated as of November 20, 1986 between the
Company and First Jersey National Bank (predecessor to First
Interstate Bank, Ltd.), as Rights Agent (incorporated by
reference from Exhibit 1 to the Company's Registration
Statement on Form 8-A, dated November 28, 1986).
4(h) Certificate of Designation of Series A Participating Cumulative
Preferred Stock Setting Forth the Powers, Preferences, Rights,
Qualification, Limitations and Restrictions of Such Series of
Preferred Stock of the Company (incorporated by reference
from Exhibit 2 to the Company's Registration Statement on Form
8-A, dated November 28, 1986).
page 16
4(i) Form of Right Certificate relating to the Rights Agreement (see
4(g) above, incorporated by reference from Exhibit 3 to the
Company's Registration Statement on Form 8-A, dated November
28, 1986).
4(j) Letter dated January 5, 1990, from the Company to First
Interstate Bank, Ltd. ("FIB"), appointing FIB as successor
Rights Agent under the Rights Agreement dated as of November
20, 1986, between the Company and The First Jersey National
Bank (incorporated by reference from Exhibit 4(c) to the
Company's Form 10-K for the year ended December 31, 1989).
4(k) Amendment to Rights Agreement entered into as of January 24,
1990, between the Company and First Interstate Bank, Ltd.
(incorporated herein by reference from Exhibit 4(d) to the
Company's Form 10-K for the year ended December 31, 1989).
4(l) Third Amendment to Rights Agreement entered into as of November
6, 1991 between the Company and First Interstate Bank, Ltd.
(incorporated herein by reference from Exhibit 4(a) to the
Company's Form 10-K for the year ended December 31, 1991).
4(m) 6.9% Cumulative Convertible Preferred Stock Purchase Agreement
dated as of December 5, 1989, among the Company, Mitsui & Co.,
Ltd., Mitsui & Co. (U.S.A.), Inc., and Tonami Transportation
Co., Ltd. (incorporated herein by reference from Exhibit 4(b)
to the Company's Form 10-K for the year ended December 31,
1989).
4(n) Amendments to the above Stock Purchase Agreement irrevocably
waiving all demand registration rights and relinquishing the
right of Mitsui & Co., Ltd. to designate a representative to
Airborne's Board of Directors, and resignation of T. Kokai
from said Board (incorporated herein by reference from
Amendment No. 1 to Schedule 13D of Mitsui & Co., Ltd.,
Intermodal Terminal, Inc. (assignee of Mitsui & Co. (USA)
Inc.) and Tonami Transportation Co., Ltd., filed with the
Securities and Exchange Commission on December 21, 1993).
4(o) Certificate of Designation of Preferences of Preferred Shares
of Airborne Freight Corporation, as filed on January 26, 1990,
in the Office of the Secretary of the State of Delaware
(incorporated herein by reference from Exhibit 4(a) to the
Company's Form 10-K for the year ended December 31, 1989).
EXHIBIT NO. 10 Material Contracts
- ----------------------------------
Executive Compensation Plans and Agreements
- --------------------------------------------
10(a) 1979 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan, as amended through February 2,
1987 (incorporated by reference from Exhibit 10(d) to the
Company's Form 10-K for the year ended December 31, 1986).
page 17
10(b) 1983 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan, as amended through February 2,
1987 (incorporated by reference from Exhibit 10(c) to the
Company's Form 10-K for the year ended December 31, 1986).
10(c) 1989 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan (incorporated herein by
reference from Exhibit 10(d) to the Company's Form 10-K for
the year ended December 31, 1989).
10(d) 1994 Airborne Freight Corporation Key Employee Stock Option and
Stock Appreciation Rights Plan (incorporated herein by
reference from the Addendum to the Company's Proxy Statement
for the 1994 Annual Meeting of Shareholders).
10(e) Airborne Freight Corporations Directors Stock Option Plan
(incorporated herein by reference from the Addendum to the
Company's Proxy Statement for the 1991 Annual Meeting of
Shareholders).
10(f) Airborne Express Executive Deferral Plan dated January 1, 1992
(incorporated by reference from Exhibit 10(b) to the Company's
Form 10-K for the year ended December 31, 1991).
10(g) Airborne Express Supplemental Executive Retirement Plan dated
January 1, 1992 (incorporated by reference from Exhibit 10(c)
to the Company's Form 10-K for the year ended December 31,
1991).
10(h) Airborne Express 1995-1999 Executive Incentive Compensation
Plan (incorporated by reference from Exhibit 10(i) to the
Company's Form 10-K for the year ended December 31, 1994).
10(i) Employment Agreement dated December 15, 1983, as amended
November 20, 1986, between the Company and Mr. Robert G.
Brazier, President and Chief Operating Officer (incorporated
by reference from Exhibit 10(a) to the Company's Form 10-K for
the year ended December 31, 1986). Identical agreements exist
between the Company and the other six executive officers.
10(j) Employment Agreement dated November 20, 1986 between the
Company and Mr. Lanny H. Michael, then Vice President,
Treasurer and Controller (incorporated by reference from
Exhibit 10(b) to the Company's Form 10-K for the year ended
December 31, 1986). The Company and its principal subsidiary,
ABX Air, Inc., have entered into substantially identical
agreements with most of their officers.
Other Material Contracts
-------------------------
10(k) $240,000,000 Revolving Loan Facility dated as of November 19,
1993 among the Company, as borrower, and Wachovia Bank of
Georgia, N.A., as agent, and Wachovia Bank of Georgia, N.A.,
ABN AMRO Bank N.V., United States National Bank of Oregon,
page 18
Seattle-First National Bank, CIBC, Inc., Continental Bank N.A.,
Bank of America National Trust and Savings Association, The
Bank of New York, NBD Bank, N.A., as banks (incorporated
herein by reference from Exhibit 10(k) to the Company's Form
10-K for the year ended December 31, 1993).
10(l) First Amendment to Revolving Loan Facility dated as of March
31, 1995 among the Company, as borrower, and Wachovia Bank of
Georgia, N.A., as Agent, and Wachovia Bank of Georgia, N.A.,
ABN AMRO Bank N.V., United States National Bank of Oregon,
Seattle-First National Bank, CIBC, Inc., National City Bank,
Columbus, Bank of America National Trust and Savings
Association, The Bank of New York, and NBD Bank, N.A., as
banks (incorporated by reference from Exhibit 10 to the
Company's Form 10-Q for the quarter ended March 31, 1995).
10(m) Shareholders Agreement entered into as of February 7, 1990,
among the Company, Mitsui & Co., Ltd., and Tonami
Transportation Co., Ltd., relating to joint ownership of
Airborne Express Japan, Inc. (incorporated herein by reference
from Exhibit 10(c) to the Company's Form 10-K for the year
ended December 31, 1989).
10(n) Used Aircraft Sales Agreement entered into as of December 22,
1995 between ABX Air, Inc. and KC-One, Inc; KC-Two, Inc.; and
KC-Three, Inc. Confidential treatment has been requested for
confidential commercial and financial information, pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings
- --------------------------------------------------------------
11 Statement re computation of earnings per share
EXHIBIT NO. 12 Statements Re Computation of Ratios
- ---------------------------------------------------
12 Statement re computation of ratio of senior long-term debt and
total long-term debt to total capitalization
EXHIBIT NO. 13 Annual Report to Security Holders
- -------------------------------------------------
13 Portions of the 1995 Annual Report to Shareholders of Airborne
Freight Corporation
EXHIBIT NO. 21 Subsidiaries of the Registrant
- ----------------------------------------------
21 The subsidiaries of the Company are listed in Part I of this
report on Form 10-K for the year ended December 31, 1995.
EXHIBIT NO. 23 Consents of Experts and Counsel
- -----------------------------------------------
23 Independent Auditors' Consent and Report on Schedule
page 19
EXHIBIT NO. 27 Financial Data Schedule
- ---------------------------------------
27 Financial Data Schedule
All other exhibits are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
--------------------
None
page 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRBORNE FREIGHT CORPORATION
By /s/ Robert S. Cline
--------------------------
Robert S. Cline
Chief Executive Officer
By /s/ Robert G. Brazier
--------------------------
Robert G. Brazier
Chief Operating Officer
By /s/ Roy c. Liljebeck
--------------------------
Roy C. Liljebeck
Chief Financial Officer
By /s/ Lanny H. Michael
--------------------------
Lanny H. Michael
Treasurer and Controller
Date: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Robert G. Brazier /s/ Richard M. Rosenberg
- ----------------------------- -----------------------------
Robert G. Brazier (Director) Richard M. Rosenberg (Director)
/s/ Robert S. Cline /s/ Andrew V. Smith
- ----------------------------- -----------------------------
Robert S. Cline (Director) Andrew V. Smith (Director)
/s/ Harold M. Messmer, Jr.
- -----------------------------
Harold M. Messmer, Jr. (Director)
page 21
AIRBORNE FREIGHT CORPORATION
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Balance at
Beginning Costs and End
Description of Period Expenses Deductions of Period
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
1. Allowance for doubtful accounts -
Year Ended December 31, 1995 $7,500 $13,309 $13,059 $7,750
Year Ended December 31, 1994 $6,925 $12,631 $12,056 $7,500
Year Ended December 31, 1993 $6,801 $11,660 $11,536 $6,925
</TABLE>
pgae 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ------------ -------
<S> <C> <C>
(a)3. Exhibits
- ---------------
A) The following exhibits are filed with this report:
</TABLE>
EXHIBIT NO. 3 Articles of Incorporation and By-laws
- ----------------------------------------------------
<TABLE>
<S> <C> <C>
3(a) The Restated Certificate of Incorporation of the --
Company, dated as of August 4, 1987
(incorporated herein by reference from Exhibit
3(a) to the Company's Form 10-K for the year
ended December 31, 1987).
3(b) The By-laws of the Company as amended to April --
26, 1994 (incorporated herein by reference from
Exhibit 3(b) to the Company's Form 8-K dated
April 26, 1994.
</TABLE>
EXHIBIT NO. 4 Instruments Defining the Rights of Security Holders
- ------------------------------------------------------------------
Including Indentures
- --------------------
<TABLE>
<S> <C> <C>
4(a) Indenture dated as of September 4, 1986, between --
the Company and Peoples National Bank of
Washington (now U.S. Bank of Washington), as
trustee (and succeeded by First Trust
Washington), relating to $25 million of the
Company's 10% Senior Subordinated Notes due 1996
(incorporated by reference from Exhibit 4(c) to
Amendment No. 1 to the Company's Registration
Statement on Form S-3, No. 33-6043, filed with
the Securities and Exchange Commission on
September 3, 1986).
4(b) Note Purchase Agreement dated September 3, 1986 --
among the Company and the original purchasers of
the Company's 10% Senior Subordinated Notes due
1996 (incorporated by reference from Exhibit
4(d) to Amendment No. 1 to the Company's
Registration Statement on Form S-3, No. 33-6043,
filed with the Securities and Exchange
Commission on September 3, 1986).
4(c) Indenture dated as of August 15, 1991, between --
the Company and Bank of America National Trust
and Savings Association, as Trustee, with
respect to the Company's 6-3/4% Convertible
Subordinated Debentures due August 15, 2001
(incorporated herein by reference from Exhibit 4
(i) to Amendment No. 1 to the Company's
Registration Statement on Form S-3 No. 33-42044
filed with the Securities and Exchange
Commission on August 15, 1991).
4(d) First Supplemental Trust Indenture dated as of --
June 30, 1994 between the Company and LaSalle
National Bank, as Successor Trustee, with
respect to the Company's 6-3/4% Convertible
Subordinated Debentures due August 15, 2001.
4(e) Indenture dated as of December 3, 1992, between --
the Company and Bank of New York, as trustee,
relating to the Company's 8-7/8% Notes due 2002
(incorporated herein by reference from Exhibit
4(a) to Amendment No. 1 to the Company's
Registration Statement on Form S-3, No. 33-54560
filed with the Securities and Exchange
Commission on December 4, 1992).
4(f) First Supplemental Indenture dated as of
September 15, 1995, between the Company and Bank
of New York, as trustee, relating to the
Company's 7.35% Notes due 2005 (incorporated by
reference from Exhibit 4(b) to Amendment No. 1
to the Company's Registration Statement on Form
S-3, No. 33-61329, filed with the Securities and
Exchange Commission on September 5, 1995).
4(g) Rights Agreement, dated as of November 20, 1986 --
between the Company and First Jersey National
Bank (predecessor to First Interstate Bank,
Ltd.), as Rights Agent (incorporated by
reference from Exhibit 1 to the Company's
Registration Statement on Form 8-A, dated
November 28, 1986).
4(h) Certificate of Designation of Series A --
Participating Cumulative Preferred Stock Setting
Forth the Powers, Preferences, Rights,
Qualification, Limitations and Restrictions of
Such Series of Preferred Stock of the Company
(incorporated by reference from Exhibit 2 to the
Company's Registration Statement on Form 8-A,
dated November 28, 1986).
4(i) Form of Right certificate relating to the Rights --
Agreement (see 4(e) above, incorporated by
reference from Exhibit 3 to the Company's
Registration Statement on From 8-A, dated
November 28, 1986).
4(j) Letter dated January 5, 1990, from the Company --
to First Interstate Bank, Ltd. ("FIB"),
appointing FIB as successor Rights Agent under
the Rights Agreement dated as of November 20,
1986, between the Company and The First Jersey
National Bank (incorporated by reference from
Exhibit 4(c) to the Company's Form 10-K for the
year ended December 31, 1989).
4(k) Amendment to Rights Agreement entered into as of --
January 24, 1990, between the Company and First
Interstate Bank, Ltd. (incorporated herein by
reference from Exhibit 4(d) to the Company's
Form 10-K for the year ended December 31, 1989).
4(l) Third Amendment to Rights Agreement entered into --
as of November 6, 1991 between the Company and
First Interstate Bank, Ltd. (incorporated herein
by reference from Exhibit 4(a) to the Company's
Form 10-K for the year ended December 31, 1991).
4(m) 6.9% Cumulative Convertible Preferred Stock --
Purchase Agreement dated as of December 5, 1989,
among the Company, Mitsui & Co., Ltd., Mitsui &
Co. (U.S.A.), Inc., and Tonami Transportation
Co., Ltd. (incorporated herein by reference from
Exhibit 4(b) to the Company's Form 10-K for the
year ended December 31, 1989).
4(n) Amendments to the above Stock Purchase Agreement --
irrevocably waiving all demand registration
rights, relinquishing the right of Mitsui & Co.,
Ltd. to designate a representative to Airborne's
Board of Directors, and resignation of T. Kokai
from said Board (incorporated herein by
reference from Amendment No. 1 to Schedule 13D
of Mitsui & Co., Ltd., Intermodal Terminal, Inc.
(assignee of Mitsui & Co. (U.S.A.), Inc.) and
Tonami Transportation Co., Ltd., filed with the
Securities & Exchange Commission on December 21,
1993).
4(o) Certificate of Designation of Preferences of Pre --
ferred Shares of Airborne Freight Corporation,
as filed on January 26, 1990, in the Office of
the Secretary of the State of Delaware
(incorporated herein by reference from Exhibit
4(a) to the Company's Form 10-K for the year
ended December 31, 1989).
</TABLE>
EXHIBIT NO. 10 Material Contracts
- -----------------------------------
Executive Compensation Plans and Agreements
- --------------------------------------------
<TABLE>
<S> <C> <C>
10(a) 1979 Airborne Freight Corporation Key Employee --
Stock Option and Stock Appreciation Rights Plan,
as amended through February 2, 1987
(incorporated by reference from Exhibit 10(d) to
the Company's Form 10-K for the year ended
December 31, 1986).
10(b) 1983 Airborne Freight Corporation Key Employee --
Stock Option and Stock Appreciation Rights Plan,
as amended through February 2, 1987
(incorporated by reference from Exhibit 10(c) to
the Company's Form 10-K for the year ended Decem
ber 31, 1986).
10(c) 1989 Airborne Freight Corporation Key Employee --
Stock Option and Stock Appreciation Rights Plan
(incorporated herein by reference from Exhibit
10(d) to the Company's Form 10-K for the year
ended December 31, 1989).
10(d) 1994 Airborne Freight Corporation Key Employee --
Stock Option and Stock Appreciation Rights Plan
(incorporated herein by reference from the
Addendum to the Company's Proxy Statement for
the 1994 Annual Meeting of Shareholders).
10(e) Airborne Freight Corporation Directors Stock --
Option Plan (incorporated herein by reference
from the Addendum to the Company's Proxy
Statement for the 1991 Annual Meeting of
Shareholders).
10(f) Airborne Express Executive Deferral Plan dated --
January 1, 1992 (incorporated by reference from
Exhibit 10(b) to the Company's Form 10-K for the
year ended December 31, 1991).
10(g) Airborne Express Supplemental Executive --
Retirement Plan dated January 1, 1992
(incorporated by reference from Exhibit 10(c) to
the Company's Form 10-K for the year ended
December 31, 1991).
10(h) Airborne Express 1995-1999 Executive Incentive --
Compensation Plan (incorporated by reference
from Exhibit 10(i) to the Company's Form 10-K
for the year ended December 31, 1994).
10(i) Employment Agreement dated December 15, 1983, as --
amended November 20, 1986, between the Company
and Mr. Robert G. Brazier, President and Chief
Operating Officer (incorporated by reference
from Exhibit 10(a) to the Company's Form 10-K
for the year ended December 31, 1986).
Identical agreements exist between the Company
and the other six executive officers.
10(j) Employment Agreement dated November 20, 1986 --
between the Company and Mr. Lanny H. Michael,
then Vice President, Treasurer and Controller
(incorporated by reference from Exhibit 10(b) to
the Company's Form 10-K for the year ended
December 31, 1986). In addition, the Company's
and its principal subsidiary, ABX Air, Inc., has
entered into substantially identical agreements
with most of their officers.
Other Material Contracts
-------------------------
10(k) $240,000,000 Revolving Loan Facility dated as of --
November 19, 1993 among the Company, as
borrower, and Wachovia Bank of Georgia, N.A., as
agent, and ABN AMRO Bank N.V., United States
National Bank of Oregon, Seattle-First National
Bank, CIBC Inc., Continental Bank N.A., Bank of
America National Trust and Savings Association,
The Bank of New York, NBD Bank, N.A., as banks
(incorporated herein by reference from Exhibit
10(k) to the Company's Form 10-K for the year
ended December 31, 1993).
10(l) First Amendment to Revolving Loan Facility dated --
as of March 31, 1995 among the Company, as
borrower, and Wachovia Bank of Georgia, N.A., as
Agent, and Wachovia Bank of Georgia, N.A., ABN
AMRO Bank N.V., United States National Bank of
Oregon, Seattle-First National Bank, CIBC, Inc.,
National City Bank, Columbus, Bank of America
National Trust and Savings Association, The Bank
of New York, and NBD Bank, N.A., as banks
(incorporated by reference from Exhibit 10 to
the Company's Form 10-Q for the quarter ended
March 31, 1995).
10(m) Shareholders Agreement entered into as of --
February 7, 1990, among the Company, Mitsui &
Co., Ltd., and Tonami Transportation Co., Ltd.,
relating to joint ownership of Airborne Express
Japan, Inc. (incorporated herein by reference
from Exhibit 10(c) to the Company's Form 10-K
for the year ended December 31, 1989).
10(n) Used Aircraft Sales Agreement entered into as of
December 22, 1995 between ABX Air, Inc. and KC-
One, Inc; KC-Two, Inc.; and KC-Three, Inc.
Confidential treatment has been requested for
confidential commercial and financial
information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
</TABLE>
EXHIBIT NO. 11 Statement Re Computation of Per Share Earnings
- ---------------------------------------------------------------
<TABLE>
<S> <C> <C>
11 Statement re computation of earnings per share --
</TABLE>
EXHIBIT NO. 12 Statements Re Computation of Ratios
- ----------------------------------------------------
<TABLE>
<S> <C> <C>
12 Statement re computation of ratio of senior long- --
term debt and total long-term debt to total
capitalization
</TABLE>
EXHIBIT NO. 13 Annual Report to Security Holders
- --------------------------------------------------
<TABLE>
<S> <C> <C>
13 Portions of the 1995 Annual Report to --
Shareholders of Airborne Freight Corporation
</TABLE>
EXHIBIT NO. 21 Subsidiaries of the Registrant
- -----------------------------------------------
<TABLE>
<S> <C> <C>
21 The subsidiaries of the Company are listed in --
Part I of this report on Form 10-K for the year
ended December 31, 1995.
</TABLE>
EXHIBIT NO. 23 Consents of Experts and Counsel
- ------------------------------------------------
<TABLE>
<S> <C> <C>
23 Independent Auditors' Consent and Report on --
Schedules
</TABLE>
EXHIBIT NO. 27 Financial Data Schedule
- ----------------------------------------
<TABLE>
<S> <C> <C>
27 Financial Data Schedule --
</TABLE>
All other exhibits are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
<TABLE>
<S> <C> <C>
(b) Reports on Form 8-K
--------------------
None --
</TABLE>
EXHIBIT 10 (n)
USED AIRCRAFT SALES AGREEMENT
BETWEEN
ABX AIR, INC.,
a Delaware corporation
AND
KC-ONE, INC.
KC-TWO, INC.
KC-THREE, INC.,
each a Japanese corporation
Relating to Nine BOEING Model 767-281 Aircraft
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. Subject Matter of Sale......................... 1
1.1 Aircraft....................................... 1
1.2 Sale of the Aircraft........................... 2
1.3 Further Documents or Necessary Action.......... 2
ARTICLE 2. Delivery of the Aircraft, Title and Risk
of Loss................................... 2
2.1 Time of Delivery............................... 2
2.2 Place of Delivery.............................. 3
2.3 Title and Risk of Loss......................... 3
2.4 Documents of Title............................. 3
2.5 Acceptance Certificate......................... 3
2.6 Tax Indemnity.................................. 3
ARTICLE 3. Purchase Price and Payment Terms............... 4
3.1 Purchase Price................................. 4
3.2 Deposits....................................... 4
3.3 Standby Letter of Credit....................... 5
3.4 Payment for the Aircraft....................... 6
3.5 Payment in U.S. Funds.......................... 7
3.6 Guaranties..................................... 7
3.7 Adequate Assurances............................ 8
ARTICLE 4. Condition of Aircraft.......................... 9
4.1 General Condition.............................. 9
4.2 Condition of Airframe.......................... 9
4.3 Condition of Controlled Components............. 10
4.4 Condition of Installed Engines................. 10
4.5 Satisfaction of Condition Requirements......... 10
4.6 Effect of Delivery Conditions.................. 10
ARTICLE 5. Representations and Warranties................. 10
5.1 Seller's Representations....................... 10
5.2 Purchaser's Representations.................... 11
5.3 Disclaimer of Other Warranties or
Representations........................... 12
ARTICLE 6. Covenants...................................... 13
6.1 Covenants of Seller............................ 13
6.2 Covenants of Purchaser......................... 14
ARTICLE 7. Conditions to Purchaser's Obligation to
Purchase.................................. 16
7.1 General Conditions Precedent to Obligations
of Purchaser.............................. 16
7.2 Specific Conditions Precedent to Obligations
of Purchaser.............................. 17
7.3 Effect of Failure of Conditions................ 20
ARTICLE 8. Conditions to Seller's Obligation to Sell...... 20
8.1 General Conditions Precedent to Obligations
of Seller................................. 20
8.2 Specific Conditions Precedent to Obligations
of Seller................................. 21
ARTICLE 9. Termination.................................... 22
9.1 Termination by Purchaser....................... 22
9.2 Termination by Seller.......................... 22
9.3 Event of Termination........................... 23
9.4 Excusable Delay................................ 25
9.5 Effect of Termination by Purchaser............. 26
9.6 Effect of Termination by Seller................ 27
9.7 Marketing of Aircraft.......................... 27
ARTICLE 10. Miscellaneous.................................. 28
10.1 Costs and Fees................................. 28
10.2 Indemnity Against Brokers and Finders.......... 28
10.3 Governing Law.................................. 28
10.4 Consent to Jurisdiction, Waiver of Immunities.. 28
10.5 Inspections.................................... 28
10.6 Notices........................................ 29
10.7 Entire Agreement............................... 30
10.8 Assignment..................................... 30
10.9 Time........................................... 30
10.10 Paragraph Headings............................. 31
10.11 Severability................................... 31
10.12 Counterparts................................... 31
10.13 Attorneys' Fees................................ 31
10.14 Disclosure of Terms............................ 31
</TABLE>
<TABLE>
<CAPTION>
Exhibits
<S> <C> <C>
Exhibit A - Used Aircraft Identification
Exhibit B - Bill of Sale
Exhibit C - Acceptance Certificate
Exhibit D - Standby Letter of Credit
Exhibit E - Document Escrow Letter
Exhibit F - Funds Escrow Agreement
Exhibit G - Airborne Guaranty
Exhibit H - Itochu Guaranty
Exhibit I - Aircraft Documentation
</TABLE>
USED AIRCRAFT SALES AGREEMENT
RELATING TO NINE BOEING MODEL 767-281 AIRCRAFT
THIS USED AIRCRAFT SALES AGREEMENT is made as of the 22 day of
December, 1995 (hereinafter called the "Agreement") by and between ABX AIR,
INC., a corporation organized and existing under the laws of Delaware of
the United States of America and having its principal office at 145 Hunter
Drive, Wilmington, Ohio 45177, U.S.A. (hereinafter referred to as the
"Purchaser") and KC-ONE, INC. ("KC1"), KC-TWO, INC. ("KC2"), and KC-THREE,
INC. ("KC3"), each a corporation organized and existing under the laws of
Japan and having its principal office at 5-1, Kita-Aoyama 2-Chome,
Minato-ku, Tokyo 107-77, Japan (hereinafter referred to collectively as
the "Seller").
W I T N E S S E T H
WHEREAS, Seller is the owner of nine (9) Boeing Model 767-281 used
aircraft, each of which is currently being leased to, operated, and
maintained by All Nippon Airways, Co., Ltd. ("ANA"),
WHEREAS, subject to the terms of this Agreement, Seller desires to
sell to Purchaser, and Purchaser desires to purchase from Seller, all nine
(9) of the aircraft as hereinafter set forth,
WHEREAS, Itochu Corporation ("Itochu") will provide a guaranty of the
Seller's obligations under this Agreement, and
WHEREAS, Purchaser is on this date entering into an Used Aircraft
Sales Agreement with Marubeni Airleasing (U.K.) Ltd. ("Marubeni") with
respect to the purchase of three (3) Boeing Model 767-281 used aircraft,
which used aircraft are also being leased to, operated and maintained by
ANA (as amended, the "Marubeni Purchase Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good valuable consideration,
the parties hereby agree as follows:
ARTICLE 1.
Subject Matter of Sale.
1.1 Aircraft. For the purpose of this Agreement the term "Aircraft"
shall mean each of nine (9) Boeing Model 767-281 used aircraft bearing
Manufacturer's Serial Numbers provided in Exhibit A hereto, (i) including
with respect to each Aircraft, two (2) General Electric Model CF6-80A
engines, (ii) the equipment, accessories, parts and other property
installed in or appurtenant to each Aircraft at the time of delivery
thereof to Purchaser, and (iii) all related Aircraft Documentation, as such
term is defined in Section 6.1(a) hereof. "Aircraft" may, where the
context so indicates, also refer to all of the Aircraft to be sold
hereunder.
1.2 Sale of the Aircraft. Subject to the terms and conditions of
this Agreement, Seller shall sell and deliver to Purchaser and Purchaser
shall purchase and accept from Seller each of the nine (9) Aircraft in
accordance with this Agreement.
1.3 Further Documents or Necessary Action. Purchaser and Seller
shall each take (and, except as provided herein, at such party's own
expense) all such actions as may be reasonably necessary or appropriate in
order to effectuate the transactions contemplated hereby provided that this
Section 1.3 shall not prejudice the provisions of Section 9.4 hereof.
ARTICLE 2.
Delivery of the Aircraft, Title and Risk of Loss.
2.1 Time of Delivery.
a. Exhibit A hereto sets forth the anticipated month for
delivery of each Aircraft ("Target Month"), which represents Seller's
current best estimate of the likely month such Aircraft will be available
for delivery to Purchaser. The delivery date for each Aircraft shall be a
day, other than a Saturday or a Sunday, on which banks are neither
authorized nor required to close in London, Tokyo or New York (such a day
being a "Business Day").
b. Seller shall notify Purchaser in writing of the actual
delivery date of each Aircraft ("Delivery Notice") at latest [ * ] calendar
days prior to the first day of the relevant Target Month for such Aircraft.
c. Seller shall have the right to reschedule the delivery date
of each Aircraft for up to [ * ] calendar days after the end of the
relevant Target Month in which such delivery is scheduled hereunder. If
Seller elects to reschedule the delivery date, written notice will be
provided to Purchaser at the latest [ * ] calendar days prior to the date
set forth in the Delivery Notice. Such notice, provided by Seller to
Purchaser, will include the new delivery date for such Aircraft. No
rescheduling of a delivery date with respect to any Aircraft shall
necessarily modify any subsequent Target Month or delivery date with
respect to any other Aircraft.
d. The delivery date may also be rescheduled pursuant to
Excusable Delay as provided under Section 9.4 hereof. Seller shall give
Purchaser notice of the rescheduled delivery date (being a date after the
event of Excusable Delay has been corrected or waived).
2.2 Place of Delivery. The Aircraft shall be delivered to Purchaser
at an ANA maintenance facility in Japan or at such alternate site(s)
mutually acceptable to Purchaser and Seller (an "Other Location").
2.3 Title and Risk of Loss. Title to and risk of loss or damage to
each Aircraft shall pass from Seller to Purchaser upon the delivery of such
Aircraft to Purchaser in accordance with this Agreement and receipt by
Seller of the full Purchase Price with respect to such Aircraft.
2.4 Documents of Title. In connection with delivery of each
Aircraft, Seller shall release or caused to be released to Purchaser: (i)
a bill of sale on AC Form 8052-2 (or its successor form) for each such
Aircraft executed and delivered by Seller in favor of Purchaser in form
suitable for filing and recording with the Federal Aviation Administration
of the United States ("FAA"); and (ii) a bill of sale, in form attached
hereto and made a part hereof as Exhibit B.
2.5 Acceptance Certificate. Upon conclusion of the inspection of the
Aircraft as provided under Section 7.2(d), Purchaser shall execute an
acceptance certificate (the "Acceptance Certificate"). The Acceptance
Certificate shall be in the form of Exhibit C attached hereto. Purchaser
shall not unreasonably withhold execution of the Acceptance Certificate and
such execution shall constitute acknowledgment of satisfaction by Seller of
the Delivery Conditions set forth in Section 4 with respect to such
Aircraft.
2.6 Tax Indemnity. Purchaser agrees to pay any and all taxes,
assessments, duties, and charges (including, without limitation, any sales,
value-added, transfer or consumption taxes, withholding taxes and stamp or
similar duties) with respect to the execution and delivery of this
Agreement or any of the documents contemplated hereby, the sale or purchase
of any Aircraft, and the payment of the Purchase Price for any Aircraft or
any deposit or other payment made or to be made to Seller under or pursuant
to this Agreement other than any tax imposed on Seller by Seller's home
jurisdiction on the income of Seller arising out of the sale of any
Aircraft pursuant to this Agreement (an "Indemnified Tax"). In the event
that Purchaser fails to pay any Indemnified Tax and such Indemnified Tax is
levied upon, assessed against, collected from, or otherwise imposed on the
Seller, Purchaser shall immediately upon demand indemnify, protect, defend
and hold the Seller harmless from and against all such Indemnified Taxes,
together with any interest, penalties or other additions to such tax, and
other costs (including, without limitation, attorneys' fees and other
professional fees) incurred by Seller in connection with such Indemnified
Tax or its enforcement of this Section 2.6. Seller agrees to provide
reasonable assistance and cooperation to Purchaser with respect to
obtaining tax exemptions reasonably available.
If a written claim is made by any tax authority against Seller with
respect to any Indemnified Tax, Seller shall promptly notify Purchaser. If
reasonably requested by Purchaser in writing (and if requested by Seller,
after Purchaser shall have delivered to Seller (i) an opinion of counsel
for Purchaser reasonably satisfactory to Seller that there is a reasonable
good faith basis for a contest and (ii) assurances from Purchaser in form
reasonably satisfactory to Seller to indemnify Seller if the claim is
adversely decided), Seller shall, at the expense of Purchaser (including,
without limitation, all legal and accountants' fees and disbursements,
penalties and interest), at Purchaser's direction and using counsel
acceptable to Purchaser, contest in the name of Seller or, if requested by
Purchaser, contest in the name of Purchaser, if permissible under
applicable law (or permit Purchaser, if desired by Seller, to contest in
the name of Purchaser) the validity, applicability or amount of such
Indemnified Tax by (i) if permitted by applicable law without adverse
consequences to Seller, resisting payment thereof, (ii) paying under
protest, if protest is necessary or proper, and (iii) if payment be made,
using reasonable efforts to obtain a refund thereof in appropriate
administrative and judicial proceedings. If Seller shall obtain a refund
of all or any part of the Indemnified Tax paid by Purchaser, Seller shall
pay Purchaser the amount of such refund, plus, on an after tax basis, any
interest thereon obtained by Seller from the taxing authority if fairly
attributable to such Indemnified Tax. If such tax contest shall cause
Seller undue hardship or burden, Seller and Purchaser shall consult in good
faith concerning any tax contest to be undertaken hereunder.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 3.
Purchase Price and Payment Terms.
3.1 Purchase Price. The purchase price of each Aircraft is set forth
in Exhibit A attached hereto (as to each Aircraft, the "Purchase Price").
3.2 Deposits. Except as provided in Section 3.3 below, Purchaser has
made or shall hereafter make the following non-refundable deposits
(collectively, the "Deposits") to the account of Seller as and when set
forth below:
a. Purchaser has delivered to Seller the sum of [ * ] (the
"First Deposit"), receipt of which is acknowledged by Seller;
b. Upon execution of this Agreement, Purchaser shall
immediately pay to Seller the sum of [ * ] (the "Second Deposit");
c. By no later than [ * ], Purchaser shall pay to Seller the
sum of [ * ] (the "Third Deposit") (the First Deposit, Second Deposit and
Third Deposit is referred to collectively as the "Final Delivery Deposit");
d. Purchaser shall pay to Seller the sum of [ * ] (the "Fourth
Deposits"), representing [ * ] per Aircraft, which sum shall be paid as
follows: [ * ] shall be due upon execution of this Agreement, [ * ] shall
be due on or before [ * ], and the balance of [ * ] shall be due on or
before [ * ]; and
e. Purchaser shall pay to Seller the sum of [ * ] (the "Fifth
Deposits"), representing [ * ] per Aircraft, which sum shall be paid as
follows: [ * ] shall be due upon execution of this Agreement, and [ * ]
shall be due on or before the first day of the month [ * ] prior to the
relevant Aircraft's Target Month provided, however, that if any Deposit
would otherwise be due in [ * ] of any year, Purchaser shall not be
required to pay such Deposit until the fifteenth (15th) day of January.
Except as provided in Sections 9.5 and 9.6 below, the Deposits are non-
refundable and Purchaser shall have no right to return of any Deposit after
payment thereof to Seller. All interest earned on the Deposits shall be
property of the Seller. Except as provided in Sections 9.5 and 9.6 below,
under no circumstances shall Seller be required to refund or return any
Deposit to Purchaser.
3.3 Standby Letter of Credit. As an alternative to paying the
Deposits in cash as described in Sections 3.2 (b), (c), (d) or (e),
Purchaser may provide, as of the dates required for the payment of the
relevant Deposit, irrevocable standby letter(s) of credit (as to each,
including any renewals and reissuances of any such letter of credit, a
"Standby Letter of Credit"), naming Seller as beneficiary and drawable in
amounts equal to such Deposit, in form substantially as set forth in
Exhibit D hereto and otherwise acceptable to Seller, issued by first class
financial institution(s) selected by Purchaser and acceptable to Seller.
Seller agrees that first class financial institutions that at the time of
issuance and throughout the term of the Standby Letter of Credit that
maintain at least an "A" rating by Standard & Poor's shall be acceptable to
Seller. If Purchaser intends to provide a Standby Letter of Credit,
Purchaser will give Seller written notice no less than [ * ] days (or
shorter period in the case of Standby Letters of Credit to be delivered
within [ * ] days of execution of this Agreement) prior to the relevant
date of Deposit, which notice shall identify the proposed financial
institution and contain the proposed form of Standby Letter of Credit. In
no event shall Purchaser be entitled to deliver a Standby Letter of Credit
in lieu of a cash Deposit if Purchaser is then in default in the
performance of any of its obligations hereunder or under the Marubeni
Purchase Agreement. Each Standby Letter of Credit shall be drawable at any
time after issuance, and shall have an expiry date no earlier than [ * ]
months after issuance provided that any Standby Letter of Credit with
respect to delivery of a particular Aircraft shall not, in any event,
require an expiry term in excess of [ * ] days following the end of the
relevant Target Month for such Aircraft, as the same may be extended for
all periods of Excusable Delay with respect to the relevant Aircraft. Not
later than the date that is [ * ] days prior to the expiry date of each
Standby Letter of Credit, Purchaser shall (a) cause such Standby Letter of
Credit to be renewed and reissued in each case in the same amount and form
as the Standby Letter of Credit originally issued and (b) cause such
renewed and reissued Standby Letter of Credit to be delivered to Seller.
Such renewed and reissued Standby Letter of Credit shall be drawable at and
after the time of expiration of the Standby Letter of Credit it replaces
and shall have an expiry date no earlier than the date which is [ * ]
months from the expiry date of the Standby Letter of Credit it replaces.
In the event that any Standby Letter of Credit issuing bank becomes
unacceptable to Seller, or the validity or enforceability of such Standby
Letter of Credit becomes uncertain, then Purchaser shall within [ * ]
Business Days of demand therefor by Seller, against return by Seller of the
original Standby Letter of Credit, provide to Seller a cash Deposit in the
amount equal to such Standby Letter of Credit or a replacement Standby
Letter of Credit of like amount which shall be in a form, and shall be
issued by a financial institution, acceptable to Seller.
3.4 Payment for the Aircraft. At least [ * ] Business Days prior to
the relevant delivery date of each Aircraft, the parties shall establish a
document escrow (the "Document Escrow") and a funds escrow (the "Funds
Escrow") pursuant to a Document Escrow Letter and Funds Escrow Agreement
substantially in the forms of Exhibit E and Exhibit F attached hereto.
Crowe & Dunlevy (or such other FAA counsel located in Oklahoma City and
acceptable to Purchaser and Seller) (the "Document Escrow Agent") shall be
the Document Escrow Agent under the Document Escrow and one or more
financial institution(s) located in New York, New York selected by Seller
and reasonably acceptable to Purchaser (the "Funds Escrow Agent") shall be
the Funds Escrow Agent under the Funds Escrow. At least [ * ] Business Day
prior to the applicable delivery date for such Aircraft, Purchaser and
Seller, as the case may be, shall place into the Document Escrow and the
Funds Escrow, the funds and documents required to be placed into escrow by
them under the Funds Escrow Agreement and Documents Escrow Letter. The
Funds Escrow Agent shall promptly notify Seller when all funds have been
deposited into the escrow account and will disburse such funds as provided
in the Funds Escrow Agreement. Seller shall credit towards the Purchase
Price the Fourth and Fifth Deposits applicable to such Aircraft to the
extent such Deposits are made in cash and held by Seller provided that in
the case of the ninth (9th) Aircraft to be delivered hereunder, Seller
shall also credit the portion of the Final Delivery Deposit to the extent
such Deposits are made in cash and held by Seller towards the Purchase
Price of said Aircraft. All costs and fees of the escrow agents shall be
for the Purchaser's account.
3.5 Payment in U.S. Funds. All payments (including payments of the
Deposits) hereunder shall be paid in United States Dollars by telegraphic
transfer in immediately available funds to a bank account designated by
Seller. Purchaser shall comply with all applicable monetary and exchange
control regulations, and shall obtain any necessary authority from the
governmental agency administering such regulations in order to enable
Purchaser to make payments at the time and place in the manner and medium
specified herein. Purchaser shall pay all charges and expenses including
but not limited to all bank charges and assessments as well as Indemnified
Taxes and fees in relation to the payment to be made hereunder. Without
limiting the foregoing, all payments to be made to Seller hereunder shall
be made free and clear of, and without regard to, any and all Indemnified
Taxes and other setoffs, counterclaims, withholdings or other deductions of
any kind or nature whatsoever, unless Purchaser is required by law to make
any withholding for taxes, in which case Purchaser shall (a) immediately
pay to Seller such additional amount as shall be required so that Seller
shall receive, on the date such payments are due, the net amount it would
have received had such withholding for taxes not been required and
(b) promptly pay such taxes and provide to Seller evidence of such payment.
3.6 Guaranties. All obligations of Purchaser under this Agreement
shall be fully guaranteed by Airborne Freight Corporation ("Airborne")
pursuant to a guaranty substantially in the form of Exhibit G attached
hereto (the "Airborne Guaranty"). The obligations of Seller under this
Agreement shall be guaranteed by Itochu pursuant to a guaranty
substantially in the form of Exhibit H attached hereto (the "Itochu
Guaranty").
3.7 Adequate Assurances.
a. Triggering Event. For purposes of this Agreement, a
"Triggering Event" shall mean the failure of Airborne to meet either of the
following financial covenants: (i) the ratio of Consolidated Funded Debt
to Consolidated Total Capital shall at any time exceed [ * ], or (ii)
Consolidated Net Worth shall at any time be less than [ * ]. For purposes
of this Agreement: (w) "Consolidated Funded Debt" means, without
duplication, (1) all obligations of Airborne and its Consolidated
Subsidiaries for borrowed money, (2) all obligations of Airborne and its
Consolidated Subsidiaries evidenced by bonds, debentures, notes or other
similar instruments; and (3) all obligations of Airborne and its
Consolidated Subsidiaries to pay the deferred purchase price of property or
services other than trade accounts payable arising in the ordinary course
of business; (x) "Consolidated Net Worth" means the shareholders' equity of
Airborne and its Consolidated Subsidiaries as set forth or reflected on the
most recent consolidated balance sheet of Airborne and its Consolidated
Subsidiaries; (y) "Consolidated Total Capital" means, at any time, the sum
of (1) Consolidated Net Worth and (2) Consolidated Funded Debt; and
(z) "Consolidated Subsidiary" means at any date any subsidiary of Airborne
or other entity the accounts of which, in accordance with generally
accepted accounting principles consistently applied ("GAAP"), would be
consolidated with those of Airborne in its consolidated financial
statements as of such date. Purchaser shall promptly notify Seller of any
Triggering Event. Further, on a quarterly basis, Purchaser shall deliver
to Seller copies of Airborne's 10-Qs and annual reports to shareholders, as
applicable, along with an officer's certificate evidencing that as of the
date of the statements, a Triggering Event had not occurred.
b. Provision of Assurances. Upon a Triggering Event, Purchaser
shall be obligated, within [ * ] days of written notice from Seller, to
deliver to Seller either (a) (i) evidence satisfactory to Seller that
Purchaser has obtained a firm commitment from one or more financiers
selected by Purchaser and reasonably satisfactory to Seller to provide
financing for at least 80% of the Purchase Price of the Aircraft next
scheduled to be delivered to Purchaser hereunder ("Committed Financing")
which Committed Financing shall not be subject to any material condition
other than documentation and (ii) evidence reasonably satisfactory to
Seller that Purchaser is capable of providing the funds necessary to
provide any portion of the Purchase Price for the Aircraft that is not to
be provided by third-party financiers under the Committed Financing; or
(b) such other evidence reasonably satisfactory to Seller that Purchaser
has the ability to pay the Purchase Price of the next scheduled Aircraft to
be purchased hereunder. The obligation hereunder shall be a rolling
obligation and shall apply so long as such Triggering Event remains
outstanding. If Purchaser shall at any time fail to provide the assurances
required hereunder, such failure shall constitute a breach of this
Agreement.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 4.
Condition of Aircraft.
4.1 General Condition. At the time of its delivery to Purchaser,each
Aircraft shall (a) be in flyable condition; (b) be maintained in compliance
with ANA's maintenance and repair program as authorized by the JCAB
(hereinafter called the "ANA's Maintenance Program"); (c) be in compliance
with and have a valid airworthiness certificate issued by the JCAB; and (d)
be in compliance with all applicable outstanding mandatory Airworthiness
Directives ("A.D.'s") affecting the Aircraft as issued by the FAA which
have a compliance deadline on or prior to the date of delivery of such
Aircraft to Purchaser. The Aircraft shall not otherwise be required to
comply with Federal Aviation Regulations (including specifically, but
without limitation, to TCAS and wind shear detection).
4.2 Condition of Airframe. At the time of its delivery to Purchaser,
each Aircraft shall meet the requirements and shall have such hours and
cycles remaining under ANA's Maintenance Program, as set forth below:
(a) have accomplished immediately after removal from service and
prior to delivery the scheduled "C" check or its equivalent in accordance
with ANA's Maintenance Program;
(b) have at least [ * ] life remaining to the next complete
restoration interval for the main and the nose landing gears in accordance
with FAA's Maintenance Review Board Report ("MRBR"). Either cycles, hours
or calendar days, whichever is applicable in the MRBR on the date [ * ]
years prior to the delivery date of the relevant aircraft shall be applied
to the delivery condition for those landing gears (for example, if the
current restoration interval in the MRBR is [ * ] cycles, then at the time
of delivery to Purchaser, the landing gears shall have at least [ * ]
cycles remaining before the next complete restoration, as less than [ * ]
cycles would have been used since the last complete restoration);
(c) have at least "C" check interval remaining before the next
due corrosion prevention and control program and SSI program in accordance
with ANA's Maintenance Program; and
(d) have accomplished all outstanding deferred maintenance items
which relate to JCAB airworthiness or are required to be corrected in
accordance with ANA's Maintenance Program.
4.3 Condition of Controlled Components. At the time each Aircraft is
delivered to Purchaser, all components (other than engines but inclusive of
the APU) which are time controlled under ANA's Maintenance Program as of
the date of this Agreement shall have a minimum service life of [ * ] hours
and or [ * ] cycles and or [ * ] months remaining, whichever is applicable
under ANA's Maintenance Program provided, however, that should a component
be limited by more than one factor, all pertinent limits shall apply. The
condition described in this Section 4.3 shall not be applied to the
components required only for passenger aircraft and that not required for
cargo aircraft.
4.4 Condition of Installed Engines. At the time of its delivery to
Purchaser, each Aircraft's installed engine shall have [ * ] cycles
remaining to the next schedule engine removal and shall be serviceable as
determined by a borescope inspection and full power run-up at "on wing"
condition conducted during Purchaser's inspection under Section 7.2(d) and
performed in accordance with ANA's Maintenance Program.
4.5 Satisfaction of Condition Requirements. An Aircraft satisfying
the delivery conditions contained in this Article 4 on its respective
delivery date shall be regarded as being in "Delivery Condition."
4.6 Effect of Delivery Conditions. Upon acceptance of an Aircraft by
Purchaser hereunder, the Delivery Conditions with respect to such Aircraft
shall in all respects be deemed met and satisfied. Under no circumstances
shall Seller assume liability to Purchaser or any other person or entity
with respect to the condition of any Aircraft after the same has been
accepted by Purchaser hereunder.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 5.
Representations and Warranties.
5.1 Seller's Representations. Seller represents and warrants to
Purchaser as follows (which representations and warranties shall, unless
otherwise stated, be deemed made on and as of the date hereof and as of the
relevant delivery date of each Aircraft):
a. Organization and Standing. KC1, KC2, KC3 and Itochu are
each corporations duly organized, validly existing and in good standing
under the laws of Japan. Purchaser acknowledges that neither KC1, KC2 nor
KC3 shall be required to maintain its corporate existence after delivery of
all Aircraft to be delivered by such corporation hereunder provided no such
action shall relieve Itochu of its obligations under the Itochu Guaranty.
b. Corporate Power and Authority. Seller has all requisite
power and authority to execute and to deliver this Agreement and the other
documents required hereunder, and to carry out the transactions
contemplated herein and therein. Itochu has all requisite power and
authority to execute and deliver the Itochu Guaranty and to carry out the
transactions contemplated herein.
c. Due Authorization; Binding Obligation. This Agreement has
been duly authorized by Seller and is valid, binding and enforceable
against Seller in accordance with its respective terms. The Itochu
Guaranty has been duly authorized by Itochu and is valid, binding and
enforceable against Itochu in accordance with its terms.
d. Title to Aircraft. At delivery of each Aircraft in
accordance with this Agreement, and upon release by the Document Escrow
Agent of the Bills of Sale to Purchaser, Seller shall convey to Purchaser
good title to each Aircraft, free and clear of any and all mortgages,
pledges, trusts, liens (including tax liens), charges, leases or other
security interests or encumbrances of any kind whatsoever ("Liens") other
than any Liens created by Purchaser or arising as a result of any action or
inaction of Purchaser.
e. No Conflict. The execution, delivery and performance by
Seller of this Agreement and by Itochu of the Itochu Guaranty does not
contravene its articles of incorporation or bylaws and does not contravene
the provisions of or constitute a default under any agreement or instrument
to which such person is a party or by which such person or any of its
properties may be bound or affected.
5.2 Purchaser's Representations. Purchaser represents and warrants
to Seller as follows (which representations and warranties shall, unless
otherwise stated, be deemed made on and as of the date hereof and as of the
relevant delivery date of each Aircraft):
a. Organization and Standing. Each of Purchaser and Airborne
are corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware.
b. Corporate Power and Authority. Purchaser has all requisite
power and authority to execute and to deliver this Agreement and the other
documents required hereunder, and to carry out the transactions
contemplated herein and therein. Airborne has all requisite power and
authority to execute and to deliver the Airborne Guaranty and to carry out
the transactions contemplated herein.
c. Due Authorization; Binding Obligation. This Agreement has
been duly authorized by Purchaser and is valid, binding and enforceable
against Purchaser in accordance with its respective terms. The Airborne
Guaranty has been duly authorized by Airborne and is valid, binding and
enforceable against Airborne in accordance with its respective terms.
d. No Conflict. The execution, delivery and performance by
Purchaser of this Agreement and by Airborne of the Airborne Guaranty does
not contravene its articles of incorporation or bylaws and does not
contravene the provisions of or constitute a default under any agreement or
instrument to which such person is a party or by which such person or any
of its properties may be bound or affected.
5.3 Disclaimer of Other Warranties or Representations.
Except for Seller's obligation with respect to title as provided in
Sections 2.4 and 5.1(d), EACH AIRCRAFT WILL BE SOLD AND DELIVERED TO
PURCHASER IN THE THEN "AS IS, AND WHERE IS" CONDITION THEREOF WITH ALL
DEFECTS AND FAULTS WHETHER LATENT OR PATENT, WHETHER KNOWN OR UNKNOWN, WITH
PURCHASER HAVING HAD FULL OPPORTUNITY AND RIGHT OF INSPECTION AND
DETERMINATION, AND SELLER MAKES NO WARRANTIES TO PURCHASER EXCEPT AS TO
TITLE, AND PURCHASER HEREBY WAIVES ALL OTHER WARRANTIES OF SELLER OR ITS
AFFILIATES OR ASSIGNS, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, USE, PURPOSE, FITNESS,
AIRWORTHINESS, VALUE OF DESIGN, AND WAIVES, RELEASES AND RENOUNCES ANY
RIGHTS, CLAIMS OR REMEDIES AGAINST SELLER AND ITS AFFILIATES OR ASSIGNS
WITH RESPECT TO DIRECT DAMAGES, LOSS OF LIFE OR INJURY TO PERSONS OR
PROPERTY, LOSS OF USE OR OTHER SECONDARY OR CONSEQUENTIAL DAMAGES WHICH
WOULD OTHERWISE ARISE WITH RESPECT TO THE WARRANTIES WAIVED BY PURCHASER
UNDER THIS ARTICLE 5. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT THE TERM
"DIRECT DAMAGES" AS USED HEREIN INCLUDES WITHOUT LIMITATION, LOSS,
DESTRUCTION OR DAMAGE BEYOND REPAIR OF THE AIRCRAFT.
ARTICLE 6.
Covenants.
6.1 Covenants of Seller.
a. Aircraft Documentation. Concurrent with the delivery of
each Aircraft, and except as has been previously furnished to Purchaser by
ANA, Seller shall furnish to Purchaser in their "AS IS" condition the
aircraft documentation (collectively, the "Aircraft Documentation") as
described in Exhibit I hereto.
b. Cooperation in Assignment of Warranties and Contract Rights.
At Purchaser's request, Seller shall assign to Purchaser effective upon the
delivery of the relevant Aircraft, any and all of Seller's rights with
respect to any manufacturer warranties or repair or maintenance agreements
relating to such Aircraft to the extent such rights are assignable by
Seller. Further, Seller shall request that ANA, at Purchaser's request,
assign to Purchaser effective upon the delivery of the relevant Aircraft,
any and all of ANA's rights with respect to any manufacturer warranties or
repair or maintenance agreements relating to such Aircraft to the extent
such rights are assignable by ANA. Purchaser shall reimburse Seller for
all out of pocket costs, if any, incurred by Seller or ANA in connection
with this Section 6.1(b).
c. Cooperation on Export. Seller agrees to provide Purchaser
with reasonable assistance and coordination in connection with the export
of any Aircraft from Japan.
d. Cooperation. Without prejudice to Section 9.4 hereof,
Seller will use reasonable efforts to take, or cause to be taken, such
action and to execute and deliver or cause to be executed and delivered
such additional documents and instruments and to do, or cause to be done,
all such things reasonably necessary, proper or advisable under the
provisions of this Agreement and applicable law to consummate and carry out
all transactions contemplated by this Agreement.
e. Material Alteration. To the extent Seller may exercise such
rights under its lease with ANA (and except to the extent required to
permit the Aircraft to comply with applicable law, regulations, aviation
authority directives or ANA's fleet policy with respect to its entire 767
fleet), Seller agrees to direct ANA to correct prior to the relevant
delivery date of an Aircraft all material alterations to such Aircraft that
have not been approved by Purchaser.
6.2 Covenants of Purchaser.
a. Insurance. From and after delivery of each Aircraft to
Purchaser and with respect to each delivered Aircraft for a period of at
least [ * ], Purchaser shall, at its own cost and expense, maintain
insurance for such Aircraft as set forth below in such form and with such
insurers as may be selected by Purchaser and be reasonably acceptable to
Seller:
(1) Liability Insurance Policies.
Aviation Liability Insurance Policies, Including
"Passenger legal liability" (if applicable), "Third Party legal liability,"
"Aviation Products, Residual or Completed Operations Legal Liability,"
"Freight Legal Liability," which shall include the following endorsements,
amendments or extensions of coverage:
(a) Seller, ANA, Itochu, and each of their respective
subcontractors, parents, affiliates and successors and their respective
officers, directors, agents, assignees, servants and employees
(collectively, the "Seller Insureds") shall be named as additional insureds
under the above mentioned aviation liability policies to the extent
required by this Agreement, which policies shall have limits reasonably
satisfactory to Seller. Without limitation, the third party legal
liability policy shall have limits of not less than United States Dollars
[ * ].
(b) The Seller Insureds shall be named as additional
insureds with both way cross liability clause.
(2) Hull Insurance Policies.
Hull Insurance Policies (including "War Risk" in the
event such Aircraft may be operated outside of the United States) shall
cover for an amount at least equal to the full Purchase Price for each
Aircraft and shall include a subrogation waiver clause in favor of the
Seller Insureds and its insurers in form reasonably acceptable to Seller.
(3) General Requirements.
Purchaser further agrees that insurance polices
required in this Section 6.2(a) shall contain the following endorsements,
amendments or extensions or coverage:
(a) Insurers shall provide, with respect to the above
mentioned, 30 days written notice to Seller prior to the effective date
of cancellation or termination whether or not such cancellation or
termination is instituted by the insurers or Purchaser.
(b) It is understood and agreed that the insurance
afforded by the above mentioned policies shall not be invalidated or
impaired as regards the interest of any Seller Insured by any action or
inaction of Purchaser, Airborne or any other person including illegal use
of any Aircraft or arising from any violation or breach of any
representation, warranty, declaration or condition.
(c) Insurers agree that the Seller Insureds shall not
be liable for any insurance premiums of Purchaser arising out of or
resulting from this Agreement. Insurers further agree that there will be
no set off against any claims that may be payable to the Seller Insureds.
(d) The above mentioned liability policies shall be
primary and contributory and not excess with respect to any other insurance
which may be available for the protection to the Seller Insureds.
(e) All of the provisions of the above mentioned
policies, except the limits of liability, shall operate in the same manner
as if there were in respect of each Aircraft a separate policy covering
each Seller Insured.
(f) The above mentioned policies shall apply worldwide
and have no territorial limits (except, that War Risk shall apply only
outside of the United States and Allied Risk, which shall apply to the
fullest extent available in the international insurance market and in any
case shall apply in each jurisdiction from, over and to which any Aircraft
shall operate).
(4) [ * ] days prior to the delivery date of each Aircraft,
Purchaser agrees to provide "Insurance Certificates" which certify that all
insurance policies as required under this Section 6.2(a) are in effect with
respect to such Aircraft.
b. Indemnification. From and after delivery and transfer of
title of each Aircraft to Purchaser, Purchaser shall defend, indemnify and
hold Seller, ANA, Itochu, and their respective affiliates, parents,
successors and assigns, and each of their officers, directors,
shareholders, employees, and agent and assigns (as to each, an
"Indemnitee") harmless from and against all loss, damage, liability, fees
(including attorney's fees), cost, expense, demand, claim, suit, settlement
or judgement whether by Purchaser, or any third party or parties, including
any Indemnitees, and whether for death or injury to any person or persons
whomsoever or for the loss of, damage to or destruction of any property
whatsoever, including but not limited to any Aircraft or any property of
Purchaser, that shall be suffered or incurred by or asserted against or
imposed on any such Indemnitee arising out of or in any way connected with
the Aircraft or any engine or any part or document sold and transferred to
Purchaser hereunder, including, without limitation, in connection with the
ownership, maintenance, repair, overhaul, modification, storage, control,
operation or use of the Aircraft by Seller, ANA, Itochu, any other
Indemnitee, Purchaser or any third party, whether or not arising in tort or
occasioned in whole or part by the fault or negligence of an Indemnitee
except to the extent caused by the wilful misconduct or gross negligence of
such Indemnitee (the "Exception") and provided that such Exception shall
not affect Purchaser's indemnification obligations with respect to any
other Indemnitee.
c. Cooperation. Purchaser shall use its reasonable efforts to
take, or cause to be taken, such action and to execute and deliver or cause
to be executed and delivered such additional documents and instruments and
to do, or cause to be done, all things reasonably necessary, proper or
advisable under the provisions of this Agreement and applicable law to
consummate and carry out all transactions contemplated by this Agreement.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 7.
Conditions to Purchaser's Obligation to Purchase.
7.1 General Conditions Precedent to Obligations of Purchaser. The
obligations of Purchaser to purchase any Aircraft is subject to the
following conditions having been met or satisfied, except as provided
below, on or prior to December 27, 1995:
a. Execution of Agreement. Seller shall have executed and
delivered to Purchaser this Agreement.
b. Marubeni Purchase Agreement. Marubeni shall have executed
and delivered to Purchaser the Marubeni Purchase Agreement.
c. Itochu Guaranty. Itochu shall have executed and delivered
to Purchaser the Itochu Guaranty.
d. Opinion. Seller shall have delivered to Purchaser an
opinion of counsel to Seller confirming the due authorization and execution
of this Agreement by Seller and of the Itochu Guaranty by Itochu provided
that Seller shall have until February 10, 1996 to deliver said opinion.
7.2 Specific Conditions Precedent to Obligations of Purchaser. The
obligations of Purchaser to purchase a particular Aircraft is subject to
the following conditions having been substantially met or satisfied in all
material respects on or prior to delivery to Purchaser of said Aircraft (or
such other date as provided herein):
a. Accuracy of Representations and Warranties. The
representations and warranties of Seller set forth in this Agreement with
respect to said Aircraft shall be true in all material respects as though
made on and as of the relevant delivery date.
b. Taking or Total Loss. As of the relevant delivery date of
the Aircraft, the Aircraft shall not then be subject to an event of Taking
or Total Loss. "Taking" means, with respect to an Aircraft, the
requisition of title, confiscation or forfeiture; or requisition for use by
or for any governmental or quasi-governmental entity or authority or the
theft of the Aircraft. "Total Loss" means an actual, constructive,
compromised, arranged or agreed total loss of the Aircraft or any damage to
the Aircraft that would cost in excess of [ * ] of the relevant Purchase
Price of such Aircraft to correct.
c. Aircraft Condition. The relevant Aircraft shall have been
tendered in Delivery Condition.
d. Inspection. Purchaser, and except as provided below, at its
sole cost and expense, may inspect the relevant Aircraft as provided below:
1. Ground Inspection. The Aircraft including the Aircraft
Documentation shall be made available to Purchaser for ground inspection by
Purchaser at an ANA facility in Japan or at an Other Location acceptable to
the parties. Such inspection shall take place in connection with the "C"
check Delivery Condition as described in Section 4.2(a) above and shall
occur approximately seven (7) working days immediately prior to the date of
delivery of such Aircraft to Purchaser or such other date mutually agreed
upon by Seller, Purchaser and ANA provided that the ground inspection by
Purchaser shall not interfere with the implementation and performance of
ANA's maintenance work. Seller will provide Purchaser with at least [ * ]
days notice prior to commencing the final "C" check with respect to the
Aircraft. Seller shall direct ANA to open the areas of the Aircraft to
perform the necessary checks to verify compliance with the Delivery
Conditions set forth in Article 4 to the extent within the scope of the
"C" check in order to determine that the Aircraft including the Aircraft
Documentation is in Delivery Condition provided that the ground inspection
by Purchaser shall not interfere with ANA's performance of its maintenance
operations. The ground check which is required in the scheduled "C" check
before delivery shall include but not be limited to: (a) an oil and fuel
filter inspection on all engines, accessory gearboxes and engine accessory
filters; and (b) detailed internal and external inspections of the main
gear fittings, the bulkheads, belly skins and other areas Purchaser
reasonably requests during the "C" check required herein. Seller shall
direct ANA promptly to correct any bona fide material discrepancies from
the conditions required under Article 4 which are observed during such
inspection and are communicated in writing by Purchaser to ANA and Seller
prior to completion of such "C" check provided that such discrepancies are
with respect to items of the type described in Section 4.2(d) hereof.
Purchaser may re-inspect the relevant area of the Aircraft to insure
compliance with this Agreement after ANA performs the corrective repairs.
2. Operational Test Flight. After completion of any
corrections required under Section 7.2(d)(1), Seller shall direct ANA to
test fly such Aircraft, using qualified flight test personnel, for not more
than one (1) hour in the vicinity of an ANA facility in Japan (or at an
Other Location acceptable to the parties), for the purpose of demonstrating
to Purchaser the satisfactory operation of such Aircraft and its equipment.
During such test flight command, care, custody, and control of the Aircraft
shall remain at all times with ANA. Three (3) of Purchaser's employees may
participate in such flight as observers. Said flight shall be flown using
ANA's standard operational test flight procedures. Upon completion of such
operational flight testing, Seller shall direct ANA promptly to correct any
bona fide material discrepancies from the conditions required by Article 4
which are observed during such flight and are communicated in writing to
Seller and ANA provided that such discrepancies are with respect to items
of the type described in Section 4.2(d) hereof. The period of such
correction shall constitute Excusable Delay. If ANA's Maintenance Program
requires ANA to test fly such Aircraft after such corrections, Seller shall
direct ANA to conduct such a test flight.
3. Purchaser's Correction. Any discrepancies referred to
in Sections 7.2(d)(1) or d(2) above which were not corrected prior to
delivery of the Aircraft to Purchaser, may be corrected, after notice to
and agreement by Seller, by Purchaser or its designee, and Seller shall
reimburse Purchaser, at Purchaser's or its designee's normal charges (and
without markup). Payment of the correction of such discrepancies shall be
made by Seller within [ * ] days of Seller's receipt of Purchaser's invoice
and reasonably acceptable supporting evidence covering the discrepancies
corrected, with a breakdown of the costs of correction. If Seller disputes
the charges, Seller and Purchaser shall consult in good faith in an effort
to agree as to the propriety of the cost and work done, failing which the
matter shall be resolved by an appropriate third party mutually acceptable
to the parties (such as the Boeing Company). Seller shall have the right,
upon prior notice to Purchaser, to send, at Seller's expense, a
representative to review the work.
4. Purchaser's Acceptance. Upon satisfactory completion
of the ground inspection and operational test flight(s) in accordance with
Section 7.2(d) herein, Purchaser shall forthwith give to Seller the
Acceptance Certificate. Delivery of the Acceptance Certificate shall
constitute irrevocable agreement that the relevant Aircraft is in Delivery
Condition except with respect to the items to be corrected as provided
under Section 7.2(d)(3).
5. Costs. The flight tests pursuant to Section 7.2(d)
(including any subsequent flight tests) shall be performed at Seller's
expense, including for the costs for fuel, oil, airport fees, insurance,
takeoff/landing fees, ground handling charges and airways communication
charges. Purchaser shall be responsible for its costs incurred with
respect to Purchaser's (or its agent's) personnel (such as travel expenses,
food, hotel, etc.) in connection with the ground inspection and flight
tests.
6. Effect of Discrepancies. Regardless of any
discrepancies noticed or not noticed by Purchaser or required or not
required by Purchaser to be corrected, Purchaser acknowledges that after
delivery of the Aircraft to Purchaser, the Aircraft shall be subject,
without limitation, to acceptance under Section 4.6, the disclaimers of
Section 5.3 and the indemnification obligations of Section 6.2(b) and,
except as provided in said sections, the sole remaining consequence of
Section 7.2(d) with respect to said Aircraft shall be the obligation of
Seller to provide certain reimbursement payments as provided in
Section 7.2(d)(3).
e. De-registration. After receipt of notice from the Funds
Escrow Agent that the full Purchase Price (other than the relevant cash
Deposits) is in escrow under the Funds Escrow Agreement and after
confirmation from the Document Escrow Agent that the documents to be
delivered by each party pursuant to the Document Escrow Letter have been
delivered into escrow, and subject to notice having been delivered by
Purchaser that the FAA is prepared to permit the registration of the
Aircraft, Seller and ANA shall promptly take such steps as may be necessary
to permit the de-registration of the relevant Aircraft from Japanese
registration.
f. Escrow Agreements. (1) Seller and the Funds Escrow Agent
shall have duly executed and delivered to Purchaser the Funds Escrow
Agreement; (2) Seller and the Documents Escrow Agent shall have duly
executed and delivered to Purchaser the Documents Escrow Letter; and
(3) Seller shall have delivered to the Documents Escrow Agent all documents
to be delivered by Seller as provided under the Documents Escrow Letter.
7.3 Effect of Failure of Conditions. If a condition in Section 7.1
shall not have been met or waived by Purchaser, this Agreement shall
terminate as provided under Section 9.1(b) and shall be subject to Section
9.5. If a material condition in Section 7.2 shall have not been
substantially met or waived by Purchaser for reasons other than the acts or
omissions of Purchaser or the occurrence of any Excusable Delay, Purchaser
shall have the right under Section 9.1(b) to terminate its obligation to
purchase the particular Aircraft (and the relevant Deposits shall be
returned to Purchaser as provided under Section 9.5), but Purchaser shall,
subject to the terms of this Agreement, remain obligated to purchase, and
Seller shall remain obligated to sell, all remaining Aircraft.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 8.
Conditions to Seller's Obligation to Sell.
8.1 General Conditions Precedent to Obligations of Seller. The
obligations of Seller to sell any Aircraft is subject to the following
conditions having been met or satisfied on or prior to December 27, 1995:
a. Execution of Agreement. Purchaser shall have executed and
delivered to Seller the Agreement.
b. Guaranty. Airborne shall have executed and delivered to
Seller the Airborne Guaranty.
c. Deposits. Purchaser shall have made all of the Deposits to
be made as of execution of this Agreement.
d. Opinion. Purchaser shall have delivered to Seller an
opinion of counsel to Purchaser confirming the due authorization and
execution of this Agreement by Purchaser and of the Airborne Guaranty by
Airborne.
e. Marubeni Purchase Agreement. Marubeni shall have executed
and delivered to Purchaser the Marubeni Purchase Agreement.
8.2 Specific Conditions Precedent to Obligations of Seller. The
obligations of Seller to sell any specific Aircraft is subject to the
following conditions having been substantially met or satisfied in all
material respects on or prior to delivery to Purchaser of such Aircraft (or
such other date as provided herein) provided that Seller shall have the
right to require strict compliance with any matter with respect to the
Deposits, the Standby Letters of Credit, or the payment of the Purchase
Price for any Aircraft:
a. Accuracy of Representations and Warranties. The
representations and warranties of Purchaser set forth in this Agreement
shall be true in all material respects as though made on and as of the
delivery date.
b. Taking or Total Loss. As of the relevant delivery date of
the Aircraft, the Aircraft shall not then be subject to an event of Taking
or Total Loss.
c. Excusable Delay. No event of Excusable Delay shall preclude
Seller from performing its obligations hereunder.
d. Deposits. All Deposits required under Section 3.2 have been
made as and when due.
e. Escrow Agreements. (1) Purchaser and the Funds Escrow Agent
shall have duly executed and delivered to Seller the Funds Escrow
Agreement; (2) Purchaser and the Documents Escrow Agent shall have duly
executed and delivered to Seller the Documents Escrow Letter; and
(3) Purchaser shall have delivered to the Funds Escrow Agent and Documents
Escrow Agent all funds and documents to be delivered by Purchaser under the
Funds Escrow Agreement and Document Escrow Letter including, without
limitation, the Purchase Price for such Aircraft as and when due.
ARTICLE 9.
Termination.
9.1 Termination by Purchaser. This Agreement may be terminated and
abandoned by Purchaser solely as follows:
a. Event of Termination. With respect to the Agreement as a
whole, upon an Event of Termination by Seller or Itochu.
b. Non-Fulfillment of Conditions. With respect to a particular
Aircraft, but no others, and except to the extent subject to an Excusable
Delay, if any condition to Purchaser's obligation to purchase said Aircraft
in Section 7.2 hereof has not been substantially and materially satisfied,
unless waived by Purchaser or extended by agreement of the parties or
caused by the acts or omissions of Purchaser.
c. Termination for Delay. With respect to a particular
Aircraft, but no others, due to delay as provided in Section 9.4(b) below.
d. Breach of Undertakings. Except to the extent excused or
delayed under Section 9.4 hereof, with respect to a particular Aircraft,
Seller shall materially and substantially fail to perform or maintain any
of its obligations hereunder and such failure is not cured within [ * ]
Business Days of written notice to Seller.
e. Total Loss or Taking. With respect to a particular
Aircraft, but no others, and subject to Section 9.4 (including extensions
of time to cure) due to a Total Loss or Taking of the Aircraft.
Notwithstanding the above, Seller shall have the right, but not the
obligation, to deliver a Substitute Aircraft (being a comparable Model B-
767 aircraft that meets the requirements of this Agreement and may include,
without limitation, acceleration of delivery of other Aircraft to be
delivered hereunder).
f. Excusable Delay. With respect to a particular Aircraft, but
no others, due to Excusable Delay as provided and subject to
Section 9.4(b).
9.2 Termination by Seller. This Agreement may be terminated and
abandoned by Seller solely as follows:
a. Event of Termination. With respect to the Agreement as a
whole, upon an Event of Termination by Purchaser or Airborne.
b. Non-Fulfillment of Conditions. With respect to a particular
Aircraft, but no others, if any condition to Seller's obligation to sell
said Aircraft in Section 8.2 hereof has not been materially and
substantially satisfied by the applicable delivery date, unless waived by
Seller or extended by agreement of the parties provided that nothing herein
shall limit Seller's right to terminate as provided under Section 9.2(e)
below.
c. Total Loss or Taking. With respect to a particular
Aircraft, but no others, and subject to Section 9.4 (including extensions
of time to cure) due to a Total Loss or Taking of the Aircraft.
d. Excusable Delay. With respect to a particular Aircraft, but
no others, due to Excusable Delay as provided and subject to Section 9.4.
e. Breach of Undertakings. With respect to a particular
Aircraft or, at Seller's election, this Agreement as a whole, upon the
occurrence of any of the following:
1. Purchaser shall fail to perform or maintain any of its
obligations under Sections 3.2, 3.3, 3.4, 3.7 or 6.2(a) hereof;
2. Purchaser shall fail to materially and substantially
perform any of its other obligations hereunder and such failure is not
cured within [ * ] Business Days of written notice to Purchaser;
3. Purchaser shall fail to take delivery of any Aircraft
tendered for delivery in Delivery Condition; or
4. Purchaser shall default under its obligations under the
Marubeni Purchase Agreement.
9.3 Event of Termination. For purposes of this Agreement, an "Event
of Termination" shall mean with respect to Itochu (except with respect to
subclause (c) below, which shall not apply to Itochu), Seller, Purchaser or
Airborne, as the case may be:
a. Voluntary Bankruptcy; Insolvency. Such person shall
(i) suspend or discontinue its business, or (ii) make an assignment for the
benefit of creditors, or (iii) generally not be paying its debts as such
debts become due, or (iv) admit in writing its inability to pay its debts
as they become due, or (v) file a voluntary petition in bankruptcy, or
(vi) become insolvent (however such insolvency shall be evidenced), or
(vii) file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment of debt, liquidation or dissolution
or similar relief under any present or future statute, law or regulation of
any jurisdiction, or (viii) petition or apply to any tribunal for any
receiver, custodian or any trustee for any substantial part of its
property, or (ix) be the subject of any such proceeding filed against it
which remains undismissed for a period of sixty (60) days, or (x) file any
answer admitting or not contesting the material allegations of any such
petition filed against it, or of any order, judgment or decree approving
such petition in any such proceeding, or (xi) seek, approve, consent to, or
acquiesce in any such proceeding, or in the appointment of any trustee,
receiver, custodian, liquidator, or fiscal agent for it, or any substantial
part of its property, or an order is entered appointing any such trustee,
receiver, custodian, liquidator or fiscal agent and such order remains in
effect for sixty (60) days, or (xii) take any formal action for the purpose
of effecting any of the foregoing or seeking the its liquidation or
dissolution;
b. Involuntary Bankruptcy. An order for relief is entered
under the applicable bankruptcy laws or any other decree or order is
entered by a court having jurisdiction in the premises and such decree or
order continues undismissed and in effect for a period of sixty (60) days
(i) adjudging the person bankrupt or insolvent, or (ii) approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the person under applicable bankruptcy
or similar laws, or (iii) appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the person
or of any substantial part of the property of any thereof, or (iv) ordering
the winding up or liquidation of the affairs of the person;
c. Cross Default. With respect to any indebtedness of such
person for borrowed money in a principal amount which exceeds [ * ] (or its
equivalent) or which, when combined with all other such indebtedness,
exceeds [ * ] (or its equivalent), (i) such person shall fail to pay when
due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) any such indebtedness or any interest or premium
thereon and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such
indebtedness (except such indebtedness as may be subject to a good faith
dispute), or (ii) such person shall fail to perform any term or covenant on
its part to be performed under any agreement or instrument relating to any
such indebtedness and required to be performed and such failure shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such failure to perform is to
accelerate or to permit the acceleration of the maturity of such
indebtedness (except such indebtedness as may be subject to a good faith
dispute), or (iii) any such indebtedness shall be declared to be due and
payable or required to be prepaid (other than by regularly scheduled
required prepayment) prior to the stated maturity thereof (except such
indebtedness as may be subject to a good faith dispute) provided that with
respect to any period of good faith dispute by a party, such party shall
take all steps as may be reasonable to resolve such dispute and, in any
event, with respect to matters described in subclause (iii) hereof, such
default is fully cured within [ * ] days after declaration that such
indebtedness is due and payable or required to be prepaid prior to the
stated maturity thereof.
9.4 Excusable Delay.
a. General. Seller shall not be responsible or be liable for
any damages (upon termination by Purchaser or otherwise) or deemed to be in
default on account of, inability to or delays in the delivery of any
Aircraft or any Aircraft Documentation or the failure of any other act to
be performed by Seller hereunder due to any of the following causes: acts
of God, war, warlike operations, insurrections or riots, fires, floods or
explosions, earthquakes or serious accidents, epidemics or quarantine
restrictions, any acts of government or governmental priorities, strikes or
labor troubles causing cessation, slow-down or interruption of work,
failure of or delay in transportation, or inability, after due and timely
diligence, to procure materials, accessories, equipment or parts, Damage,
or arising out of any other cause to the extent it is beyond Seller's
reasonable control and not occasioned by Seller's fault or negligence (any
such event being, an "Excusable Delay"). Without limitation, the failure
of ANA to perform any of its obligations under the relevant lease between
Seller and ANA or due to any other action or inaction of ANA, shall
constitute an Excusable Delay. In the event of any Excusable Delays,
Seller shall advise Purchaser concerning the nature and approximate extent
thereof and shall thereafter from time to time advise Purchaser concerning
the current status of such delays. Seller further agrees to use reasonable
efforts to cause ANA to remedy such Excusable Delay, to the extent Seller
may require ANA to remedy such event under the relevant lease with ANA.
b. Excusable Delay - Termination. During the period of
Excusable Delay which affects the delivery of an Aircraft, the time for
delivery of such affected Aircraft shall be extended. In the event
delivery of any Aircraft shall be delayed due to any one or more Excusable
Delays for a period of more than [ * ] calander days after the end of the
relevant Target Month in which such delivery is otherwise required
hereunder (the "Initial Period"), and if it is reasonable to believe that
the relevant events of Excusable Delay will be rectified, Purchaser shall
have the right, up to two times, to extend the obligations of Purchaser and
Seller hereunder with respect to such Aircraft, by delivering written
notice (the "Extension Notice") to Seller no later than [ * ] days prior to
expiration of the Initial Period or the expiration of the first Extension
Period, as the case may be. The period of extension (the "Extension
Periods") shall not be longer than the time reasonably calculated as
necessary for the relevant event of Excusable Delay to be corrected
provided that the first Extension Period shall not, in any event, exceed [
* ] calendar days and the second Extension Period shall not, in any event,
exceed [ * ] calander days. In addition, Purchaser shall have no right to
request a second Extension Period if Seller in good faith reasonably
believes the matter will likely not be rectified within such second
Extension Period. If the Aircraft shall not be delivered to Purchaser
within the Initial Period or Extension Periods, as the case may be, then
the rights and obligations of the parties hereunder with respect to that
Aircraft, but not others, shall terminate and Seller shall, within [ * ]
days from such termination, return to Purchaser the Deposits and Standby
Letters of Credit therefore received from Purchaser under Section 3.2
hereof with respect to that Aircraft (but in any event shall not return the
Final Delivery Deposit, or Standby Letters of Credit applicable thereto,
except if such event of Excusable Delay shall relate to the final Aircraft
to be delivered hereunder).
c. Excusable Delay - Damage. For purposes of this Agreement,
"Damage" means: (i) material damage to the Aircraft which affects the
ability of the Aircraft to satisfy the Delivery Condition of Article 4
hereof; (ii) which has not been corrected as of the date of the "C" check
to be performed under Section 7.2(d) hereof; and (iii) which has been
determined by ANA's insurers (or such other third party as may be
acceptable to Seller, Purchaser and ANA) not to give rise to Total Loss of
the Aircraft. The parties acknowledge that Damage is an event of
Excusable Delay. Without limiting any other provision hereunder, Seller
agrees to give prompt notice to Purchaser of any event of Damage and
further agrees to use all reasonable efforts to cause ANA to repair the
Aircraft in a timely and efficient manner.
9.5 Effect of Termination by Purchaser. If Purchaser shall have
properly terminated this Agreement in whole pursuant to Section 9.1(a),
then all remaining Deposits (except with respect to Aircraft that have been
delivered prior to the date of termination) and Standby Letters of Credit
shall be returned to Purchaser and Purchaser may pursue any remedies it may
have under applicable law. If Purchaser shall have properly terminated
this Agreement with respect to a particular Aircraft, then the relevant
Deposits and relevant Standby Letters of Credit made with respect to said
Aircraft (other than any of the Final Delivery Deposit and/or relevant
Standby Letters of Credit with respect thereto unless said termination is
with respect to the ninth (9th) Aircraft) shall be returned to Purchaser.
Further, if termination with respect to an Aircraft resulted from events or
actions within the reasonable control of Seller and were not excused by
Excusable Delay, Purchaser may pursue any remedies it may have under
applicable law with respect to said Aircraft, but Purchaser shall remain
obligated to purchase and Seller shall remain obligated to sell all
remaining Aircraft in accordance with the terms of this Agreement. In no
event shall Seller be liable to Purchaser for consequential or punitive
damages, each of which is hereby expressly waived. The parties
acknowledge, however, that Purchaser shall be entitled to a remedy of
specific performance with respect to such matters within the reasonable
control of Seller and not excused by Excusable Delay.
9.6 Effect of Termination by Seller. If Seller shall properly
terminate this Agreement in whole, then Seller shall be entitled to retain
as liquidated damages the amount of all Deposits paid or which should have
been paid by Purchaser as of the date of termination. Without limitation,
Seller shall be entitled to make immediate demand under any Standby Letter
of Credit, and the financial institutions shall make payment thereunder
without regard to whether there is a dispute between Seller and Purchaser
concerning the propriety of demand thereunder. The parties hereby
acknowledge that it would be difficult, if not impossible, to assess the
damages which would be suffered by Seller as a result of termination of
this Agreement, and therefore agree that in the event of any such failure
or refusal by Purchaser, Seller shall be entitled to the Deposits as
liquidated damages, which is not intended as a penalty but is a reasonable
estimate of Seller's actual damages under those circumstances. If Seller
shall have properly terminated this Agreement with respect to a particular
Aircraft, Seller shall remain obligated to sell and Purchaser shall remain
obligated to purchase all remaining Aircraft in accordance with the terms
of this Agreement. Further, unless termination with respect to a
particular Aircraft shall be effected by Seller under Section 9.4(b)
hereof, Seller may retain all Deposits with respect to such Aircraft (and
draw under the relevant Standby Letters of Credit) as full compensation as
its sole remedy for the damages caused hereunder. Purchaser waives any
right to challenge Seller's right to collect liquidated damages. In the
event of such challenge, however, Purchaser acknowledges and agrees that
such amounts constitute, among other things, a reasonable fee to Seller
for committing to sell the Aircraft to Purchaser in accordance with this
Agreement and deferring marketing efforts for the Aircraft.
9.7 Marketing of Aircraft. If the Agreement is terminated in whole
or with respect to a particular Aircraft, whether by Seller, Purchaser or
both, and regardless of fault and notwithstanding any right or remedy
either party may have arising therefrom, Seller shall be free of any
further obligation to sell all remaining Aircraft (in the case of
termination of this Agreement in whole) or such Aircraft (in the case of
termination with respect to a particular Aircraft) to Purchaser hereunder.
Without limitation, Purchaser shall have no further right to or interest in
said Aircraft and Seller may market or otherwise dispose of said Aircraft
without interference or objection by Purchaser.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
ARTICLE 10.
Miscellaneous.
10.1 Costs and Fees. Except as otherwise expressly provided in this
Agreement, Purchaser and Seller shall each pay its own fees and expenses
incident to the negotiation, preparation and execution of this Agreement
and the obtaining of necessary approvals thereof.
10.2 Indemnity Against Brokers and Finders. Each party hereto shall
indemnify and hold the other party harmless against any claim for broker's
and finder's fees based on alleged retention of a broker/finder by the
indemnifying party.
10.3 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Washington,
exclusive of choice of law rules.
10.4 Consent to Jurisdiction, Waiver of Immunities. Each party hereto
irrevocably submits to the jurisdiction of any State or federal court
sitting in Seattle, King County, Washington, in any action or proceeding
brought to enforce or otherwise arising out of or relating to this
Agreement and irrevocably waives to the fullest extent permitted by law any
objection which it may now or hereafter have to the laying of venue in any
such action or proceeding in any such forum, and hereby further irrevocably
waives any claim that any such forum is an inconvenient forum. Each party
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law. Nothing herein shall
impair the right of one party to bring any action or proceeding against
another or its property in the courts of any other jurisdiction and each
party irrevocably submits to the nonexclusive jurisdiction of the
appropriate courts sitting in any place where property of such party is
located.
10.5 Inspections. In addition to Purchaser's inspection rights under
Section 7.2(d) hereof, Seller shall use its reasonable efforts to permit
Purchaser, upon reasonable notice and at reasonable times and at its own
expense, to inspect the Aircraft and Aircraft Documentation provided that
such inspections shall not interfere with ANA's usual operations.
10.6 Notices. All notices, requests, demands and other communication
required or permitted to be given by any party hereunder ("Notices") shall
be in writing and shall be sufficiently given if delivered personally or by
a reputable over-night delivery service or by telex or telecopier or
similar facsimile transmission or if sent by registered or certified mail,
postage prepaid, to the following address:
Seller: KC-ONE, INC.
KC-TWO, INC.
KC-THREE, INC.
c/o ITOCHU AirLease Corporation
NXB Aoyama Building, 5F
26-37, Minami-Aoyma 2-chome
Minato-ku, Tokyo 107
Japan
Attention: Manager
Facsimile: 011-813-3497-8145
Telex: 2423154 TKAFC J
With a copy to: Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
Telefax No.: (206) 628-7040
Attention: Joseph D. Weinstein
Purchaser: ABX AIR, INC.
145 Hunter Drive
Wilmington, Ohio 45177
U.S.A.
Attention: President
Facsimile: 513-382-2452
Telex: 214317AIRBN-EXP-WIMI
With a copy to: AIRBORNE FREIGHT CORPORATION
Corporate Secretary/Counsel
3101 Western Avenue
Seattle, WA 98121
U.S.A.
Telefax No.: (206) 281-1444
Notice shall be deemed given, made or received when received. Any
party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
10.7 Entire Agreement. This Agreement, along with all exhibits and
schedules hereto, contains the entire understanding among the parties
hereto with respect to the subject matter hereof, and supersedes all prior
and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein
contained, including, without limitation, the term sheet dated October 26,
1995. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an
agreement in writing.
10.8 Assignment. This Agreement shall inure to the benefit of and be
binding upon each of the parties hereto and their respective successors and
assigns, but neither the rights nor the duties of either party under this
Agreement may be voluntarily assigned (including, without limitation, by
merger, consolidation, or reorganization), in whole or part, by either
party without the prior written consent of the other party (which consent
may be withheld in such party's sole discretion) provided that: (a) neither
party may withhold consent unreasonably in connection with an assignment by
merger, consolidation or reorganization or voluntary sale of all or
substantially all of such party's assets; and (b) Seller may assign or
novate all or any part of its rights and obligations under this Agreement,
including its title to or any interest in any Aircraft or other items to be
delivered hereunder and its right to receive moneys hereunder, in favor of
or to an affiliate or to a wholly-owned subsidiary of Itochu, and such
assignee shall have the rights and obligations of Seller hereunder provided
that absent the consent of Purchaser after good faith consultations with
Seller, Seller may not assign to an affiliate or subsidiary organized under
the laws of a country other than Japan or the United Kingdom if such
assignment would, at that time, subject Purchaser to materially increased
indemnity obligations under Section 2.6 hereof than would have been the
case if the assignee's home jurisdiction were that of Japan or the United
Kingdom.
10.9 Time. Time is of the essence with respect to the performance by
either party of their obligations hereunder. Further, for purposes of this
Agreement, all references to time and dates shall be to Pacific Standard
Time.
10.10 Paragraph Headings. Paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not
effect its interpretation.
10.11 Severability. Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
10.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original; but such
counterparts shall together constitute but one and the same instrument.
10.13 Attorneys' Fees. In any action or proceeding brought by any
party against the other arising under or in connection with this Agreement
or any other documents related hereto, the prevailing party shall, in
addition to other allowable costs, be entitled to an award of reasonable
attorneys' fees.
10.14 Disclosure of Terms. Seller and Purchaser agree that they will
not disclose to any third party except ANA the terms of this Agreement
except (i) to such party's professional advisors; (ii) as required by
applicable law or governmental regulation, or (iii) with the prior written
consent of Seller or Purchaser.
EXECUTED in duplicate as of the day and year first above written.
PURCHASER: ABX AIR, INC.
By /s/ Carl Donaway
---------------------------
Its President
---------------------
SELLER: KC-ONE, INC.
By /s/ Yoshinori Izumida
---------------------------
Its Director
---------------------
KC-TWO, INC.
By /s/ Haruhiko Terui
---------------------------
Its Director
--------------------
KC-THREE, INC.
By /s/ Toahiyuki Nagamatau
---------------------------
Its Director
---------------------
EXHIBIT A
USED AIRCRAFT IDENTIFICATION
<TABLE>
<CAPTION>
Aircraft
Registration Serial
Owner Number No. Target Month Purchase Price
- ----- -------- ----- ------------ --------------
<S> <C> <C> <C> <C>
KC1 JA8479 22785 April, 1997 USD [ * ]
KC1 JA8480 22786 June, 1997 USD [ * ]
KC2 JA8481 22787 January, 1998 USD [ * ]
KC2 JA8484 22790 October, 1998 USD [ * ]
KC3 JA8485 23016 March, 1999 USD [ * ]
KC3 JA8486 23017 May, 1999 USD [ * ]
KC3 JA8487 23018 September, 1999 USD [ * ]
KC3 JA8489 23020 April, 2000 USD [ * ]
KC3 JA8490 23021 August, 2000 USD [ * ]
</TABLE>
AIRCRAFT CONFIGURATION DESCRIPTION
The Aircraft shall be delivered to Purchaser in the configuration
defined by Boeing detail Specification D6T103001NH, dated March 1, 1979 as
applicable (Detail Specification), as amended and supplemented and as the
Aircraft has been modified from the date of its delivery as new by Boeing
to ANA to the date of delivery to Purchaser. Certain aspects of the
current specifications of the Aircraft are described in Schedule 1 attached
hereto.
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
EXHIBIT B
BILL OF SALE
[KC-ONE, INC.] ("Seller"), a Japanese corporation, in consideration of
One Dollar and other good and valuable considerations, receipt of which is
hereby acknowledged, does hereby grant, bargain, sell and assign to ABX
AIR, INC. ("Purchaser"), a Delaware corporation, the following described
property (including all appliances, parts, instruments, appurtenances,
accessories, furnishings, or other equipment or property installed on or
attached to said aircraft and engines):
<TABLE>
<CAPTION>
Aircraft Aircraft
Manu- Aircraft Manu- Engine Engine
facturer's Registration facturer's Manufacturer's Manufacturer's
Model No. Markings Serial No. Model No. Serial Nos.
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
(1)
(2)
</TABLE>
TO HAVE AND TO HOLD said property to the Purchaser its successors and
assigns, to its and their own use forever.
The interest of the Seller in said property, and the interest
transferred by this Bill of Sale, is that of absolute ownership.
THAT SELLER hereby warrants to Purchaser its successors and assigns,
that there is hereby conveyed to Purchaser on the date hereof, good title
to the aforesaid aircraft, engines, appliances, parts, instruments,
appurtenances, accessories, furnishings and/or other equipment or property,
free and clear of all Liens and that it will warrant and defend such title
forever against all claims and demands whatsoever.
This Bill of Sale shall be governed by the laws of the State of
Washington. This Bill of Sale is subject to the terms and conditions of
that certain Used Aircraft Sales Agreement dated as of ---------- (the
"Sales Agreement") and in the event of any conflict, the terms of the Sales
Agreement shall prevail. Capitalized terms not otherwise defined herein
have the meanings given in the Sales Agreement.
IN WITNESS WHEREOF, Seller has caused its corporate name to be
subscribed hereto by its duly authorized representative this --- day of
- ---------, ----.
KC-ONE, INC.
By
-----------------------------
Its
-----------------------
EXHIBIT C
USED AIRCRAFT AND AIRCRAFT DOCUMENTATION
ACCEPTANCE CERTIFICATE
ABX AIR, INC. ("Purchaser") hereby confirms to [KC-ONE, INC.] ("KC1")
in accordance with the terms and conditions of that certain Used Aircraft
Sales Agreement dated as of December ---, 1995 (as amended, the "Sales
Agreement), by and between, [KC1, KC-TWO, INC. and KC-THREE, INC.
(collectively, "Seller"), that one (1) Boeing Model 767-281 Used Aircraft;
Registration Markings:
Manufacturer's Serial Number:
with two (2) installed General Electric Model CF6-80A engines,
Manufacturer's Serial Numbers:
Position (1)
Position (2)
together with the Aircraft Documentation applicable to the Aircraft as
described on Attachment 1 hereto and made a part hereof and with the
operating times and cycles as accumulated on the Aircraft up to the time of
delivery as described on Attachment 2 hereto and made a part hereof is
accepted by Purchaser under the Sales Agreement. Further, except as noted
on Attachment 3 hereto, the Aircraft and Aircraft Documentation is in
Delivery Condition.
ABX AIR, INC.
By
---------------------------
Its
---------------------
Attachments 1 and 2
Attachment 1 to
Exhibit C to
AIRCRAFT DOCUMENTATION
<TABLE>
<CAPTION>
Identification
Title/Description Number Quantity
- ----------------- ----------------- -----------------
<S> <C> <C>
</TABLE>
Attachment 2 to
Exhibit C to
AIRCRAFT HOURS AND CYCLES
as of -------------, ---
BOEING MODEL 767-281
Registration Markings ---------- Serial Number ----------
A. Airframe:
<TABLE>
<CAPTION>
<S> <C>
Aircraft Total Time (Hours
-------------
Aircraft Total Landings (Cycles)
-------------
Aircraft (& Engine) "A" Check - Time to next check
-------------
Aircraft (& Engine) "C") Check - Time to next check
-------------
Aircraft Special Check(s) - Time to next check
-------------
</TABLE>
B. General Electric Engine - Model CF6-80A:
<TABLE>
<CATPION>
Cycles to next
Cycles Since Replacement of
Serial Total Engine Total Last Shop Lowest Life
Position Number Cycles Time Visit Limited Part
- -------- ------ ------ ------ ------------ --------------
<S> <C> <C> <C> <C> <C>
1
2
</TABLE>
C. Garrett APU - Model GTCP331-20A:
<TABLE>
<CAPTION>
Cycles to Next
Serial Total Total Hours Since ANA's Replacement of Lowest
Number Hours Cycles Last Overhaul Life Limited Part
- ------- ------- ------- ------------ -----------------
<S> <C> <C> <C> <C>
</TABLE>
D. Landing Gear:
<TABLE>
<CAPTION>
Hours/Cycles Hours/ Cycles
Serial Total Since to Calendar
Number Hours/Cycles Overhaul Date Overhaul
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Nose Landing Gear
Right Main Gear
Left Main Gear
</TABLE>
E. Maintenance Schedule As of [ * ]:
<TABLE>
<CAPTION>
<S> <C>
Accomplish "A" Check [ * ]
Accomplish "C" Check:
System Maintenance
Requirements (SYMR): [ * ]
Structure Maintenance
Requirements (STMR): [ * ]
Accomplish Heavy Maintenance [ * ]
Accomplish Engine Repair [ * ]
Accomplish HSI [ * ]
Accomplish CSI [ * ]
Accomplish APU Overhaul [ * ]
Accomplish Landing Gear Overhaul [ * ]
</TABLE>
* Sampling Structural Inspection program and Corrosion Prevention and
Control Program in accordance with ANA's Maintenance Program
* Blank space contained confidential information which has been filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-
2 under the Securities Exchange Act of 1934.
Attachment 3 to
Exhibit C to
DISCREPANCIES LIST
EXHIBIT D
IRREVOCABLE STANDBY LETTER OF CREDIT
[ISSUER]
--------------------
--------------------
Date:
-------------
Irrevocable Standby Letter of Credit No. ---------
[KC-ONE, INC.]
c/o ITOCHU AirLease Corporation
NXB Aoyama Building, 5F
26-37, Minami-Aoyma 2-chome
Minato-ku, Tokyo 107
Japan
Ladies and Gentlemen:
We hereby establish in your favor our Irrevocable Standby Letter of
Credit number --------------- for the account of:
Airborne Freight Corporation; and
ABX Air, Inc.
145 Hunter Drive
Wilmington, Ohio 45177
U.S.A.
Funds under this Standby Letter of Credit are available to you against
your sight draft(s) in the form of Exhibit A, attached hereto, drawn on us
up to the aggregate amount of --------- (US$---------), stating on their
face the number and date of this Standby Letter of Credit. Drafts must be
accompanied by a signed certificate in the form of Exhibit B, attached
hereto, dated the date of your draft.
Presentation of such draft(s) and certificate(s) shall be made at
- ---------------- (address and facsimile number) by means of telefacsimile
and we shall be entitled to rely thereon as if such draft(s) and
certificate(s) had been presented in person. In addition, any draft or
certificate may be presented as described above by mail, express mail or in
person, effective upon our receipt thereof.
We hereby agree that each draft drawn under and in conformity with the
terms of this Standby Letter of Credit will be duly honored by us upon due
delivery of the certificates, if presented as described above on or before
the expiration date.
Each draft presented hereunder in conformity with the terms hereof shall be
duly honored by us by payment to you of the amount of such draft in
immediately available funds:
(a) not later than 3:00 p.m., [issuing bank city] time, on the
day such draft is presented to us as aforesaid, if such presentation
is made to us at or before 9:00 a.m., [issuing bank city] time, or
(b) not later than 3:00 p.m., [issuing bank city] time, on the
business day following the day such draft is presented to us as
aforesaid, if such presentation is made to us after 9:00 a.m.,
[issuing bank city] time.
Partial drawings under this Standby Letter of Credit are permitted.
This Standby Letter of Credit shall expire on (date).
This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision), International Chamber of Commerce,
Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall
be deemed to be made under the laws of the State of --------------,
including Article 5 of the Uniform Commercial Code, and shall, as to
matters not governed by the Uniform Customs, be governed by and construed
in accordance with the law of the State of -------------.
Notwithstanding Article 48 of the Uniform Customs, this Letter of
Credit may be transferred.
Except as expressly stated herein, this undertaking is not subject to
any agreement, requirement or qualification. The obligation of -----------
Bank under this Credit is the individual obligation of ------------- Bank
and is in no way contingent upon reimbursement with respect thereto, or
upon our ability to perfect any lien, security interest or any other
reimbursement.
This Letter of Credit sets forth in full the terms of our undertaking
and shall not in any way be modified, amended or amplified by reference to
any documents, instruments or agreements referred to herein, or in which
this Letter of Credit is referred to or to which this Letter of Credit
relates and any such reference shall not be deemed to incorporate herein by
reference any documents, instruments and agreements.
Very truly yours,
By
--------------------------
Name:
Title:
EXHIBIT A
SIGHT DRAFT
Date of Draft:
Drawn Under: Irrevocable Standby Letter of Credit No. [----]
To the Order of: [Seller]
Pay --------------------------- United States Dollars AT SIGHT by wire
transfer of immediately available funds in such amount to the account of
Seller as follows:
[Describe account details]
[Seller]
By:
-----------------------------
Its:
-----------------------------
Attachment: Certificate for Drawing
EXHIBIT B
CERTIFICATE FOR DRAWING
The undersigned, hereby certifies to ------------- (the "Bank"), with
reference to the Irrevocable Standby Letter of Credit No. ------- (the
"Letter of Credit") issued by the Bank in favor of [KC-ONE, INC.]
("Seller"), that:
(i) Seller is presenting a signed sight draft herewith to draw funds
under the Letter of Credit in the amount of US$----------.
(ii) Demand for payment under the Letter of Credit is being made prior
to the expiration thereof.
(iii) Seller is entitled to draw on the Letter of Credit, in the amount
stated in paragraph (i) above, under that certain Used Aircraft
Sales Agreement, dated as of [-----------], 1995 (as amended,
the "Agreement").
IN WITNESS WHEREOF, Seller has executed and delivered this Certificate
as of the ----- day of ----------, ----.
[KC-ONE, INC.]
By:
-------------------------
Title:
EXHIBIT E
DOCUMENT ESCROW LETTER
----------------, 1995
Messrs. Crowe & Dunlevy
1800 Mid-America Tower
20 North Broadway
Oklahoma City, Oklahoma 73102-8273
ATTENTION: Robin D. Jenson
Re: Boeing 767-281 Aircraft, MSN --------------
Dear Ms. Jenson:
The undersigned [KC-ONE, Inc.], a Japanese corporation ("Seller"), and
ABX Air, Inc.. a Delaware corporation ("Purchaser"), have agreed to deliver
to you the following executed original documents with respect to the above-
referenced aircraft (the "Aircraft"), to be held in escrow and distributed
in accordance with these instructions:
A. Documents Deposited by Seller:
1. Original executed Bill of Sale with respect to the Aircraft;
2. Original executed FAA Bill of Sale on Form 8052-2; and
3. ---- original Standby Letters of Credit as described below:
Issuer Face Amount
a.
b.
c.
B. Documents Deposited by Purchaser:
1. Original executed Used Aircraft and Aircraft Documentation
Delivery Receipt; and
2. Insurance Certificate with respect to the Aircraft naming Seller
and its affiliates as an additional insured.
Collectively, the documents delivered to you by the Seller are the
"Seller Documents", and the documents delivered to you by the Purchaser are
the "Purchaser Documents".
When you have received both all of the Purchaser Documents and the
Seller Documents, please confirm these facts to Purchaser and Seller via
facsimile.
Upon receipt by you of confirmation that the Federal Aviation
Administration ("FAA") has received notification from the Japanese Civil
Aviation Board ("JCAB") that the Aircraft has been de-registered from
Japanese Registration ("De-Registration Notice"), you are instructed and
authorized to notify -------- to release the $---------- of funds (the
"Escrow Funds") to Seller's account (the "Release Notice"). This notice
shall be via facsimile or telephone conference call.
Upon receipt by you of confirmation from ---------- (the "Funds Bank")
that the Funds Bank has received the Escrow Funds for the benefit of
Seller, you are instructed and authorized to (a) file the Form 8052-2 with
the FAA, (b) distribute the remaining Seller Documents to Purchaser, and
(c) distribute the Purchaser Documents to Seller.
If the conditions to delivery by you of the Release Notice
contained in the prior paragraphs have not been met or waived in writing
within seven calendar days of the date of this letter, you are irrevocably
authorized and instructed to return the Seller Documents to Seller and the
Purchaser Documents to Purchaser. Without limitation, you understand that
Purchaser shall have no right to restrain or delay return of the Seller
Documents to Seller under such circumstances.
We hereby confirm to you that you are entitled to act in
accordance with this letter upon receipt of a copy of the releases by
facsimile unless instructed otherwise, and hereby further confirm that you
are entitled to act upon joint written instructions signed or orally
communicated by Seller and Purchaser that may vary from the terms of this
letter.
The Purchaser hereby confirms to you that it will be responsible
for and hereby agrees to pay for fees and expenses incurred in connection
with acting as document escrow agent, and in connection with the
preparation and delivery of an opinion to Purchaser with respect to title.
The notices that we have requested that you deliver pursuant to this
agreement, and any delivery of the Seller or Purchaser Documents in
accordance with this letter, should be delivered to the following:
If to Seller: [KC-ONE, INC.]
c/o ITOCHU AirLease Corporation
NXB Aoyama Building, 5F
26-37, Minami-Aoyma 2-chome
Minato-ku, Tokyo 107
Japan
Attention: Manager
Facsimile: 011-813-3497-8145
Telex: 2423154 TKAFC J
With a copy to: Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
Telefax No.: (206) 628-7040
Attention: Joseph D. Weinstein
If to Purchaser: ABX AIR, INC.
145 Hunter Drive
Wilmington, OH 45177
U.S.A.
Attention: President
Facsimile: 513-382-2453
Telex: 214317AIRBN-EXP-WIMI
With a copy to: AIRBORNE FREIGHT CORPORATION
Corporate Secretary/Counsel
3101 Western Avenue
Seattle, WA 98121
U.S.A.
Telefax No.: (206) 281-1444
Thank you for your assistance.
SELLER: [KC-ONE, INC.]
By
-----------------------------
Its
-----------------------------
PURCHASER: ABX AIR, INC.
By
-----------------------------
Its
-----------------------------
EXHIBIT F
FUNDS ESCROW AGREEMENT
WITH RESPECT TO AIRCRAFT --------
THIS FUNDS ESCROW AGREEMENT (the "Funds Escrow Agreement") is made and
entered as of this ---- day of ----------, ----, by and among [KC-ONE,
INC.], a Japanese corporation ("Seller"); ABX AIR, INC., a Delaware
corporation ("Purchaser"); and -------------------------- ("Escrow Agent").
RECITALS
A. Purchaser and Seller, [KC-TWO, INC., and KC-THREE, INC.] are
parties to that certain Used Aircraft Sales Agreement dated as of December
- ---, 1995 (as amended, the "Sales Agreement").
B. This Funds Escrow Agreement is established in connection with the
delivery of Aircraft -------- (the "Aircraft").
C. Under the Sales Agreement, Purchaser and Seller are required to
place certain funds in escrow with Escrow Agent in connection with delivery
of the Aircraft, and to provide for their disbursement upon satisfaction or
waiver of the conditions contained in the Sales Agreement. In connection
therewith, Purchaser, Seller and [Crowe & Dunlevy] (the "Document Escrow
Agent") have established with respect to delivery of the Aircraft a
document escrow pursuant to a Document Escrow Letter of even date herewith
(the "Document Escrow Agreement").
NOW, THEREFORE, in consideration of the promises and mutual
representations, warranties, covenants and agreements contained in this
Funds Escrow Agreement, the parties agree as follows:
AGREEMENT
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meaning given in the Sales Agreement.
2. Establishment of Escrow. In accordance with the provisions of
Section 3.4 of the Sales Agreement, Purchaser shall, at least one Business
Day prior to the delivery date for the Aircraft established under the Sales
Agreement, place on deposit with Escrow Agent an amount, immediately
available dollars, equal to the sum of (a) $--------------, plus (b) the
fees of the Escrow Agent established in Section 9 hereof (such sum, the
"Escrow Funds"). Escrow Agent hereby agrees that the Escrow Funds shall be
held, invested and disbursed for the benefit of the parties and their
respective successors and assigns as provided in this Funds Escrow
Agreement.
3. Sales Agreement Controls. This Agreement shall not modify, amend
or otherwise alter the duties, obligations, liabilities, rights or benefits
of Seller or Purchaser under the Sales Agreement.
4. Investment of Escrow Funds. The Escrow Funds may be invested by
Escrow Agent in certificates of deposit issued by banks or trust companies,
short term United States debt instruments or short term debt instruments
guaranteed by the United States or agencies of the United States, or money
market funds consisting of debt instruments of the United States or
agencies of the United States, in accordance with instructions, from time
to time given in writing to Escrow Agent by Purchaser. Escrow Agent shall
not incur any liability in acting in accordance with this Funds Escrow
Agreement, and in good faith in making investments herein authorized. All
income earned and received from the investments shall be applied first to
the fees payable to Escrow Agent, and any remainder shall be paid to the
Purchaser.
5. Disbursement of Escrow Funds.
5.1 Disbursement to Seller. Immediately upon satisfaction of the
conditions contained in Section 6.1 and 6.2 hereof (the "Disbursement
Conditions"), Escrow Agent shall pay to Seller, its successors or assigns,
the entire balance of the Escrow Funds less the fees of Escrow Agent and
any interest or profit earned in respect thereof, which shall be paid to
the following account of Seller (the "Seller Account"):
[Details for Seller's account.]
5.2 Return of Funds to Purchaser. In the event that the
Disbursement Conditions have not been met on or before seven (7) calendar
days after date hereof, the Escrow Funds and any interest or profit earned
in respect thereof (less the fees of Escrow Agent) shall be returned to
Purchaser. When all monies held by Escrow Agent have been finally
distributed in accordance herewith, this Funds Escrow Agreement shall
terminate.
6. Conditions to Disbursement of Escrow Funds.
6.1 Deposits by Purchaser. Purchaser shall have deposited with
Escrow Agent the full amount of Escrow Funds. Escrow Agent shall,
immediately upon receipt of the Escrow Funds, notify Purchaser and Seller.
6.2 Authorization of Release. Escrow Agent shall have received
notification from the Document Escrow Agent that all conditions to release
of the Escrow Funds have been met or waived (the "Release Notice"). The
Release Notice may be delivered via facsimile or telephone conference call.
7. Liability of Escrow Agent.
7.1 Conflicting Demands. Escrow Agent shall be obligated to
perform only such duties as are expressly set forth herein and need not
take notice of any provisions of the Sale Agreement. In case of
conflicting demands upon Escrow Agent, it shall be entitled, at its option:
(a) to refuse to comply therewith as long as such
disagreement continues and to make no delivery or other disposition of any
funds or property then held (and Escrow Agent shall not be or become liable
in any way for such failure or refusal to comply with such conflicting or
adverse claims or demands); and
(b) to continue to refrain and to so refuse to act until
all differences shall have been adjusted by agreement and Escrow Agent
shall have been notified thereof in writing signed jointly by Seller and
Purchaser or
(c) to interplead the portion of Escrow Funds in dispute.
7.2 No Obligation to Take Legal Action. Escrow Agent shall not
be under any obligation to take any legal action in connection with this
Funds Escrow Agreement or for its enforcement, or to appear, prosecute or
defend any action or legal proceeding which, in its opinion, would or might
involve it in any costs, expense, loss or liability unless and as often
required by it, it shall be furnished with security and indemnity
satisfactory against all such costs, expenses, losses or liabilities.
7.3 Status of Escrow Agent. Escrow Agent is to be considered
and regarded as a depository only and shall not be responsible or liable
(except for its failure to exercise due care) for the sufficiency or
correctness as to form, manner of execution, or validity of any instrument
deposited in this escrow, nor as to the identity, authority or rights of
any person executing the same. Its duties hereunder shall be limited to the
safekeeping, investing and/or delivery of such money and instruments
received by it as Escrow Agent and for the disbursement of same in
accordance with the written Escrow Instructions given it in accordance with
this Funds Escrow Agreement.
7.4 Written Instructions of the Parties. Notwithstanding
anything herein contained to the contrary, Escrow Agent shall, at all
times, have full right and authority to pay over and disburse the Escrow
Funds in accordance with the joint written [or oral] instructions of Seller
and Purchaser.
8. Indemnity. The Seller and Purchaser agree to and hereby do waive
any suit, claim, demand or cause of action of any kind which they or it may
have or may assert against the Escrow Agent arising out of or relating to
the execution or performance by the Escrow Agent of this Funds Escrow
Agreement, unless such suit, claim, demand or cause of action is based upon
a breach of this Funds Escrow Agreement by the Escrow Agent or the willful
misconduct or gross negligence or bad faith of the Escrow Agent. They
further agree to indemnify the Escrow Agent against and from any and all
claims, demands, costs, liabilities and expenses, including reasonable
counsel fees, which may be asserted against it or to which it may be
exposed or which it may incur by reason of its execution or performance of
this Funds Escrow Agreement other than (a) usual and customary overhead
expenses and (b) claims, demands, costs, liabilities and expenses arising
out of a breach of this Agreement by the Escrow Agent or the willful
misconduct or gross negligence or bad faith of the Escrow Agent. Such
agreement to indemnify shall survive the termination of this Funds Escrow
Agreement until extinguished by any applicable statute of limitations.
9. Escrow Agent's Fee. Escrow Agent shall be entitled to receive a
fee of $---------- for services to be rendered hereunder.
10. Miscellaneous Provisions.
10.1 Parties in Interest. This Agreement is not intended, nor
shall it be construed, to confer any enforceable rights on any person not a
party hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto.
10.2 Attorneys' Fees. In the event of any action to enforce any
provision of this Agreement, or on account of any default under or breach
of this Agreement, the prevailing party in such action shall be entitled to
recover, in addition to all other relief, from the other party all
attorneys' fees incurred by the prevailing party in connection with such
action (including, but not limited to, any appeal thereof).
10.3 Entire Agreement. This Agreement constitutes the final and
entire agreement among the parties with respect to the subject matter
hereof and supersedes all prior arrangements or understandings.
10.4 Notices. All notices, requests, consents and other
communications provided for herein to any party shall be deemed to be
sufficient if contained in a written instrument either: (a) delivered in
person or by facsimile or telex; or (b) sent by first-class registered or
certified mail, postage prepaid, addressed to the party at the address set
forth below, or such other address as may be hereafter be designated in
writing by the party.
If to Seller: [KC-ONE, INC.]
c/o ITOCHU AirLease Corporation
NXB Aoyama Building, 5F
26-37, Minami-Aoyma 2-chome
Minato-ku, Tokyo 107
Japan
Attention: Manager
Facsimile: 813-3497-8145
Telex: 2423154 TKAFC J
With a copy to: Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
Telefax No.: (206) 628-7040
Attention: Joseph D. Weinstein
If to Purchaser: ABX AIR, INC.
145 Hunter Drive
Wilmington, OH 45177
U.S.A.
Attention: President
Facsimile: 513-382-2452
Telex: 214317AIRBN-EXP-WIMI
With a copy to: AIRBORNE FREIGHT CORPORATION
Corporate Secretary/Counsel
3101 Western Avenue
Seattle, WA 98121
U.S.A.
Telefax No.: (206) 281-1444
If to Agent: ----------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Notice shall be deemed given, made or received when received. Any
party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
10.5 Changes. The terms of this Agreement may not be modified
or amended, or any of the provisions hereof waived, temporarily or
permanently, except pursuant to the written consent of all the parties.
10.6 Severability. If any term or provision of this Funds
Escrow Agreement or the application thereof as to any person or
circumstance shall to any extent be invalid or unenforceable, the remaining
terms and provisions of this Funds Escrow Agreement or the application of
such term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable shall not be affected thereby
thereto and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
10.7 Facsimile. This Agreement and the Releases may be executed
by facsimile signature, with the original to be mailed by U.S. mail
thereafter.
10.8 Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an
original instrument. All such counterparts together shall constitute but
one Agreement.
10.9 Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement.
10.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington without
regard to the principles of conflicts of laws.
10.11 Binding Effect. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs,
affiliates, successors and assigns. Except as set forth above, nothing in
this Agreement, express or implied, is intended to confer on any person
other than the parties hereto or their respective heirs, successors, and
assigns, any rights, remedies, obligations, or liabilities under or by
reason of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
SELLER: [KC-ONE, INC.]
By
-----------------------------
Its
-----------------------------
PURCHASER: ABX AIR, INC.
By
-----------------------------
Its
-----------------------------
AGENT:
----------------------------------
By
-----------------------------
Its
-----------------------------
EXHIBIT G
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty") is made as of this ---- day
of December, 1995 by AIRBORNE FREIGHT CORPORATION, a Delaware corporation
("Guarantor") in favor of each of KC-ONE, INC., KC-TWO, INC. and KC-THREE,
INC. (referred to as to each and collectively, the "Seller") in order to
induce the Seller to enter into that certain Used Aircraft Sales Agreement
of even date herewith (as amended, the "Sales Agreement") with ABX AIR,
INC. ("Purchaser"). Capitalized terms not otherwise defined herein have
the meanings used in the Sales Agreement.
1. Guaranteed Obligations. The Guarantor absolutely and
unconditionally guarantees each and every obligation of Purchaser to Seller
(or any one of them) now or hereafter arising under or related to the Sales
Agreement (or any other document now or hereafter entered into in
connection therewith), whether presently existing or hereafter arising
(collectively, the "Obligations"), including, without limitation,
obligations with respect to Deposits, payments, indemnities, damages and
costs of collection. Guarantor guaranties the Obligations without set-off,
counterclaim, recoupment or deduction of any amounts owing or alleged to be
owing by Seller (or any one of them) to Purchaser.
2. Guarantor's Consent. The Guarantor hereby consents to all terms
and condition of the Sales Agreement and further consents that the Seller
(or any one of them) may without further consent or disclosure and without
affecting or releasing the obligations of Guarantor hereunder: (a) amend
or modify the Sales Agreement or any other document now or hereafter
entered into in connection therewith; (b) waive or delay the exercise of
any rights or remedies of the Seller against the Purchaser; (c) waive or
delay the exercise of any rights or remedies of the Seller against any
surety or guarantor (including, without limitation, rights or remedies of
the Seller against Guarantor under this Guaranty); (d) waive or delay the
exercise of any rights or remedies of the Seller in respect of any
collateral (including any Deposit) now or hereafter held; (e) release any
surety or guarantor; or (f) renew, extend, waive or modify the terms of any
Obligation or the obligations of any surety or guarantor, or any instrument
or agreement evidencing the same.
3. Guarantor's Representations. Guarantor represents and warrants
to Seller that it has reviewed such documents and other information as it
has deemed appropriate in order to permit it to be fully apprised of
Purchaser's financial condition and operations and has, in entering into
this Guaranty made its own credit analysis independently and without
reliance upon any information communicated to it by Seller. Guarantor
expressly waives any requirement that Seller advise, disclose, discuss or
deliver notice to Guarantor regarding Purchaser's financial condition or
operations. Seller shall provide concurrently to Guarantor copies of any
notices of default delivered to Purchaser provided that the failure to
deliver such notice to Guarantor shall not release Guarantor of its
obligations hereunder.
4. Guarantor's Waiver. The Guarantor agrees that it shall not be
necessary for Seller to institute suit or exhaust its legal remedies
against Purchaser in order to enforce this Guaranty.
5. Unconditional Guaranty. The obligations of the Guarantor under
this Guaranty are absolute and unconditional without regard to the
obligations of any other party or person. The obligations of the Guarantor
hereunder shall not be in any way limited or effected by any circumstance
whatsoever. Guarantor hereby waives all defenses of a surety to which it
may be entitled by statute or otherwise. The obligations of Guarantor
hereunder are independent of the Obligations of Purchaser, and a separate
action or actions may be brought and prosecuted against Guarantor whether
or not any action is brought against Purchaser or whether or not Purchaser
is joined in any such action or actions.
6. Continuing Guaranty. This Guaranty is a continuing one and shall
be binding upon the Guarantor regardless of how long before or after the
date hereof any Obligation was or is incurred. This Guaranty shall be
valid and enforceable and shall not be impaired or affected by the
occurrence of any of the following, all whether or not Guarantor shall have
had notice or knowledge of any of them: (a) any failure to enforce or
agreement not to enforce any right, power or remedy with respect to any
Obligation; (b) the stay or enjoining by order of court, operation of law
or otherwise of the exercise of any such right, power or remedy; (c) any
waiver of any right, power or remedy or of any default with respect to an
Obligation; or (d) an Obligation at any time being found to be illegal,
invalid or unenforceable in any respect.
7. Waiver of Subrogation. Guarantor hereby irrevocably waives all
claim it has or may acquire against Purchaser in respect of the
Obligations, including rights of exoneration, reimbursement, contribution
and subrogation. Guarantor agrees to indemnify Seller, and hold it
harmless from and against all loss and expense, including legal fees,
suffered or incurred by Seller as a result of claims to avoid any payment
received by Seller from Purchaser, or for its account or from collateral,
with respect to the Obligations of Purchaser guaranteed herein.
8. Fees and Expenses. In the event of any action to enforce any of
the terms or conditions of this Guaranty, the prevailing party in such
action and any appeal resulting therefrom shall be entitled to recover from
the other party reasonable attorney fees fixed as part of the cost by the
court in which such action shall be pending.
9. Payment in U.S. Funds; Taxes. All payments to be made by
Guarantor hereunder shall be paid in United States Dollars free and clear
of all Indemnified Taxes. In the event that Guarantor fails to pay any
Indemnified Tax and such Indemnified Tax is levied upon, assessed against,
collected from, or otherwise imposed on the Seller, Guarantor shall
immediately upon demand indemnify, protect, defend and hold the Seller
harmless from and against all such Indemnified Taxes, together with any
interest, penalties or other additions to such tax, and other costs
(including, without limitation, attorneys' fees and other professional
fees) incurred by Seller in connection with such Indemnified Tax or its
enforcement of this Section 9.
10. Seller's Remedies. No delay in making demand on the Guarantor
for satisfaction of the obligations of the Guarantor hereunder shall
prejudice Seller's right to enforce such satisfaction. All of Seller's
rights and remedies shall be cumulative, and any failure of Seller to
exercise any right hereunder shall not be construed as a waiver of the
right to exercise the same or any other right at any time.
11. Notices. All notices, requests, demands and other communication
required or permitted to be given by any party hereunder ("Notices") shall
be in writing and shall be sufficiently given if delivered personally or by
a reputable over-night delivery service or by telex or telecopier or
similar facsimile transmission or if sent by registered or certified mail,
postage prepaid, to the following address:
Seller: KC-ONE, INC.
KC-TWO, INC.
KC-THREE, INC.
c/o ITOCHU AirLease Corporation
NXB Aoyama Building, 5F
26-37, Minami-Aoyma 2-chome
Minato-ku, Tokyo 107
Japan
Attention: Manager
Facsimile: 813-3497-8145
Telex: 2423154 TKAFC J
With a copy to: Davis Wright Tremaine
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101
Telefax No.: (206) 628-7040
Attention: Joseph D. Weinstein
Guarantor: Airborne Freight Corporation
Corporate Secretary/Counsel
3101 Western Avenue
Seattle, WA 98121
U.S.A.
Telefax No.: (206) 281-1444
Notice shall be deemed given, made or received when received. Any
party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
12. Governing Law. This Guaranty shall be governed by and construed
in accordance with the internal laws of the State of Washington.
13. Consent to Jurisdiction, Waiver of Immunities. The Guarantor
hereby irrevocably submits to the jurisdiction of any State or federal
court sitting in Seattle, King County, Washington, in any action or
proceeding brought to enforce or otherwise arising out of or relating to
this Guaranty and irrevocably waives to the fullest extent permitted by law
any objection which it may now or hereafter have to the laying of venue in
any such action or proceeding in any such forum, and hereby further
irrevocably waives any claim that any such forum is an inconvenient forum.
The Guarantor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in any other jurisdiction by suit
on the judgment or in any other manner provided by law. Nothing herein
shall impair the right of the Seller to bring any action or proceeding
against the Guarantor or its property in the courts of any other
jurisdiction and Guarantor irrevocably submits to the nonexclusive
jurisdiction of the appropriate courts sitting in any place where property
of the Guarantor is located.
14. Assignment; Amendment. This Guaranty shall inure to the benefit
of Seller and its successors and assigns. This Guaranty shall be binding
upon the Guarantor and its permitted successors and assigns. Guarantor may
not assign or otherwise transfer all or any part of its rights or
obligations hereunder without the prior written consent of Seller. The
provisions of this Guaranty may be amended or modified only by the written
agreement of Seller and the Guarantor.
15. Severability. Any provision of the Guaranty which is prohibited
or unenforceable in any jurisdiction shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof.
IN WITNESS WHEREOF the Guarantor has caused its duly authorized offers
to execute and deliver this Guaranty as of the date first above written.
GUARANTOR: AIRBORNE FREIGHT CORPORATION
By
-----------------------------
Its
-----------------------------
EXHIBIT H
[ITOCHU CORPORATION]
December 22, 1995
ABX Air, Inc.
145 Hunter Drive
Wilmington, Ohio 45177
U.S.A.
Re: Used Aircraft Sales Agreement dated December ----, 1995, (the
"Sales Agreement") by and between ABX AIR, INC. ("Purchaser") and
KC-ONE, INC., KC-TWO, INC. and KC-THREE, INC. (collectively, "Seller").
Dear Sirs:
This letter of guaranty (the "Guaranty") is issued by Itochu
Corporation, a Japanese corporation ("Guarantor"), pursuant to Section 3.6
of the above referenced Sales Agreement. Capitalized terms not otherwise
defined herein have the meanings given in the Sales Agreement.
The Guarantor hereby unconditionally and irrevocably guaranties for
the benefit of Purchaser the obligations of Seller under the Sales
Agreement. Neither the transfer of any Aircraft from and among Seller, or
any other affiliate of the Guarantor, nor the liquidation of Seller, shall
relieve or discharge Guarantor of its obligations to Purchaser hereunder.
Under no circumstances shall Guarantor be liable for consequential or
punitive damages.
The Guarantor consents to all terms and conditions of the Sales
Agreement and further consents that the Purchaser may, without further
agreement or disclosure and without affecting or releasing the obligations
of Guarantor hereunder, amend or modify the Sales Agreement or any other
document now or hereafter entered into in connection therewith. Guarantor
represents and warrants to Purchaser that Seller are subsidiaries of
Guarantor and Guarantor will receive benefit from Purchaser's entry into
and performance of the Sales Agreement. Guarantor waives all surety
defenses. Nor does Purchaser need to fully exhaust its remedies against
Seller in order to enforce this guaranty.
The provisions of this Guaranty constitute the entire agreement
between Purchaser and Guarantor. No provisions of this Guaranty may be
waived except in writing. The benefits of this Guaranty may not be
assigned or transferred except as permitted under Section 10.8 of the Sales
Agreement.
This Guaranty is governed by the laws of the State of Washington. Any
dispute concerning this Guaranty shall be subject to the non-exclusive
jurisdiction of the federal and state courts located in Seattle,
Washington, and Guarantor hereby consents to the selection of such forum
and waives all objections in connection therewith.
Sincerely,
ITOCHU CORPORATION
By
-----------------------------
Its
-----------------------------
EXHIBIT I
AIRCRAFT DOCUMENTATION
A. AIRCRAFT RECORDS
1. All historical records for aircraft and engines
2. APU historical records and schedule of overhaul (if applicable).
3. Maintenance and inspection program planning manual including work
task cards. MR - Maintenance requirement manuals.
4. Airframe and engines current inspection status and operating
times including structural sampling inspection records of inspections
performed on other of Lessee's aircraft where credit for such inspections
were applied against the Aircraft.
5. Current status of APU inspection and operating times.
6. List of all installed components (LRU's) showing part number,
serial number, manufacturer and accumulated operating time (hours, cycles,
calendar time).
7. List and status of life limited parts - aircraft and engines.
8. Airworthiness Directive compliance list for aircraft, engines,
and equipment. List to include date, method, and degree of compliance.
Copy of Engineering Order or Technical order accomplishing A.D. to be made
part of record. If the original work document (E.A., Work Card, etc.)
which was signed by the person accomplishing the A.D. is unavailable, then
a blank copy of the document (in English) will be provided indicating the
date and aircraft time of accomplishment and signature of authorized Q.C.
person certifying work was accomplished per that document.
9. List of manufacturer's service bulletins incorporated and method
of incorporation (i.e. repetitive inspections, interim fix or termination
action).
10. List of modification and/or alternations (excluding
manufacturer's service bulletins if accomplished pursuant to the
manufacturer's instructions) accomplished on the aircraft, engines, and
equipment together with one copy of each modification, alternation,
engineering order and associated drawings and/or data with all major
changes to be provided in English. ANA will assist in interpretation from
Japanese to English.
11. List of FAA Supplemental Type Certificates (STC's) and/or foreign
aviation authority approved modifications incorporated, together with a
copy of each certificate and/or associated data except STC's are to be
provided in English.
12. FAA approved Airplane Flight Manual.
13. Flight (operations) manual currently used by present operator.
14. Weight and balance document, including last weighing report.
15. Weight and balance supplement - equipment list.
16. Wiring diagram manual, including wiring diagram equipment lists.
17. Electrical load analysis report.
18. Manufacturer's maintenance manuals - aircraft and engines.
19. Manufacturer's operations manuals - aircraft and engines.
20. Manufacturer's overhaul manuals - airframe and engines.
21. Manufacturer's structural repair manual.
22. Manufacturer's illustrated parts catalog - airframe and engines.
23. Manufacturer's tool catalog (if applicable).
24. Miscellaneous documents or manuals pertaining to aircraft
storage, engine handling, aircraft recovery and ground crew training (if
applicable).
25. Cross reference parts catalog (Listing of aircraft manufacturer's
part numbers corresponding to parts manufacturer's and current operator's
part numbers for the same parts).
26. Flight test reports - list flight accomplished prior to delivery.
27. Last accomplished flight recorder calibration (if the aircraft is
to be delivered before any calibration is required to be accomplished, ANA
is to provide the record of the initial certification of the flight
recorder).
28. List of non-United States manufactured parts, components and/or
equipment installed on the Aircraft after the date such Aircraft was
delivered new by the Aircraft Manufacturer to the initial owner which
parts, components or equipment have not been approved or certified by the
FAA.
29. Inventory list of aircraft loose equipment.
30. Letter detailing any major incident and/or accidents involving
each aircraft (if none, the letter should so state).
31. All records initiated by ANA required to comply with the ANA's
aviation regulatory authorities and/or initiated by ANA for ANA's own
benefit.
32. List of current equipment in passenger and flight crew
compartments and/or current interior arrangement diagram.
* Copy to be provided in English for each Aircraft when available.
33. Deferred and carryover maintenance logs (engineering deviation
list).
34. Serviceable tags/shop work cards for those items requiring
overhaul per operators maintenance program.
35. Summary of all major inspections accomplished to aircraft.
36. Aircraft master log (time and cycle status).
37. Serviceable tags or shop work cards for installed time controlled
and time tracked components including engines.
38. Aircraft log books.
39. Aircraft and engine historical records, logs, shop records, etc.,
including work packages for inspections, repairs, routine and non-routine
work scopes up to two (2) years before delivery of each Aircraft.
Inspection cards and landing gear overhaul shop cards up to two (2) years
before delivery of each Aircraft.
B. ENGINE RECORDS
1. Engine log books.
2. Status engine life limited parts with time data (certified by
Q.C.). Need records traceable back to TSN - 0 - Need time (hours and
cycles) trail providing a record of continuous time in service (History
Proof List).
3. Engine historical records - last work package and shop visit
records. For ST&D, need combustion can classification and shop repair
records.
4. Engine test cell records.
5. Engine condition monitoring data.
6. FAA Form 337 or shop release statement for last EHM and shop
visit. Spare engines also.
7. List of accomplished service Bulletins (by engine serial number).
8. Statement regarding the use of O.E.M. parts and approved repairs.
9. Airworthiness directive compliance list and supporting data.
10. Engineering Orders and Engineering Alterations.
EXHIBIT 11
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
1995 1994 1993
---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
PRIMARY:
Net Earnings Available $23,544 $37,941 $36,357
to Common Shareholders ======= ======= =======
Average Common Shares Outstanding 21,050 20,645 19,255
Effect of Dilutive Stock Options 154 356 341
------- ------- -------
Total Average Shares Outstanding 21,204 21,001 19,596
======= ======= =======
Primary Earnings Per Share $ 1.11 $ 1.81 $ 1.86
======= ======= =======
FULLY DILUTED:
Net Earnings Available $23,544 $37,941 $36,357
to Common Shareholders
Redeemable Preferred Stock Dividends -- 894 2,760
Convertible Debentures -- 4,331 --
------- ------- -------
Adjusted Net Earnings $23,544 $43,166 $39,117
======= ======= =======
Average Common Shares Outstanding 21,050 20,645 19,255
Effect of Dilutive Stock Options 250 356 552
Effect of Conversion of -- 3,239 --
Subordinated Debentures
Effect of Conversion of Redeemable -- 559 1,710
Preferred Stock Dividends
------- ------- -------
Total Average Shares Outstanding 21,300 24,799 21,517
======= ======= =======
Fully Diluted Earnings Per Share $ 1.11 $ 1.74 $ 1.82
======= ======= =======
</TABLE>
EXHIBIT 12
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
RATIO OF SENIOR LONG-TERM DEBT AND TOTAL LONG-TERM
DEBT TO TOTAL CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------
(Dollars in thousands)
<S> <C>
SENIOR LONG-TERM DEBT:
Revolving Credit Agreement $ 115,000
Money Market Lines of Credit 28,300
Senior Notes 200,000
Refunding Revenue Bonds 13,200
Other 10,331
--------
366,831
Less Current Portion 2,210
--------
Senior Long-Term Debt $ 364,621
========
TOTAL LONG-TERM DEBT:
Senior Long-Term Debt $ 364,621
Convertible Subordinated Debentures 115,000
--------
Total Long-Term Debt $ 479,621
========
TOTAL CAPITALIZATION:
Long-Term Debt $ 479,621
Deferred Income Taxes 38,242
Redeemable Preferred Stock 3,948
Shareholders Equity, Net 406,315
--------
Total Capitalization $ 928,126
========
RATIO OF SENIOR LONG-TERM DEBT TO TOTAL CAPITALIZATION 39.3%
========
RATIO OF TOTAL LONG-TERM DEBT TO TOTAL CAPITALIZATION 51.7%
========
</TABLE>
EXHIBIT 13
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
COMMON STOCK & DIVIDEND INFORMATION
<TABLE>
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 1995 and 1994:
<CAPTION>
Quarter High Low Dividend
- ------- ---- --- --------
<S> <C> <C> <C>
1995:
Fourth $29.500 $22.250 $.075
Third 25.625 19.250 .075
Second 22.750 18.375 .075
First 24.250 18.750 .075
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
</TABLE>
AIRBORNE FREIGHT CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues
Domestic $1,871,163 $1,660,003 $1,484,787 $1,259,792 $1,144,791
International 368,188 310,756 235,194 224,524 222,256
---------- ---------- ---------- ---------- ----------
Total 2,239,351 1,970,759 1,719,981 1,484,316 1,367,047
Operating Expenses 2,170,370 1,881,821 1,636,861 1,456,450 1,307,790
---------- ---------- ---------- ---------- ----------
Earnings From Operations 68,981 88,938 83,120 27,866 59,257
Interest, Net 29,347 24,663 24,093 18,779 10,842
---------- ---------- ---------- ---------- ----------
Earnings Before Income Taxes 39,634 64,275 59,027 9,087 48,415
Income Taxes 15,814 25,440 23,738 3,930 18,416
---------- ---------- ---------- ---------- ----------
Net Earnings Before 23,820 38,835 35,289 5,157 29,999
Changes in Accounting
Cumulative Effect of -- -- 3,828 -- --
Changes in Accounting ---------- ---------- ---------- ---------- ----------
Net Earnings 23,820 38,835 39,117 5,157 29,999
Preferred Stock Dividends 276 894 2,760 2,760 2,760
---------- ---------- ---------- ---------- -----------
Net Earnings Available $ 23,544 $ 37,941 $ 36,357 $ 2,397 $ 27,239
to Common Shareholders ========== ========== ========== ========== ==========
Net Earnings Per Common Share
Primary $ 1.11 $ 1.81 $ 1.66* $ 0.12 $ 1.40
========== ========== ========== ========== ==========
Fully Diluted $ 1.11 $ 1.74 $ 1.64* $ 0.12 $ 1.40
========== ========== ========== ========== ==========
Dividends Per Common Share $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.30
========== ========== ========== ========== ==========
Average Primary 21,204 21,001 19,596 19,423 19,471
Shares Outstanding ========== ========== ========== ========== ==========
FINANCIAL STRUCTURE:
Working Capital $ 91,599 $ 66,871 $ 56,521 $ 50,276 $ 26,618
Property and Equipment 842,703 766,346 733,963 730,937 613,149
Total Assets 1,217,384 1,078,506 1,002,866 964,739 823,647
Long-Term Debt 364,621 279,422 269,250 303,335 153,279
Subordinated Debt 115,000 118,580 122,150 125,720 129,290
Redeemable Preferred Stock 3,948 5,000 40,000 40,000 40,000
Shareholders' Equity 406,315 387,398 318,824 285,639 287,344
NUMBER OF SHIPMENTS:
Domestic 225,553 187,460 160,568 130,186 106,219
International 4,592 3,954 3,545 3,302 2,777
---------- ---------- ---------- ---------- ----------
Total 230,145 191,414 164,113 133,488 108,996
========== ========== ========== ========== ==========
</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:
Operating results for 1995 were down substantially from 1994 due to
the very disappointing first half results which were below our initial
expectations. Earnings in the first half of 1995 were below 1994 levels as
a result of the rapid growth of lower yielding deferred delivery product, a
drop in the average weight per domestic shipment, and overall lower
domestic yields. Second half 1995 earnings improved substantially over
first half results as corrective actions designed to adjust to the new
product mix and improve yields began to take effect.
Net earnings available to common shareholders in 1995 decreased to
$23.5 million, or $1.11 per primary share, compared to $37.9 million, or
$1.81 per share in 1994. Net earnings for the second half of 1995 were
$19.5 million, an increase over the second half of 1994 net earnings of
$18.6 million and a substantial improvement over the $4.0 million earned in
the first half of 1995.
<TABLE>
The following table is an overview of the Company's shipments, revenue
and weight trends for the last three years:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Number of Shipments (in thousands):
Domestic
Overnight
Letters 36,574 34,042 32,620
0-2 lbs. 50,097 44,302 41,390
3-99 lbs. 44,366 39,711 35,853
-------- -------- --------
Total 131,037 118,055 109,863
Select Delivery Service
0-2 lbs. 59,713 43,212 31,640
3-99 lbs. 34,486 25,841 18,715
-------- -------- --------
Total 94,199 69,053 50,355
100 lbs. and over 317 352 350
-------- -------- --------
Total Domestic 225,553 187,460 160,568
-------- -------- --------
International
Express 4,035 3,473 3,139
All Other 557 481 406
-------- -------- --------
Total International 4,592 3,954 3,545
-------- -------- --------
Total Shipments 230,145 191,414 164,113
======== ======== ========
Average Pounds Per Shipment:
Domestic 4.6 4.8 4.8
International 62.9 64.1 47.1
Average Revenue Per Pound:
Domestic $ 1.80 $ 1.85 $ 1.94
International $ 1.28 $ 1.22 $ 1.41
Average Revenue Per Shipment:
Domestic $ 8.24 $ 8.84 $ 9.23
International $80.18 $78.59 $66.35
</TABLE>
Total revenues increased 13.6% in 1995, 14.6% in 1994, and 15.9% in
1993. Shipment volume grew to 230 million units in 1995 increasing 20.2%,
compared to a 16.6% increase in 1994 and 22.9% in 1993.
Domestic revenue increased 12.7% in 1995 on shipment growth of 20.3%.
This compares to revenue growth of 11.8% and 17.9%, and shipment growth of
16.7% and 23.3% in 1994 and 1993, respectively. Domestic shipment growth
in 1995 was impacted by a 36.4% growth rate of the Company's lower yielding
deferred service product and the 11.0% growth rate of the higher yielding
priority overnight service product. While the growth rate of overnight
shipments was higher than the rate of growth achieved in 1994, the Company
experienced a decline in the average weight per domestic shipment during
the first quarter of 1995. As a result, the overall domestic revenue
growth rate was considerably lower than the shipment growth rate. Domestic
revenue growth during the second half of 1995 was positively impacted by
the improved growth in higher yielding overnight shipments, which increased
12.8% in the last half of the year compared to only 9.1% during the first
half of 1995. The Company also initiated a yield enhancement program with
rate increases on specific business segments being initiated during the
third and fourth quarters, with additional rate increases planned for 1996.
Furthermore, after the decline in the first quarter of 1995, the average
weight per shipment stabilized for the remainder of 1995, although the
average for all of 1995 was lower than 1994. These factors all combined to
produce a more stable domestic yield environment in the latter half of 1995
compared to the first half of the year. Although still very competitive,
the domestic pricing environment during 1995 has been relatively stable.
The decline in domestic revenue per shipment was 6.8% in 1995, compared to
a 4.2% decline in 1994 and 4.6% in 1993.
International revenue increased 18.5% in 1995 on shipment growth of
16.1% compared to revenue growth of 32.1% and 4.8% and shipment growth of
11.5% and 7.4% in 1994 and 1993, respectively. International revenue per
shipment increased slightly compared to last year as a result of the
overall growth in higher yielding freight shipments. However, the
international revenue growth rate was lower than the previous year
primarily as the result of the softness in higher yielding heavy weight
shipments outbound from the Far East and from a decline in the growth rate
of shipments outbound from the United States.
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 96.9% in
1995 compared to 95.5% in 1994 and 95.2% in 1993. Measuring cost
performance on a per shipment basis, total operating expenses per shipment
declined substantially in 1995 to $9.43, compared to $9.83 in 1994 and
$9.97 in 1993. A strong focus on cost control, productivity improvements
and quality improvement programs are primarily responsible for this
favorable trend. The Company achieved a 7.3% improvement in productivity
in 1995, as measured by shipments handled per paid employee hour, compared
to 6.0% improvement in 1994 and 12.1% in 1993.
Transportation purchased increased as a percentage of revenues to
35.2% in 1995 compared to 34.0% in 1994 and 31.6% in 1993. This expense
category consists primarily of commercial airline costs, contracted pick-up
and delivery and trucking costs. The increase in 1995 is primarily due to
additional contracted pick-up and delivery costs to accommodate volume
growth and to additional commercial airline costs for lift purchased
directly from other carriers, resulting from the growth in international
freight shipments discussed above.
Station and ground expense as a percentage of revenues was 31.0% in
1995 compared to 30.2% in 1994 and 30.6% in 1993. 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, which approximated 25.4% and 22.8% of total domestic shipment
weight handled in December 1995 and 1994, respectively, resulted in
incrementally lower transportation and handling costs.
Flight operations and maintenance expense as a percentage of revenues
was 14.6% in 1995 compared to 14.2% in 1994 and 14.1% in 1993. The average
aviation fuel price in 1995 was $0.60 per gallon, which was also the
average price per gallon in 1994, and was approximately $0.05 per gallon
lower than 1993. The average price above excludes the effect of a 4.3 cent
per gallon excise tax on jet fuel that became effective October 1, 1995.
This tax added approximately $1.7 million of additional cost to fourth
quarter 1995 operating costs. 1996 aviation fuel costs will be negatively
impacted by this excise tax as well. Aviation fuel consumption increased
14.9% to 142.2 million gallons in 1995. The increase in fuel consumption
is a result of additional Company operated aircraft placed in service
during the past year to accommodate the growth in business.
General and administrative expense as a percentage of revenues
decreased to 7.0% in 1995 compared to 7.4% in 1994 and 8.1% in 1993. Sales
and marketing was 2.7% of revenues in 1995 compared to 2.7% in 1994 and
2.9% in 1993. 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 $3.0 million in
1995, compared to $4.8 million in 1994 and $5.7 million in 1993.
Depreciation and amortization expense declined as a percentage of
revenues to 6.4% in 1995 compared to 7.0% in 1994 and 7.8% in 1993. 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 in 1995 compared to 1994 as the result of a
higher level of average outstanding borrowings and higher average interest
rates. Interest capitalized in 1995 of $3.7 million, was primarily related
to the acquisition and modification of aircraft and the airport expansion,
and was approximately $1.6 million higher than the amount capitalized in
1994 and 1993.
INCOME TAXES for 1995 resulted in an effective tax rate of 39.9%
compared to 39.6% in 1994 and 40.2% in 1993. The Company anticipates that
the effective tax rate for 1996 will be comparable to 1995.
As the Company stated at the end of 1994, it is apparent that the
domestic market for priority overnight service is maturing, and looking
ahead, this segment of the business is likely to continue to grow at a
slower rate than the deferred delivery service. The Company experienced
this to be the case in 1995 and believes this is a trend that will continue
to impact the entire industry for the foreseeable future. As was the case
last year, the challenge going forward 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. Further, the strength of the
U.S. and global economies will have a major impact on the results of
operations in 1996 and beyond.
The Financial Accounting Standards Board issued certain Statement of
Financial Accounting Standards (SFAS) in 1995 which the Company will be
required to adopt in 1996. SFAS No. 121 specifies that long lived assets
be reviewed for impairment and potentially written down, when the carrying
amount of the asset may not be recoverable. The adoption of this standard
is not expected to have a material impact on the Company's financial
statements. SFAS No. 123 defines a fair value based method of accounting
for employee stock option plans, but allows companies to continue to use
the intrinsic value method. As permitted by the new standard, the Company
has elected to not adopt the fair value method to measure compensation cost
associated with employee stock options. The Notes to the Consolidated
Financial Statements provide further details regarding these two new
standards.
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 $214 million in 1995 compared to $168 million in 1994 and
$139 million in 1993. A significant portion of these expenditures has been
related to the acquisition and modification of aircraft and related flight
equipment.
The Company acquired 5 DC-8 and 2 DC-9 aircraft in 1995 and a total of
8 aircraft were placed into service during the year. At the end of 1995
the Company had 105 aircraft in service, consisting of 33 DC-8's, 61 DC-9's
and 11 YS-11's. In addition, there were 3 aircraft in modification status
and 1 aircraft that had not been modified. Other capital expenditures in
1995 included vehicles for expansion and replacement, facilities and
package handling equipment related to servicing the increased shipment
volume, leasehold improvements for new or expanded facilities and for
computer equipment. Also, the second runway at the Company's airport
facility was completed in late 1995.
Capital expenditures will continue to be a significant factor
affecting financial condition in 1996. The Company anticipates 1996
capital expenditures of approximately $225 million. A significant portion
of the 1996 capital investment is for the acquisition of 7 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 central sort facilities. A total of 8 aircraft are
expected to be placed in service in 1996.
In late 1995, the Company announced a new aircraft program relative to
a commitment to purchase 12 used Boeing 767-200's between the years 1997
and 2000. The Company also intends to pursue the acquisition of 10 to 15
additional used 767-200 aircraft in the years 2000 to 2004. These proposed
acquisitions are not expected to significantly increase capital spending.
Instead, this newer generation aircraft should increase operating
efficiency while keeping capital requirements relatively unchanged.
LIQUIDITY AND CAPITAL RESOURCES: Liquidity for financing capital
expenditures in 1995 came from two principal sources - internally generated
cash provided from operations and a major financing transaction.
Internally generated cash provided from operations approximated $170
million in 1995 compared to $183 million in 1994 and $174 million in 1993.
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 Company amended its revolving
bank credit agreement effective March 31, 1995 increasing the total
commitment from $240 million to $250 million. Commitments are subject to a
maximum level of Company indebtedness permitted by certain convenants in
the agreement and other loan agreements. The amended agreement is
effective through May 31, 1998, with the option to extend to May 31, 2000.
The Company also has available $65 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, 1995, a total of $143.3 million
was owing under the revolving bank credit and money market agreements.
In September 1995, the Company issued $100 million of 7.35% notes due
September 15, 2005. The net proceeds from this transaction were used to
pay down the Company's bank lines of credit, and replaced floating rate
debt with a fixed rate. In August 1995, the Company's long term senior
debt classification was downgraded by Standard & Poor's from "BBB+" to
"BBB", citing the pressure on domestic yields as the primary factor.
Moody's rating of "Baa3" remained unchanged.
The Company's ratio of senior long-term debt to total capitalization
was 39.3% and the ratio of total long-term debt to total capitalization was
51.7% at December 31, 1995, compared to 34.0% and 48.5%, respectively, at
December 31, 1994. Anticipated cash flow from 1996 operations should
provide the majority of the liquidity for projected 1996 capital
expenditures. These debt to capitalization ratios are not expected to
change significantly during 1996 from the 1995 year end level.
In management's opinion, the available capacity under the bank credit
agreements coupled with anticipated internally generated cash flow from
1996 operations should provide adequate flexibility for financing future
growth.
INFLATION: 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.
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C>
REVENUES:
Domestic $1,871,163 $1,660,003 $1,484,787
International 368,188 310,756 235,194
---------- ---------- ----------
2,239,351 1,970,759 1,719,981
OPERATING EXPENSES:
Transportation purchased 788,040 669,648 543,594
Station and ground operations 693,371 595,845 526,661
Flight operations
and maintenance 327,838 279,457 242,120
General and administrative 156,501 145,698 139,955
Sales and marketing 60,258 53,473 50,591
Depreciation and amortization 144,362 137,700 133,940
---------- ---------- ----------
2,170,370 1,881,821 1,636,861
---------- ---------- ----------
EARNINGS FROM OPERATIONS 68,981 88,938 83,120
INTEREST, NET 29,347 24,663 24,093
---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES 39,634 64,275 59,027
INCOME TAXES 15,814 25,440 23,738
---------- ---------- ----------
NET EARNINGS BEFORE
CHANGES IN ACCOUNTING 23,820 38,835 35,289
CUMULATIVE EFFECT -- -- 3,828
OF CHANGES IN ACCOUNTING ---------- ---------- ----------
NET EARNINGS 23,820 38,835 39,117
PREFERRED STOCK DIVIDENDS 276 894 2,760
---------- ---------- ----------
NET EARNINGS AVAILABLE $ 23,544 $ 37,941 $ 36,357
TO COMMON SHAREHOLDERS ========== ========== ==========
NET EARNINGS PER COMMON SHARE:
Primary -
Before changes in accounting $ 1.11 $ 1.81 $ 1.66
Cumulative effect -- -- .20
of changes in accounting ---------- ---------- ----------
Primary earnings $ 1.11 $ 1.81 $ 1.86
per common share ========== ========== ==========
Fully Diluted -
Before changes in accounting $ 1.11 $ 1.74 $ 1.64
Cumulative effect -- -- .18
of changes in accounting ---------- ---------- ----------
Fully diluted earnings $ 1.11 $ 1.74 $ 1.82
per common share ========== ========== ==========
DIVIDENDS PER COMMON SHARE $ 0.30 $ 0.30 $ 0.30
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
(In thousands)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 17,906 $ 10,318
Trade accounts receivable, less
allowance of $7,750,000 and $7,500,000 259,408 221,788
Spare parts and fuel inventory 33,792 28,071
Deferred income tax assets 16,135 12,458
Prepaid expenses 24,887 20,701
---------- ----------
TOTAL CURRENT ASSETS 352,128 293,336
PROPERTY AND EQUIPMENT, NET 842,703 766,346
EQUIPMENT DEPOSITS and OTHER ASSETS 22,553 18,824
---------- ----------
TOTAL ASSETS $1,217,384 $1,078,506
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 136,987 $ 117,194
Salaries, wages and related taxes 49,106 43,858
Accrued expenses 66,679 59,053
Income taxes payable 1,967 342
Current portion of debt 5,790 6,018
---------- ----------
TOTAL CURRENT LIABILITIES 260,529 226,465
LONG-TERM DEBT 364,621 279,422
SUBORDINATED DEBT 115,000 118,580
DEFERRED INCOME TAX LIABILITIES 38,242 30,402
OTHER LIABILITIES 28,729 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 21,397,865 and 21,285,924 21,398 21,286
Additional paid-in capital 185,947 184,369
Retained earnings 199,941 182,714
---------- ----------
407,286 388,369
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
406,315 387,398
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,217,384 $1,078,506
========== ==========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 23,820 $ 38,835 $ 39,117
Adjustments to reconcile net earnings
to net cash provided
by operating activities:
Depreciation and amortization 133,931 127,835 122,533
Provision for aircraft
engine overhauls 10,431 9,865 11,407
Deferred income taxes 4,163 4,888 1,513
Cumulative effect of
changes in accounting -- -- (3,828)
Other (2,351) 1,418 3,461
-------- -------- --------
CASH PROVIDED BY OPERATIONS 169,994 182,841 174,203
Change in:
Receivables (37,620) (31,001) (27,335)
Inventories and prepaid expenses (9,907) (2,733) (1,080)
Accounts payable 19,793 22,866 15,266
Accrued expenses, salaries
and taxes payable 14,499 6,185 18,614
NET CASH PROVIDED BY -------- -------- --------
OPERATING ACTIVITIES 156,759 178,158 179,668
INVESTING ACTIVITIES:
Additions to property and equipment (215,958) (170,453) (139,319)
Disposition of property and equipment 2,079 2,196 231
Expenditures for engine overhauls (10,039) (6,839) (3,665)
Other 378 (1,294) (2,261)
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES (223,540) (176,390) (145,014)
FINANCING ACTIVITIES:
Proceeds (payments) on bank notes, net (8,700) 47,000 (26,100)
Proceeds from debt issuance 107,461 -- --
Principal payments on debt (18,434) (40,230) (5,667)
Proceeds from common stock issuance 638 2,839 2,608
Dividends paid (6,596) (7,193) (8,540)
Redemption of redeemable
preferred stock -- (1,000) --
-------- -------- --------
NET CASH PROVIDED (USED) 74,369 1,416 (37,699)
BY FINANCING ACTIVITIES -------- -------- --------
NET INCREASE (DECREASE) IN CASH 7,588 3,184 (3,045)
CASH AT BEGINNING OF YEAR 10,318 7,134 10,179
-------- -------- --------
CASH AT END OF YEAR $ 17,906 $ 10,318 $ 7,134
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year -
Interest, net of amount capitalized $28,085 $24,788 $25,027
Income taxes 10,457 23,795 21,781
Noncash investing and
financing activities -
Conversion of redeemable
preferred stock 1,052 34,000 --
Notes payable and other
vendor obligations -- -- 13,846
</TABLE>
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Years Ended December 31, 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES:
NATURE OF OPERATIONS
The Company's revenues are derived from domestic and international
transportation of shipments. The Company provides door-to-door express
delivery of small packages and documents throughout the United States and
to most foreign countries. The Company also acts as an international and
domestic freight forwarder for shipments of any size. Most domestic
shipments are transported on the Company's own airline and a fleet of
ground transportation vehicles through its Company-owned airport and
central sorting facilities, or one of ten regional hubs. International
shipments are transported utilizing a combination of the Company's domestic
network, commercial airline lift capacity, and through a network of
offshore Company offices and independent agents.
The Company is subject to certain business risks which could affect
future operations and financial performance. These risks include weather
and natural disaster related disruptions, collective bargaining labor
disputes, fuel price volatility, regulatory compliance concerning the
operation or maintenance of aircraft, and aggressive competitor pricing.
As of December 31, 1995, the Company had approximately 8,800 employees
(45% of total employees), including approximately 660 pilots, employed
under collective bargaining agreements with various locals of the
International Brotherhood of Teamsters and Warehousemen. The pilots are
covered by an agreement which became amendable on July 31, 1995. Most
labor agreements covering the Company's ground personnel will expire in
1998. The Company has not experienced any significant disruptions from
labor disputes in the past. The Company believes the contract with the
pilots will be amended without experiencing any work disruptions.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect amounts reported in the consolidated financial
statements. Changes in these estimates and assumptions may have a material
impact on the financial statements. The Company has used estimates in
determining certain provisions and reserves including those for engine
overhaul costs, useful lives for fixed assets, insurance claims,
uncollectible trade accounts receivable, and tax liabilities.
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 $39,971,000 and $36,085,000 are
included in accounts payable at December 31, 1995 and 1994, 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.
<TABLE>
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:
<CAPTION>
<S> <C>
Flight equipment 7 to 10 years
Buildings, runways, and leasehold improvements 5 to 30 years
Package handling and ground support equipment 3 to 8 years
Vehicles and other equipment 3 to 8 years
</TABLE>
Flight equipment carries 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 and estimates of overhaul
costs. 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.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", which will be effective for fiscal 1996. SFAS No. 121 requires that
the carrying values of long-lived assets, including identifiable
intangibles, held and used by an entity be reviewed for impairment, and
potentially written down, whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. The
adoption of this standard is not expected to have a material impact on the
Company's consolidated financial statements.
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 $3,741,000, $2,127,000, and $2,094,000 for 1995,
1994 and 1993, 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
21,204,000, 21,001,000, and 19,596,000 for the years ended December 31,
1995, 1994 and 1993, 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.
FAIR VALUE INFORMATION
<TABLE>
The carrying amounts and related fair values of the Company's financial
instruments are as follows (in thousands):
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
Carrying Fair Carrying Fair
Amount Amount Amount Amount
------ ----- ------ -----
<S> <C> <C> <C> <C>
Long-term debt $364,621 $380,071 $279,422 $279,362
Subordinated debt 115,000 115,575 118,580 108,805
Redeemable preferred stock 3,948 4,500 5,000 4,400
Off-Balance-Sheet derivative:
Fuel contracts -- 488 -- --
</TABLE>
Discussion regarding the fair value of the above financial instruments
are disclosed in the respective notes to the consolidated financial
statements. Carrying amounts for cash, trade accounts receivable, and
current liabilities approximate fair value.
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 health care 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
1995.
NOTE B - PROPERTY AND EQUIPMENT:
<TABLE>
Property and equipment consist of the following (in thousands):
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
<S> <C> <C>
Flight equipment $1,039,797 $ 931,368
Land, buildings and leasehold improvements 198,606 158,515
Package handling and ground support equipment 128,911 114,399
Vehicles and other equipment 215,167 176,184
---------- ---------
1,582,481 1,380,466
Accumulated depreciation and amortization (739,778) (614,120)
---------- ---------
$ 842,703 $ 766,346
========== =========
</TABLE>
NOTE C - ACCRUED EXPENSES:
<TABLE>
Accrued expenses consist of the following (in thousands):
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
<S> <C> <C>
Insurance $16,239 $13,263
Aircraft leases 14,003 13,994
Retirement plans 11,429 10,846
Property and other taxes 6,783 8,465
Interest 5,903 4,381
Other 12,322 8,104
------- -------
$66,679 $59,053
======= =======
</TABLE>
NOTE D - INCOME TAXES:
<TABLE>
Deferred income tax assets and liabilities consist of the following (in
thousands):
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
<S> <C> <C>
Insurance $ 5,884 $ 4,548
Employee benefits 3,968 2,752
Bad debts, sales reserves and other 6,283 5,158
-------- --------
Current deferred income tax assets 16,135 12,458
-------- --------
Depreciation and amortization 74,275 63,235
Alternative Minimum Tax credit (28,348) (22,777)
Aircraft engine overhaul accrual (8,139) (8,446)
Capitalized interest 5,640 5,126
Insurance (5,245) (6,059)
Pension and other 59 (677)
-------- --------
Noncurrent net deferred income tax liabilities 38,242 30,402
-------- --------
Net deferred income tax liabilities $ 22,107 $ 17,944
======== ========
</TABLE>
<TABLE>
Income taxes consist of the following (in thousands):
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Current:
Federal $10,297 $17,384 $19,671
State 1,250 3,080 2,500
Foreign 104 88 54
------- ------- -------
11,651 20,552 22,225
Deferred:
Alternative Minimum Tax credit (5,571) (3,129) (4,846)
Employee benefits (1,027) (1,001) (407)
Depreciation and amortization 11,040 9,743 8,165
Aircraft engine overhaul accrual 307 (1,276) (2,760)
Federal tax increase -- -- 738
Other (586) 551 623
------- ------- -------
4,163 4,888 1,513
------- ------- -------
$15,814 $25,440 $23,738
======= ======= =======
</TABLE>
<TABLE>
The following table summarizes the major differences between the actual
income tax provision and taxes computed at the Federal statutory rate (in
thousands):
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Taxes computed at statutory $13,872 $22,496 $20,659
rate of 35%
State and foreign income taxes, 855 2,073 1,703
net of Federal benefit
Tax effect of nondeductible expense 1,146 874 502
Effect of Federal tax increase -- -- 738
Tax credits and other (59) (3) 136
------- ------- -------
$15,814 $25,440 $23,738
======= ======= =======
</TABLE>
NOTE E - LONG-TERM AND SUBORDINATED DEBT:
<TABLE>
Long-term debt and subordinated debt consist of the following:
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
(In thousands)
<S> <C> <C>
LONG-TERM DEBT:
Revolving credit notes payable to banks, $115,000 $135,000
effective rate of 6.1% on December 31, 1995
Money market lines of credit, 28,300 17,000
effective rate of 6.2% on December 31, 1995
Senior notes, 7.35%, due September, 2005 100,000 --
Senior notes, 8.875%, due December, 2002 100,000 100,000
Refunding revenue bonds, effective rate 13,200 13,200
of 5.2% on December 31, 1995, due June 2011
Other 10,331 16,670
-------- --------
366,831 281,870
Less current portion 2,210 2,448
-------- --------
$364,621 $279,422
======== ========
SUBORDINATED DEBT:
Convertible subordinated debentures, $115,000 $115,000
6.75%, due August 2001
Senior subordinated notes, 10%, 3,580 7,150
repaid January, 1996 -------- --------
118,580 122,150
Less current portion 3,580 3,570
-------- --------
$115,000 $118,580
======== ========
</TABLE>
The Company has a revolving bank credit agreement providing for a
total commitment of $250,000,000. 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, 1998, with options to extend the maturity to May 31, 2000.
The Company was in compliance with covenants of the current and previous
revolving credit agreements during 1995, 1994 and 1993, including net worth
restrictions which limit the payment of dividends ($103,809,000 of retained
earnings was not restricted at December 31, 1995).
The Company has available $65,000,000 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.
The Company has classified the borrowings outstanding under the money
market lines of credit 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 3.9% during 1995.
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 $35,079,000 at
December 31, 1995.
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 104.2% 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 scheduled annual principal payments on long-term and subordinated
debt for the next five years, assuming no extension of the revolving credit
notes, is $5,790,000, $351,000, $143,678,000, $408,000, and $439,000 for
1996 through 2000, respectively.
The fair value information shown in Note A reflects values for the
Company's senior notes and convertible subordinated debentures 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 repricing frequency of the instruments.
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 2013. Rental
expense for 1995, 1994, and 1993 was $97,461,000, $89,975,000, and
$81,138,000, respectively.
<TABLE>
Rental commitments under long-term operating leases at December 31, 1995
total $421,962,000 and are payable as follows (in thousands):
<CAPTION>
Facilities Equipment
---------- ---------
<S> <C> <C>
1996 $ 49,868 $ 23,905
1997 48,740 23,485
1998 45,448 20,009
1999 41,497 16,582
2000 35,224 5,207
2001 and beyond 111,997 --
</TABLE>
COMMITMENTS
Under various agreements, the Company is committed to purchase 25
aircraft consisting of 2 McDonnell Douglas DC-8, 11 DC-9, and 12 Boeing 767
aircraft to be acquired at various dates through 2000. The Company also
has commitments to purchase 31 Stage III hush kits for its DC-8 and DC-9
aircraft at various dates through 1998. At December 31, 1995, deposits of
$6,550,000 had been made toward these purchases. Additional deposits and
payments for these acquisitions will approximate $44,959,000, $80,795,000,
$84,000,000, $76,100,000, and $34,800,000 for 1996 through 2000,
respectively.
The Company has entered into contracts with financial institutions to
limit its exposure to volatility in jet fuel prices. Under terms of the
contracts, the Company either makes or receives payments if the market
price of heating oil, as determined by an index of the monthly NYMEX
Heating Oil futures contracts, exceeds or is lower than certain prices
agreed to between the Company and the financial institutions. Settlements,
if any, would be recorded as either an increase or decrease to fuel
expense. The Company believes this index provides the best correlation to
its jet fuel transactions. The contracts extend through December 1996, and
represent an annual notional sum of 76 million gallons which represents
approximately 50% of the Company's prospective average annual consumption
of jet fuel. The Company had neither received nor made payments related to
these contracts during 1995. Based on current market prices, the fair
value of these contracts at December 31, 1995, was approximately $488,000.
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, 1995.
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
$3,823,000, $3,635,000, and $2,926,000 for 1995, 1994, and 1993,
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 $2,984,000, $4,838,000, and $5,672,000 for 1995, 1994, and
1993, respectively. The profit sharing plans hold 449,161 shares of the
Company's common stock at December 31, 1995, representing 2.1% of
outstanding shares.
The profit sharing plans are expected to be a primary retirement
benefit. 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.
<TABLE>
Net minimum monthly plan pension expense included the following components
(in thousands):
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period $4,664 $4,185 $2,934
Interest cost on projected benefit obligation 3,017 2,149 1,525
Actual return on plan assets (4,751) 69 (865)
Net amortization and deferral 4,036 (240) 595
------ ------ ------
Net pension expense $6,966 $6,163 $4,189
====== ====== ======
</TABLE>
<TABLE>
The following is a summary of the minimum monthly plan funded status (in
thousands):
<CAPTION>
December 31 1995 1994
- ----------- ---- ----
<S> <C> <C>
Projected benefit obligation for service rendered to date $53,344 $31,126
Plan assets at fair market value, 28,193 16,396
primarily marketable securities ------- -------
Projected benefit obligation in excess of plan assets 25,151 14,730
Unrecognized prior service cost (724) (1,009)
Unrecognized net losses from past experience different (14,477) (3,259)
from that assumed
Unrecognized net transition obligation (148) (177)
------- -------
Pension liability included in consolidated balance sheets $ 9,802 $10,285
======= =======
Actuarial present value of accumulated benefit
obligation, including vested benefits of $28,880 $15,623
$25,886,000 and $13,287,000, respectively ======= =======
</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 $1,405,000, $1,042,000, and $550,000, in
1995, 1994, and 1993, respectively. The plan's projected benefit
obligation, accumulated benefit obligation and accrued pension liability
was $4,962,000, $1,832,000 and $3,609,000 at December 31, 1995 and
$2,373,000, $367,000 and $2,212,000 at December 31, 1994.
<TABLE>
Assumptions used in determining minimum monthly and supplemental retirement
pension obligations were as follows:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate 7% 8% 7%
Rate of compensation increase 5% 5% 6%
Long-term rate of return on assets 8% 8% 8%
</TABLE>
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 $24,278,000,
$19,056,000, and $16,676,000 for 1995, 1994, and 1993, 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 $5,329,900 and
$3,919,000 at December 31, 1995 and 1994, respectively, of which $4,648,000
and $4,057,000 has been accrued in Other Liabilities on the Consolidated
Balance Sheet. Postretirement benefit expense was $861,000, $865,000, and
$649,000 for 1995, 1994, and 1993, respectively.
The assumed health care cost trend rate used in measuring benefit
costs was 10% for 1995, 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, 1995. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation was 7% and 8% at December 31, 1995 and 1994, 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 $28,968,000, $22,955,000, and $19,741,000
for 1995, 1994, and 1993, respectively.
NOTE H - PREFERRED STOCK:
The Company has outstanding 78,950 shares of 6.9% redeemable
cumulative convertible preferred stock, at par value of $50 per share at
December 31, 1995. 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 168,747 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 102.76% and declining ratably on an annual basis to par
on December 1999. The holders have the option of requiring the Company to
redeem, at par value, 6,000 shares annually and 54,000 shares cumulatively
through December 2004. In December 2004, the Company is required to redeem
all outstanding shares at par value plus accrued dividends.
In January 1995, the holders exercised the right to convert 21,050
preferred shares with a par value of $1,052,500, into the Company's common
stock. The transaction resulted in the issuance of 44,992 common shares.
The nonvoting preferred shares are senior to common shares both as to
accumulated dividends and liquidation preferences. Dividends are payable
quarterly.
The fair value information shown in Note A was computed assuming the
stock was converted, at the option of the holder, to the Company's common
shares utilizing the December 31, 1995 and 1994 closing market prices of
the Company's common stock of $26.63 and $20.50 per share.
NOTE I - SHAREHOLDERS' EQUITY:
<TABLE>
Changes in shareholders' equity consist of the following (in thousands):
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
------ ------- -------- -------
<S> <C> <C> <C> <C>
BALANCE at JANUARY 1, 1993 $19,515 $146,731 $120,373 $(980)
Net earnings available 36,357
to 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 37,941
to 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)
Net earnings available 23,544
to common shareholders
Conversion of redeemable 45 1,007
preferred stock
Common stock dividends paid (6,317)
Exercise of stock options 67 571
------- -------- -------- -----
BALANCE at DECEMBER 31, 1995 $21,398 $185,947 $199,941 $(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 stock option plans is as follows:
<TABLE>
<CAPTION>
Shares Option Price
Granted Per Share
------ ---------
<S> <C> <C>
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
Granted 193,285 $23.13
Exercised (81,966) $ 6.63-$22.50
Canceled (18,460) $22.13-$37.75
--------- -------------
Outstanding at December 31, 1995 1,134,680 $ 6.63-$37.75
========= =============
Exercisable at December 31, 1995 740,000 $ 6.63-$36.13
========= =============
Available for grants in future periods 1,829,082
=========
</TABLE>
The Financial Accounting Standard Board issued Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" in 1995. SFAS No. 123 is required to be implemented during
fiscal 1996. SFAS No. 123 defines a fair value based method of accounting
for employee stock option plans, but also allows companies to continue to
use the intrinsic value based method as prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees". The Company has elected not to
adopt the fair value method provisions and will continue to measure
compensation cost in accordance with APB No. 25.
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. ($279,164,000 in 1995,
$234,607,000 in 1994, and $181,491,000 in 1993).
The determination of operating income of domestic and international
operations requires that certain costs incurred in the U.S. be allocated to
international operations. The Company changed its cost allocation method
in 1995 and accordingly, earnings from operations for 1994 and 1993 differ
from amounts previously reported.
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ---------------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues:
Domestic $1,871,163 $1,660,003 $1,484,787
International 368,188 310,756 235,194
---------- ---------- ----------
$2,239,351 $1,970,759 $1,719,981
========== ========== ==========
Earnings from Operations:
Domestic $ 67,765 $ 86,298 $ 75,889
International 1,216 2,640 7,231
Interest, net (29,347) (24,663) (24,093)
---------- ---------- ----------
Earnings Before Income Taxes $ 39,634 $ 64,275 $ 59,027
========== ========== ==========
Identifiable Assets:
Domestic $1,148,016 $1,027,115 $ 965,721
International 69,368 51,391 37,145
---------- ---------- ----------
$1,217,384 $1,078,506 $1,002,866
========== ========== ==========
</TABLE>
NOTE L - SUPPLEMENTAL GUARANTOR INFORMATION:
In connection with the 1995 issuance of $100,000,000 of Senior Notes
due September, 2005 (Notes) certain of the Company's subsidiaries
(collectively, "Guarantors") have fully and unconditionally guaranteed, 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.
Management does not consider disclosure of separate subsidiary
financial statements for each Guarantor to be material. Summarized
financial information of the Guarantors on a combined basis is as follows
(in thousands):
<TABLE>
<CAPTION>
Balance Sheet Information:
December 31, 1995 1994
- ------------ ---- ----
<S> <C> <C>
Current Assets $ 46,157 $ 37,576
Property & Equipment 726,378 683,002
Other Noncurrent Assets 12,053 8,994
Current Liabilities 82,439 78,054
Long-term Debt 13,200 15,122
Other Noncurrent Liabilities 75,210 64,440
Intercompany Payable 458,854 445,777
</TABLE>
<TABLE>
<CAPTION>
Earnings Statement Information:
Year Ended December 31, 1995 1994 1993
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Revenues - Intercompany $668,592 $591,501 $529,290
Revenues - Third-party 55,674 32,872 21,945
Operating Expenses 662,632 572,629 494,118
Earnings from Operations 61,634 51,744 57,117
Net Earnings 28,704 23,404 25,153
</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,
runways 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 Guarantors 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 Guarantors. The Company provides the Guarantors with a
majority of the 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.
NOTE M - QUARTERLY RESULTS (Unaudited):
<TABLE>
The following is a summary of unaudited quarterly results of operations (in
thousands except per share data):
<CAPTION>
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $529,916 $545,940 $560,565 $602,930
Earnings from Operations 10,029 10,976 20,221 27,755
Net Earnings Available
to Common Shareholders 1,809 2,194 7,633 11,908
Net Earnings per Common Share
Primary $.09 $.10 $.36 $.56
Fully Diluted .09 .10 .36 .53
1994
- ----
Revenues $466,552 $484,542 $489,744 $529,921
Earnings from Operations 17,786 27,725 19,698 23,729
Net Earnings Available
to Common Shareholders 6,416 12,960 8,040 10,525
Net Earnings per Common Share
Primary $.32 $.61 $.38 $.50
Fully Diluted .32 .57 .38 .48
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Airborne Freight Corporation
Seattle, Washington
We have audited the accompanying consolidated balance sheets of
Airborne Freight Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of net earnings and cash
flows for each of the three years in the period ended December 31, 1995.
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, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Deloitee & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
February 9, 1996
Seattle, Washington
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
Airborne Freight Corporation
Seattle, Washington
We Consent to the incorporation by reference in Registration Statement Nos.
33-3713, 2-67161, 33-39720, 33-51651 and 33-58905 on Form S-8 of our
reports dated February 9, 1996, on the consolidated financial statements of
Airborne Freight Corporation and subsidiaries appearing in the Company's
1995 Annual Report to Shareholders and incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1995.
Our audit of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule listed
in the accompanying Index at Item 14(a)2. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our
opinion, such financial statement schedule, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly in
all material respects the information therein set forth.
/s/ Deloitte & Touche LLP
- ------------------------
DELOITTE & TOUCHE LLP
Seattle, Washington
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,906
<SECURITIES> 0
<RECEIVABLES> 267,158
<ALLOWANCES> 7,750
<INVENTORY> 33,792
<CURRENT-ASSETS> 352,128
<PP&E> 1,582,481
<DEPRECIATION> 739,778
<TOTAL-ASSETS> 1,217,384
<CURRENT-LIABILITIES> 260,529
<BONDS> 479,621
<COMMON> 21,398
3,948
0
<OTHER-SE> 384,917
<TOTAL-LIABILITY-AND-EQUITY> 1,217,384
<SALES> 0
<TOTAL-REVENUES> 2,239,351
<CGS> 0
<TOTAL-COSTS> 2,170,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,347
<INCOME-PRETAX> 39,634
<INCOME-TAX> 15,814
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,820
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
