SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996
Commission File Number 1-6512
AIRBORNE FREIGHT CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
----------------------------------------
(State of incorporation or organization)
91-0837469
---------------------------------
(IRS Employer Identification No.)
3101 Western Avenue
P.O. Box 662
Seattle, Washington 98111-0662
------------------------------
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (206) 285-4600
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: XXX No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the close of the period covered by this report.
Common Stock, par value $1 per share
Outstanding (net of 315,150 treasury shares)
as of March 31, 1996 21,129,224 shares
-----------------
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Domestic $506,121 $442,177
International 91,788 87,739
-------- --------
597,909 529,916
OPERATING EXPENSES:
Transportation purchased 202,532 188,785
Station and ground operations 192,317 165,114
Flight operations and maintenance 94,769 78,061
General and administrative 43,262 37,494
Sales and marketing 15,448 15,631
Depreciation and amortization 38,861 34,802
-------- --------
587,189 519,887
-------- --------
EARNINGS FROM OPERATIONS 10,720 10,029
INTEREST, NET 8,341 6,725
-------- --------
EARNINGS BEFORE INCOME TAXES 2,379 3,304
INCOME TAXES 1,065 1,424
-------- --------
NET EARNINGS 1,314 1,880
PREFERRED STOCK DIVIDENDS 68 71
-------- --------
NET EARNINGS AVAILABLE $ 1,246 $ 1,809
TO COMMON SHAREHOLDERS ======== ========
NET EARNINGS PER COMMON SHARE $ .06 $ .09
======== ========
DIVIDENDS PER COMMON SHARE $ .075 $ .075
======== ========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
March 31 December 31
------------ -----------
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 12,163 $ 17,906
Trade accounts receivable, 260,123 259,408
less allowance of $7,875 and $7,750
Spare parts and fuel inventory 33,039 33,792
Deferred income tax assets 17,075 16,135
Prepaid expenses 23,457 24,887
---------- ----------
TOTAL CURRENT ASSETS 345,857 352,128
PROPERTY AND EQUIPMENT, NET 836,715 842,703
EQUIPMENT DEPOSITS and OTHER ASSETS 28,789 22,553
---------- ----------
TOTAL ASSETS $1,211,361 $1,217,384
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 126,938 $ 136,987
Salaries, wages and related taxes 47,727 49,106
Accrued expenses 68,664 66,679
Income taxes payable 2,270 1,967
Current portion of debt 1,711 5,790
---------- ----------
TOTAL CURRENT LIABILITIES 247,310 260,529
LONG-TERM DEBT 372,736 364,621
SUBORDINATED DEBT 115,000 115,000
DEFERRED INCOME TAX LIABILITIES 38,289 38,242
OTHER LIABILITIES 27,635 28,729
REDEEMABLE PREFERRED STOCK 3,948 3,948
SHAREHOLDERS' EQUITY:
Preferred Stock, without par value -
Authorized 5,200,000 shares,
no shares issued
Common stock, par value $1 per share -
Authorized 60,000,000 shares
Issued 21,444,374 and 21,397,865 shares 21,444 21,398
Additional paid-in capital 186,368 185,947
Retained earnings 199,602 199,941
---------- ----------
407,414 407,286
Treasury stock, 315,150 shares, at cost (971) (971)
---------- ----------
406,443 406,315
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,211,361 $1,217,384
========== ==========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Earnings $ 1,314 $ 1,880
Adjustments to reconcile
net earnings to net cash provided by
provided by operating activities:
Depreciation and amortization 35,867 32,335
Provision for aircraft engine overhauls 2,994 2,467
Deferred income taxes (893) (1,150)
Other (1,048) (3,175)
-------- --------
CASH PROVIDED BY OPERATIONS 38,234 32,357
Change in:
Receivables (715) 4,153
Inventories and prepaid expenses 2,183 (3,113)
Accounts payable (10,049) 4,285
Accrued expenses, salaries 909 1,720
and taxes payable -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 30,562 39,402
INVESTING ACTIVITIES:
Additions to property and equipment (34,681) (55,588)
Dispositions of property and equipment -- 55
Expenditures for engine overhauls (3,861) (2,555)
Other (613) (291)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (39,155) (58,379)
FINANCING ACTIVITIES:
Proceeds on bank notes, net 8,200 33,700
Principal payments on debt (4,164) (12,893)
Proceeds from common stock issuance 467 320
Dividends paid (1,653) (1,653)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,850 19,474
-------- --------
NET INCREASE (DECREASE) IN CASH (5,743) 497
CASH AT JANUARY 1 17,906 10,318
-------- --------
CASH AT MARCH 31 $ 12,163 $ 10,815
======== ========
</TABLE>
See notes to consolidated financial statements.
AIRBORNE FREIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996 (Unaudited)
NOTE A--SUMMARY OF FINANCIAL STATEMENT PREPARATION:
The consolidated financial statements included herein are unaudited but
include all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the interim periods reported.
Certain amounts for prior periods have been reclassified to conform to the
1996 presentation.
NOTE B--LONG-TERM DEBT:
<TABLE>
Long-term debt consists of the following:
<CAPTION>
March 31 December 31
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Senior debt:
Revolving bank credit $135,000 $115,000
Notes payable 16,500 28,300
Senior notes 200,000 200,000
Revenue bonds 13,200 13,200
Other debt 9,747 10,331
-------- --------
374,447 366,831
Subordinated debt:
Senior subordinated notes 115,000 115,000
Convertible subordinated debentures -- 3,580
-------- --------
115,000 118,580
-------- --------
Total long-term debt 489,447 485,411
Less current portion 1,711 5,790
-------- --------
$487,736 $479,621
======== ========
</TABLE>
NOTE C--EARNINGS PER COMMON SHARE:
Net earnings per common share are computed by dividing net earnings
available to common shareholders by the weighted average number of common
shares outstanding during the interim period plus dilutive common
equivalent shares applicable to the assumed exercise of employee stock
options. Fully diluted earnings per common share are the same as net
earnings per common share for the interim periods presented herein.
Average common shares outstanding used in earnings per share computations
at March 31, 1996 and 1995 were 21,328,000 and 21,184,000, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
The Company's operating performance in the first quarter of 1996 was
negatively impacted by extreme and extended winter weather conditions.
These conditions impeded normal operations and resulted in lost business
and significantly higher operating costs during the quarter. Net earnings
available to common shareholders for the first quarter of 1996 were $1.2
million, or $0.06 per share, compared to $1.8 million, or $0.09 per share
for the first quarter of 1995. Management estimates the combination of
lost business and incremental operating costs had the effect of reducing
earnings from operations by approximately $12 to $13 million. In addition,
the Federal Excise Tax on aviation fuel, which was effective October 1,
1995, added $1.7 million to operating expenses in the first quarter of
1996. Offsetting these negative impacts was the reduction in operating
costs by $5.5 million as a result of the suspension of the Aviation Excise
Tax on January 1, 1996.
<TABLE>
The following table sets forth selected shipment and revenue data for
the periods indicated:
<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
---- ----
<S> <C> <C>
Shipments (in thousands):
Domestic
Overnight
Letters 9,527 9,130
0-2 Lbs. 13,830 12,013
3-99 Lbs. 12,317 10,472
------ ------
35,674 31,615
Deferred
0-2 Lbs. 17,190 13,903
3-99 Lbs. 9,507 7,676
------ ------
26,697 21,579
100 Lbs. and over 73 81
------ ------
Total Domestic 62,444 53,275
------ ------
International
Express 1,058 936
All Other 146 130
------ ------
Total International 1,204 1,066
------ ------
Total Shipments 63,648 54,341
====== ======
Average Pounds per Shipment:
Domestic 4.5 4.5
International 58.4 67.8
Average Revenue per Pound:
Domestic $ 1.80 $ 1.82
International $ 1.29 $ 1.22
Average Revenue per Shipment:
Domestic $ 8.08 $ 8.29
International $76.24 $82.31
</TABLE>
Total shipments increased 17.1% in the first quarter of 1996 compared to
20.1% in the first quarter of 1995. Total revenues increased 12.8% in the
first quarter of 1996 compared to 13.6% in the first quarter of 1995.
Domestic shipments increased 17.2% in the first quarter of 1996 compared to
20.2% for the same period of 1995. Domestic shipment growth during the
first quarter of 1996 was positively impacted by the higher growth rate of
overnight shipments which was 12.8% compared to 9.4% in the first quarter
of 1995. Growth in the Company's deferred service products which provide
next afternoon and second day delivery service also continues to aid
domestic growth. For the first quarter of 1996, deferred service accounted
for over 42.7% of total domestic shipments, compared to 40.5% for the first
quarter of 1995.
Domestic revenues increased 14.5% in the first quarter of 1996, compared to
11.4% in the first quarter of 1995. First quarter 1996 domestic revenue
growth was positively impacted by a comparatively stronger growth in higher
yielding overnight shipments and the Company's continuing focus on yield
enhancement initiated during the latter half of 1995. These factors
combined to produce a more stable domestic yield environment in the first
quarter of 1996 compared to the first quarter of 1995.
International shipments increased 12.9% in the first quarter of 1996
compared to 16.4% in the comparable quarter of 1995. International
revenues increased 4.6% in the first quarter of 1996 compared to 25.9% in
the first quarter of 1995. International revenue per shipment and the
average weight per shipment decreased significantly as a result of the
lower unit growth in higher yielding freight shipments in the first quarter
of 1996 compared to 1995. The weakness in heavier weight freight shipments
was primarily for shipments from the Far East to the United States.
The Company is encouraged by the positive domestic yield environment as the
Company and competitors remain focused on improving operating margins.
This environment should have a positive effect through the balance of the
year. The Company also expects to continue its focus on improving
international margins.
Operating expenses as a percentage of revenues were 98.2% for the first
quarter of 1996 compared to 98.1% in the first quarter of 1995 and 96.9%
for all of 1995. Operating cost per shipment handled decreased 3.6% for
the first quarter of 1996 compared to 3.5% decrease in the first quarter of
1995. Operating expenses were negatively impacted by severe winter weather
conditions in January and February of 1996. These weather conditions
impeded operations throughout much of the northeast and midwest U.S.,
including the Company's central hub operation in Wilmington, Ohio. This
resulted in lost business, diminished productivity improvements, and added
significantly to operating costs.
The Company experienced a 3.2% improvement in productivity for the first
quarter of 1996, as measured by shipments handled per paid employee hour,
compared to 9.5% in first quarter of 1995. Comparisons of certain
operating expense components are discussed below.
Transportation purchased decreased as a percentage of revenues to 33.9% in
the first quarter of 1996 compared to 35.6% in 1995. This decrease was
primarily due to two factors. Commercial airline costs, although higher in
total, were lower as a percentage of total revenues due to the lower growth
in international freight shipments discussed above. Also, the suspension
of the Federal Aviation Excise Tax on January 1, 1996 reduced costs in the
first quarter by $5.5 million, compared to the first quarter of 1995.
Station and ground expense as a percentage of revenues was 32.2% in the
first quarter of 1996 compared to 31.2% in the first quarter of 1995. This
category of expense was negatively impacted by the weather, resulting in
lower productivity improvement than in previous periods, and additional
costs.
Flight operations and maintenance expense as a percentage of revenues
during the first quarter of 1996 was 15.9%, compared to 14.7% in the first
quarter of 1995. The average aviation fuel price for the first quarter of
1996 was $0.70 per gallon (including the $0.043 per gallon Federal Excise
Tax implemented October 1, 1995) compared to $0.59 per gallon in the first
quarter of 1995. Aviation fuel consumption increased to 40.2 million
gallons in the first quarter of 1996, a 19.5% increase compared to the
first quarter of 1995. The increase in fuel consumption is a result of
additional Company operated aircraft placed in service since the first
quarter of 1995.
The increased number of aircraft in service also accounted for a large
portion of the increase in depreciation and amortization expense in the
first quarter of 1996.
General and administrative and sales and marketing expenses on a combined
basis decreased as a percentage of revenues in the first quarter of 1996
compared to 1995. This was primarily the result of continuing productivity
gains and a strong focus on all discretionary spending.
Interest expense in the first quarter of 1996 was higher than the same
period of 1995 due to higher average outstanding borrowings in the 1996
period.
The Company's effective tax rate was 44.8% in the first quarter of 1996
compared to 43.1% in the first quarter of 1995 and 39.9% for all of 1995.
The higher effective tax rate for the first quarter of 1996 was a result of
certain taxes that are not directly related to the level of earnings,
resulting in a higher rate in periods of lower earnings.
LIQUIDITY AND CAPITAL RESOURCES:
Capital expenditures and associated financing continue to be the primary
factors affecting the financial condition of the Company. The Company
anticipates total capital expenditures to approximate $225 million in 1996,
of which a significant portion is related to the acquisition and
modification of aircraft. During the first quarter of 1996, total capital
expenditures net of dispositions were $35 million. The principal sources
of liquidity for financing capital expenditures during the first quarter of
1996 were cash provided by operations and financing under the Company's
bank lines of credit.
The Company's $250 million unsecured revolving bank credit agreement has
traditionally been used as a major source of liquidity for periods between
other financing transactions. The Company also has available $65 million
under unsecured uncommitted money market lines of credit with several
banks, used in conjunction with the revolving credit agreement to
facilitate settlement and accommodate short-term borrowing fluctuations.
At March 31, 1996, a total of $151.5 million was outstanding under the
revolving bank credit and money market credit lines.
The Company amended its revolving bank credit agreement effective May 1,
1996, resulting in the agreement being effective for a five-year term
through May 31, 2001.
In management's opinion, the available capacity under the bank credit
agreements coupled with internally generated cash flow from remaining 1996
operations and other sources of borrowing should provide adequate
flexibility to finance anticipated capital expenditures for the balance of
1996.
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
EXHIBIT NO. 27 Financial Data Schedule
(b) Reports on form 8-K - A Form 8-K dated April 23, 1996, has been
duly filed. The form included the following information:
(1) Election of Directors for terms expiring in 1999.
(2) Approval of the selection of Deloitte & Touche LLP as the
independent public accountants for the ensuing year.
(3) Declared dividends on common and preferred stock.
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized:
AIRBORNE FREIGHT CORPORATION
----------------------------
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
Date: 5/14/96 /s/Roy C. Liljebeck
------- --------------------
Roy C. Liljebeck
Executive Vice President,
Chief Financial Officer
Date: 5/14/96 /s/Lanny H. Michael
------- -------------------
Lanny H. Michael
Senior Vice President,
Treasurer and Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12,163
<SECURITIES> 0
<RECEIVABLES> 267,998
<ALLOWANCES> 7,875
<INVENTORY> 33,039
<CURRENT-ASSETS> 345,857
<PP&E> 1,612,119
<DEPRECIATION> 775,404
<TOTAL-ASSETS> 1,211,361
<CURRENT-LIABILITIES> 247,310
<BONDS> 487,736
3,948
0
<COMMON> 21,444
<OTHER-SE> 384,999
<TOTAL-LIABILITY-AND-EQUITY> 1,211,361
<SALES> 0
<TOTAL-REVENUES> 597,909
<CGS> 0
<TOTAL-COSTS> 587,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,341
<INCOME-PRETAX> 2,379
<INCOME-TAX> 1,065
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,246
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
